Private sector training is a pound;2.9 billion market with radically different aims from the work funded by the Learning and Skills Council, a new report concludes.
The Inquiry into the Future of Lifelong Learning, sponsored by Niace, the adult education body, found that employers spent their money on short courses to improve the productivity of employees, rather than the qualifications funded by government through programmes such as Train to Gain.
However, Tom Schuller, director of the inquiry, said it was not possible to conclude that government provision was targeted wrongly, since employers may simply be filling a gap in the market which is not publicly funded.
The inquiry's report into private sector training recommended that to encourage more joint working in the public and private sectors and to improve training to meet employers' needs, the use of qualifications as targets should be reviewed.
Professor Schuller also said that some colleges could learn from the private sector, and it could prove a market for expansion. "There is the potential for taking over private providers or - and this is one of the things we conclude in the report - to work with private providers," he said. "If colleges want to get out there and meet the demand, there is an opportunity."
Although the Association of Colleges says two-thirds of large employers that train staff use publicly funded colleges, the report concluded that the overlap between the private and public sectors was small. However, many training companies working with employers are barely viable, with profit margins of less than 3 per cent, the report said.
A total of more than pound;18bn is spent by employers on training, according to figures from Key Note, a market research company. Of that, pound;2.9bn is spent on about 13,000 external providers, with the remainder going on in-house training schemes.
The report said the tax system encourages employers to keep training in- house by allowing them to offset the overheads and wages of employees on internal training courses, which do nothing to help meet qualifications targets.
It said public sector providers needed to emphasise industry-recognised standards over qualifications to engage more successfully with employers.
Lindsay Simpson, author of the report, said: "The risks are that without this there will continue to be a two-tier system, where the public sector provision operates separately, driven by qualifications, and employers continue to invest substantial sums in training and learning for increased competitiveness, which is largely unrecognised by government."
Meanwhile, the Association of Learning Providers is protesting against their exclusion from 75,000 extra training places for the unemployed.
Graham Hoyle, chief executive of the association, argued that the decision goes against the call by John Denham, the Skills Secretary, for greater competition, and that private training firms were being frozen out despite their experience in programmes such as Entry to Employment. He has called for the funding to be made available to the highest quality providers, whether public, private or voluntary.
Geoff Russell, chief executive of the LSC, said: "The offer has been focused through colleges to help to lever wider changes in the college system that will enable it to become more responsive to meeting the needs of the unemployed."