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Why businesses should learn to trust the market;FE Focus

Why is the Government in such haste to reform the funding and organisation of post-16 education and training? Many organisations, and especially those representing business, are upset about the rush.

Indeed so fearful are they of the possible outcomes that ominous sounds are being heard about employers withdrawing support for flagship government programmes like the New Deal.

The complicating factor is that reforms to post-16 education and training are bound up with the future of business support services. Training and enterprise councils are involved in both areas, so their future is at stake.

The one principle on which most are agreed is that post-16 education and training should be "demand-led". Institutions should respond to the demand for courses from individuals and businesses and there should be common funding across the various routes. Simply, providers should run the courses their clients want, funding should follow the learner, and no route or institution should be unfairly subsidised above another.

More are also agreed that choice for individuals can only be made real if high-quality, independent information and guidance services are available.

But business organisations also want local business-led bodies, which would evolve from TECs, to "manage the market and influence provision". In other words they want a market, but also money off the taxpayer so they can second-guess it. In doing this they betray a lack of understanding about how markets work.

Employers should influence provision in a training market by spending on courses, shopping around to get the best deal from providers, whether public or private. Skill needs are therefore signalled through the market, not through planning bodies.

The business organisations, and, it has to be said, the Government too, seem trapped by the rhetoric of national targets, and regional strategies into thinking markets only work with a heavy dose of command and control.

Local business-led organisations should remain in charge of delivering business support services. Their responsibilities would include initiatives like Investors in People, which encourage firms to think about training in the light of the firm's wider objectives. Employers would then influence course provision through purchasing. The employment service, and its contractors, will also act as local purchasers of courses for jobseekers.

So what does need to be planned locally? A level playing-field for funding will put pressure on the smaller institutions, including schools which "unfairly" cross-subsidise their sixth forms - keep them open by using money that should be going on their 11 to 16-year-olds.

A body is needed that can plan the rationalisation of public institutions. Such a body would need to be accountable locally for the politically contentious decisions it took. The local electorate would want to know exactly who to hold to account if they were unhappy about their local sixth-form closing. This is the kind of "planning" decision which common funding will require and it is hard to see how a business-led body would have the authority to take such decisions.

A national body can concentrate on designing a sensitive funding mechanism, which avoids perverse incentives. An independent guidance service with a remit to widen access and a single inspectorate would complete the institutional picture.

So should the Government be rushing these reforms? The answer is clearly no. The common funding formula needs to be carefully thought through. The framework for post-16 education and training needs to be developed at the same time as the framework for business support services.

All this requires some joined-up thinking from the government departments involved. The new local learning partnerships and the new Regional Development Agencies need time to bed down and work out exactly what it is that they need to do.

So evolution not revolution is the way forward. But I hope the Government has a better understanding of how markets work than businesses apparently do.

The author is senior economist at the Institute for Public Policy Research

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