Think tank calls for payment-by-results in adult skills provision

11 July 2012

Government funding for Further Education colleges and other adult skills providers should be linked to the subsequent earnings of their students if policy is to result in skills that boost productivity and employment, think tank the Social Market Foundation has said today.

In Britain’s Got Talent, a comprehensive new paper analysing the adult skills market, the SMF says that government policies have been largely ineffective in giving people the skills they need to secure lasting jobs and raise the productivity of the workforce.

To tackle this, the paper suggests a new model which rewards training providers for offering courses in skills that lead to better paid and higher quality jobs. For trainees already in work, providers would get a proportion of their payment from Government in response to the subsequent earnings of the student, using new information being gathered by HMRC. For those out of work, payment would be linked to the learner getting a sustained job.

“The UK is suffering from a chronic skills deficit, with one third of adults lacking good school-leaving qualifications,” said Ian Mulheirn, Director of the Social Market Foundation and co-author of the report.

“But attempts to create a demand-led skills system have suffered because policymakers have consistently misinterpreted what 'demand-led' actually means. Ignoring wage and employment signals from the jobs market, government has too often focused on giving cash to employers for training they would have conducted anyway, or handing funds to trainees who end up taking courses that don’t lead to jobs.

“This is costly for the taxpayer, unhelpful for employers, and above all, bad for learners whose efforts to achieve sustainable and good quality employment are too often in vain.”

According to the think tank, training providers are the obvious candidate to better match skills to economic demand as they are embedded in the local economy so are in a better position to understand, forecast and supply the skills that local employers need. By giving colleges responsibility for supplying well-trained employees, the approach would free them from central government control.

Ian Mulheirn continued: “With the skills budget likely to face even deeper cuts in 2015, the Government needs to examine how to get more bang for its buck in this crucial area. After years of misdirected attempts to create a demand-led system, it is time for Government to finally link skills supply to the only reliable signals of what employers want – sustained employment and pay rises.”

-ENDS-

 Notes to Editors

 

The SMF’s report Britain’s Got Talent: Unlocking the demand for skills is by John Springford and Ian Mulheirn

The SMF’s model varies according to whether the trainee is already in work or is seeking work. Key features include:

In work trainees

  • The Skills Funding Agency would use new tax data from HMRC to analyse how much trainees’ wages increase after training.
  • To strip out the effects of regional differences and economic cycles, proportionate changes in wages at each qualification level would be calculated in relation to other providers.
  • Outcome payments would be limited to three years after the training has finished.

Out of work trainees

  • For the long-term unemployed, the SMF’s scheme would be integrated with the Work Programme.
  • Providers would be able to draw down funding solely for the purpose of skills training with a view to helping their jobseekers into work.
  • The ‘clock’ would stop for Work Programme providers, meaning that they would have the full 104 weeks to find the person work once training was completed, removing the bias against training.  
  • Instead of being paid by job outcomes, skills providers would be paid from the SFA via Work Programme providers, who are already paid by results.
The SMF says that the Coalition Government is right to identify that apprenticeships appear to be more effective than other qualifications in meeting demand. But, without a mechanism to ensure that an expanded apprenticeship programme will continue to focus on meeting employers’ needs, these reforms will not solve the skills gap.

The report will be launched at 12.30 on 11 July 2012 at an event in Westminster. Skills Minister John Hayes, John Springford, Geoff Stanton and Colin Geering will be speaking at the launch.

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