Much of the Train to Gain budget would be better spent on sending young people to college rather than subsidising employers to train their staff, according to a report to be launched at the Labour Party conference next week.
About a third of the annual Train to Gain budget, this year standing at pound;925 million, should be funded by employers, authors at the Learning and Skills Network (LSN) say.
The resulting saving should be spent on expanding college places and apprenticeships for 16 to 24-year-olds.
The report, Beyond Leitch: Skills Policy for the Upturn, to be launched at a conference fringe meeting next Wednesday, says the recession has "exposed faultlines" in the system of training provision developed in response to the Leitch review.
Instead of creating a demand-led system driven by employers, the report suggests Train to Gain has created a state of dependency where companies are not thinking as hard about their skills needs and strategies as they would if they were footing the training bill themselves.
"In particular, the lack of flexibility cited by many of the providers interviewed and the various forms of mismatch between provision and need suggest that the system is not as demand-led as policymakers intended," the report says.
It argues that the recession and preparations for recovery are tempting policymakers to take more control over the national skills strategy.
But the report says this would be a mistake since Leitch showed that Britain had a poor track record in identifying future skills needs and planning provision.
"Rather than turning away from realising a demand-led system, we should look at making it work better in practice," it says. "Train to Gain does not offer targeted support for business effectively and, according to the National Audit Office, provides poor value for money.
"By making business increasingly reliant on government to meet its training needs, Train to Gain may also stifle the development of an innovative and geniunely robust response to market difficulties.
"Employers should pay for training that provides job-specific skills. A fully co-funded system should be introduced to help reduce the problem of deadweight, incentivising providers and employers to ensure that they are sufficiently committed to the training that most adds value."
Raj Patel, assistant director for research and policy at LSN, said: "By deadweight we mean, would employers have undertaken training if not funded by government? And 50 per cent say they would have done it anyway. When particular training is purely in the interests of a business, it should be responsible for funding it."
The report also recommends that providers be allowed to shift money between employer-responsive and learner-responsive funding streams, and redirect resources away from short-term back-to-work schemes to programmes to improve the skills of the unemployed.
It also calls for a learning voucher scheme for students. It says that while the Government is committed to the introduction of Skills Accounts, the evidence is that these should be real cash vouchers rather than virtual accounts.
The paper is the first from the LSN's Centre for Innovation in Learning, and is due to be launched and debated at both the Labour and Conservative party conferences. LSN-sponsored fringes, called "Can Skills Save the Economy?", will be held on September 30 at Labour's and October 6 at the Conservative's.