Colleges should be funded and rated according to whether their learners go on to get a job rather than whether they simply obtain a qualification, Ofsted said this week as it called for a radical overhaul of post-16 funding.
The watchdog's chair Sally Morgan, Baroness Morgan of Huyton, argued at an event held jointly by Ofsted and the charity Business in the Community that the current system is too focused on completion rates. As a result, some colleges are failing to prepare students for the world of work adequately, she said.
"We have ... one specific recommendation for the government, and that is to change the way success is measured by our education providers and particularly those offering post-16 education," Lady Morgan said on Wednesday.
"We have to move away from a kind of weighing and funding the amount of qualifications achieved at institutional level, to a system that measures the impact of those courses for each learner - whether this is in terms of a sustainable job, an apprenticeship or a place in higher education.
"We all know that incentives can strongly affect behaviour, so let's use that to improve the employability and futures of young people. Frankly, young people at the moment are all too often let down by the system."
In July, the Social Market Foundation thinktank proposed that colleges should receive part of their funding based on the salary increases enjoyed by learners as a result of completing their courses.
In the same month, Matthew Coffey, Ofsted's national director of learning and skills, accused FE providers of concentrating on "the achievement of qualifications" for unemployed people rather than on getting them back into work.
But this intervention by Lady Morgan, at one time an aide to former prime minister Tony Blair, marks the first time the watchdog has publicly called for a change in the way colleges are judged and allocated funding.
Speaking to TES after Lady Morgan's speech, Mr Coffey welcomed moves by the Skills Funding Agency towards "incentivising outcomes through jobs". "We measure qualifications' success rates because that's the public measure, and we're saying make the public measure much more about destinations into jobs ... then I think we'll see a sea change in the approach by many providers," he said.
But the Association of Colleges said that better government data are needed if the proposals are to be made viable. "Colleges spend a lot of their own money on tracking students when they leave college," said Joy Mercer, the AoC's director of policy. "We need a commitment from government to track students in five and 10 years' time and on a permanent basis. They need to use the resources at their disposal to do this. Then we would really know the value of qualifications and enterprise activities in preparing young people not just for jobs, but for a career."
The call for better collection and monitoring of destination data for students when they leave education was echoed in another Ofsted report published this week about promoting enterprise in college vocational programmes.
The report found that in the 15 colleges it visited, opportunities were being missed to evaluate whether courses were improving "enterprise-related skills and entrepreneurial capability".
"The colleges visited were rarely seen to be identifying, recording and assessing achievement in relation to these skills and attributes explicitly, or collecting and analysing detailed destination data about employment and self-employment," the report states.
Ofsted called on colleges to offer more opportunities for 16- to 19-year-olds to develop enterprise-related skills alongside their formal qualifications, in order "to ensure they are well prepared for their future employment, education or training".
It also asked businesses, sector skills councils and local enterprise partnerships to take a more active role in promoting entrepreneurialism in the FE sector.
The deputy prime minister had his own comments to make about the future of FE this week. Also speaking at the Ofsted event on Wednesday, Nick Clegg voiced his support for moves to achieve parity of esteem between vocational and academic education. Successive governments' failure to tackle this "has bedevilled us for a long period of time", he said. "It has not served us well."
Meanwhile, Alan Milburn, the government's independent adviser on social mobility and another guest at the event, criticised education secretary Michael Gove's controversial decision to hand the responsibility for providing careers advice to individual schools without offering them extra funding.