At a time when the coalition government is hellbent on cutting the adult skills budget by £1.1bn (25 per cent), the market for sage advice is open. The holy grail of policy for years has been the drive to create a more ‘demand-led’ education system. It’s on that battleground that two economists’ from the Social Market Foundation published a recent paper: Britain’s got talent: unlocking the demand for skills. While the report is unlikely to get the attention of the its TV namesake, it is nonetheless an important contribution to a tortuous debate. How does the state spend its cash investment in education for adults more wisely? The implication of this question, according to the SMF, is that the state is a lousy purchaser of training because it is simply clueless most of the time about what the economy really needs. Individuals are not much better either because they tend to consume training for personal gain and not because it boosts the long-term productivity of the country. Employers hardly escape censure either: they too often take the state’s cash and spend it on the training they would have done anyway. This all adds up to ‘agency creep’ and ‘mal-investment’, as they term it: the wilful waste of government spending.
The authors try to address this conundrum by putting more intellectual meat on the bone of what Labour’s Lord Sandy Leitch, described as ‘economically valuable skills’ in his seminal report in 2006. Like Leitch, the SMF believes that public investment in adult education should be much better targeted and that the era of ‘mal-investment’ and, conversely, ‘under-investment’ in training would be brought to an end. If only government could be a bit smarter at figuring out how to pay for the really valuable skills, the sorts of skills that tackle deep-rooted skills shortages – like those in science and engineering – and help the workless become productive citizens again. To economists the value of training is defined in two ways. First, the taxpayer should only subsidise courses that get people into sustained employment. There is nothing particularly novel about this suggestion. Welfare to work providers has been paid by results for years, although the cash incentives often work against them upskilling claimants, as job placement is the priority. The universities, however, are not currently subjected to this kind of provider accountability and they probably should be.
For those in work, state-training subsidies should only be given if the individual receives measurable wage uplift. John Springford and Ian Mulheirn go on to explain a very complex and probably unworkable way of achieving this end. For starters, the Skills Funding Agency and HMRC would be expected to share individual data with one another over a period of a few years to make the ‘payment by results’ model work. The SMF’s proposed wheeze is essentially to track individuals and the providers where the training took place and, after a defined period, pay the provider a big bonus if their course manifestly works out. The basic idea is captivating. Who wouldn’t agree with the premise that providers who achieve better jobs, promotions and pay-rises for their students receive a share in the economic rewards? Similarly, why should providers who deliver poor results stay in business at all? The problem, as with so many crude payment-by-results schemes applied to the quasi-public sphere, is to figure out who really added the value and therefore can claim the credit. When a footballer scores a goal it is clear for all who put the ball in the back of the net. But the education process, by the authors’ own admission, is full of externalities. Someone may have got that promotion resulting in a big pay rise, not because of an amazing management course, but because they sucked up to the boss. How do you stop providers only recruiting the low-hanging fruit leaving the more difficult-to-teach students to one side?
To be fair, the authors discuss many of these shortcomings but they are unconvincing in how to really make such a model work. What is perhaps more disappointing is their suggestion that if only more control was handed over to the providers – albeit held more rigorously to account by their own scheme – that somehow the holy grail would at last be found. There is no discussion in the report of how proper learning accounts – for employers and individuals – might similarly achieve such ends by steering ‘purchasing power’ away from the bureaucrats in Whitehall. What is clear is that getting more for less out of the public purse in future will require some very smart solutions. For governments of all persuasions, there is more than just a kernel of an idea in what the SMF propose.
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Tom Bewick is chair of the International Network of Sector Skills Organisations. He tweets @tombewick