While media coverage of the financial challenges facing universities is understandable, the constant stream of dramatic newspaper headlines has reduced the space for discussion about how to put the whole post-18 (‘tertiary’) education system – including universities, colleges, apprenticeships and independent training providers – on a more sustainable path. The 2019 ‘Augar Review’ had sought to deliver this goal but, thanks to the political instability that followed its publication, little progress has been made in the intervening five years. If the new Labour government wishes to avoid becoming embroiled in perpetual debates and disagreements about a supposed lack of funding then they must focus far more attention on how money is invested in tertiary education, not just how much money. To put it another way, without fixing the underlying imbalances, inconsistencies and inequities between Higher Education (HE), Further Education (FE) and apprenticeships, any new funding for universities would most likely vanish into the institutional landscape without necessarily delivering appreciable benefits for learners, and no doubt calls for even more funding would follow shortly afterwards.
Increasing the knowledge and skills of workers of all ages will surely be a critical component of improving economic growth and productivity in the years ahead. Although HE will undoubtedly play an important role in such efforts, FE and apprenticeships could (and should) play a central part as well. Consequently, this report from EDSK sets out a roadmap for creating an integrated and resilient tertiary education system in England that delivers the greatest possible benefits for all adults regardless of whether they are studying at lower or higher levels. This new approach, built around the Government’s ambition for more devolution of public services, aims to deliver four objectives that would put the interests of learners at the heart of the new tertiary system: coherence, collaboration, equity and sustainability. To achieve these objectives, the report offers a detailed analysis of the barriers in the post-18 system that currently prevent these objectives from being achieved.
Funding for institutions
The dominance of HE in tertiary education is inescapable. The most recent annual data shows that around 530,000 undergraduate qualifications (Levels 4-6) were awarded to students in HE, whereas the number of courses completed in FE at Level 4 and above – including classroom, distance and e-learning courses and loan-funded provision – was a mere 5,470. The number of completed ‘higher apprenticeships’ (Level 4+) has grown from approximately 13,000 at the time of the Augar Review to around 44,000 in 2022/23, but this has done little to change the overall picture.
Financial inequity is a crucial factor in explaining these discrepancies. The tuition fee cap of £9,250 for universities is the figure that sticks in the minds of most policymakers, but many colleges and independent HE providers are only allowed to charge up to £6,000 or £6,165 (depending on which regulatory hoops they wish to jump through). This imbalance is further crystallised by HE qualifications such as HNCs (Level 4), HNDs (Level 5) and Foundation degrees (Level 5) giving students full access to tuition fee and maintenance loans, while students taking FE qualifications at Levels 4 and 5 do not receive the same financial support. Although this disparity may be corrected if the Government proceeds with the delayed ‘Lifelong Learning Entitlement’, it is a clear indication of how provision within HE settings has been prioritised above alternative options to date.
Not only are HE students given more financial support than their peers, but – as the Augar Review observed – the “incentives are stacked in favour of provision and take-up of three-year full-time undergraduate degrees”. As a result, the number of students studying standalone Level 4 and 5 courses has plummeted by 40 per cent since 2015. According to the Augar Review, this was the result of a series of changes that led to “young people opting for full time degrees (Level 6) …to the near-exclusion of other options.” Alongside this, “almost all” HE institutions set their fees at £9,000 (now £9,250) from 2012/13 onwards. This higher fee cap incentivised universities to put as many students as possible on low-cost degrees due to “the apparent overfunding of low-cost subjects and the underfunding of high cost subjects” regardless of their value to society or government’s wider economic goals. Similarly, the Augar Review found that “apprenticeships remain heavily concentrated in a few sectors with low average [wage] returns” such as ‘Business, Administration and Law’, which are often cheaper and easier to deliver than apprenticeships in sectors such as Construction that continue to suffer from skills shortages. In other words, the apprenticeships that were most needed were not the ones being delivered.
The enduring prioritisation of HE also ignores the importance of lower-level qualifications such as literacy and numeracy. The dramatic collapse in funding for adult education (from £4.6 billion in 2003/04 to £1.34 billion today) is a stark illustration of the neglect suffered by this vital part of our tertiary system. For comparison, HE funding per student rose by around 20 per cent over this same period. Worse still, funding for adult education is not based on the volume of students, meaning that colleges and other providers cannot expand their courses even if there is more demand from local learners or employers, while universities face no such constraints and recruit as many students as they want. That the current Adult Education Budget (AEB) is made up of several funding pots, each with their own rules and regulations, does not help matters. Colleges must also spend their AEB funding in the year that they receive it, demonstrating how little flexibility colleges have compared to the considerable financial freedoms afforded to universities.
Regulation and quality assurance
The regulatory landscape in post-18 education is bewildering. It includes, among others, the Office for Students (OfS) as the regulator of HE, the Institute for Apprenticeships and Technical Education (IfATE; part of the Department for Education (DfE)), the Education and Skills Funding Agency (also part of the DfE), Ofsted and the exam regulator Ofqual. When so many government bodies are operating in the same space, sometimes with overlapping responsibilities, it inevitably detracts from the coherence of the overall system. The OfS is the most high-profile of these bodies, having been created in 2017 to oversee a ‘market’ in HE based around competition between providers. However, a recent House of Lords inquiry delivered a damning verdict on its impact, claiming that the OfS “is not trusted by and does not have the confidence of many of the providers it regulates [but] it has arguably not acted in the real interests of students either.” In addition, its actions as a regulator were characterised as “seeking to punish rather than support providers towards compliance, while taking little note of their views.” The inquiry concluded that “the OfS’ approach to regulation often seems arbitrary, overly controlling and unnecessarily combative”. In short, its future role as the HE regulator is far from assured.
Compounding the regulatory problems within HE are the numerous issues at the interface between HE and FE. For example, if a standalone Level 4 or 5 qualification such as an HNC is delivered in a university then it will be quality assured by the OfS, but if the same qualification is delivered in a college then it will most likely be quality assured by Ofsted. ‘Degree apprenticeships’ also suffer from regulatory overload, with the OfS, IfATE, Ofsted, Ofqual and the ESFA all involved in monitoring their delivery. Such a poorly conceived approach helps explain why previous research from EDSK has identified serious weaknesses in the quality of apprenticeships, with half of apprentices now dropping out and seven in ten of those dropping out reporting at least one problem with the quality of their course. Excessive burdens generated by competing demands for data from the plethora of regulatory bodies also hamper providers, although the DfE has at least acknowledged this particular issue.
Student finance and widening access
The Augar Review was concerned that only 55 per cent of the total value of student loans was expected to be repaid. It appears that the previous government (or at least the Treasury) shared these concerns, leading to a sharp tightening of the repayment terms for student loans for future borrowers including a lower salary threshold for repayments of £25,000 and an extension of the repayment period to 40 years. Although these changes reduced the expected loss of future loans from 45 per cent to 29 per cent, this ultimately pushed more of the financial burden of supporting the HE system away from government and onto students instead. Worse still, the changes were regressive, as the highest-earning graduates will repay considerably less money over time while lower-earning graduates will be much worse off.
Not only have student loans become more burdensome in relation to the cost of tuition, but the previous government’s decision to not uprate maintenance loans with inflation means that maintenance support has decreased by 11 per cent in real terms since 2020/21. In addition, the £25,000 household income threshold for the maximum maintenance loan has remained unchanged in cash terms since 2008 – a real term cut of 39 per cent that has led to an estimated 30,000 fewer students from lower-income households being able to access the full loan. This helps explain why more than a quarter of universities operate a food bank, almost a third of students are skipping meals to save on food costs and half of students have missed classes to do paid work. In truth, problems with accessing maintenance support extend well beyond universities because students studying Level 4 and 5 courses in colleges are not even eligible for the maintenance support available to their peers in HE, even though many college students come from disadvantaged and vulnerable backgrounds. Likewise, adults studying in a college or independent provider at Level 3 and below cannot access HE maintenance support and must instead rely on bursaries of as little as £50 a month to cover costs such as books, travel and childcare. The financial bias towards HE could hardly be more obvious.
This same bias is evident in efforts to expand ‘access and participation’. One of the key principles of the Augar Review was that “everyone should have the opportunity to be educated after the age of 18”, yet all the political focus has been on getting more students from disadvantaged backgrounds into HE. A central pillar of this has been ‘Access and Participation Plans’, in which universities and other HE providers must agree with the OfS how they will help more disadvantaged students to access and ‘succeed’. Remarkably, though, the activities in these Plans (e.g. summer schools, mentoring) are rarely subject to rigorous evaluation, and there are no penalties for a university that fails to meet the targets it agrees with the OfS. HE providers also receive £300 million of ‘Student Premium’ funding to support students from ‘underrepresented’ backgrounds, but colleges and apprenticeship providers receive no equivalent funding despite often dealing with adults who face significant barriers to their success, particularly at lower levels of education and training.
Regional factors
One of the major concerns expressed in the Augar Review was that “there are some areas, particularly large urban areas, where the number of [FE colleges] is still too high”, leading to “colleges competing for learners in an inefficient and very unproductive way”. Although there were some effective college collaborations cited in the Review, Manchester (9 colleges) and London (40) were highlighted as examples of what should be avoided because, as the Review concluded, “further rationalisation is required”. However, the same logic has not been applied to universities, even though the problem is equally as evident (if not more so), with 249 Business Management degrees available at universities in and around Liverpool, 223 History degrees available in London, 116 Law degrees in Birmingham and 47 Psychology degrees in Manchester. Such duplication reflects the self-interest that permeates the HE sector when it comes to choosing the degree programmes and other courses that they will provide.
In fairness, the apprenticeship system fares little better. The Augar Review found that “the low number of apprenticeships in the priority areas in the Industrial Strategy… indicates a clear mismatch between the economy’s strategic demands and current apprenticeship starts”. In terms of solutions, the Review called on the Government to “take a more proactive role” and “monitor closely the extent to which apprenticeship take up reflects the priorities of the Industrial Strategy, both in content …and in geographic spread.” None of these proposals were enacted because, just as with HE, ministers are currently unable to influence provision in any meaningful sense, leaving apprenticeship providers to decide which courses and programmes are most suitable (or, perhaps, most profitable) without necessarily having any regard to the needs of learners or employers.
Not only has an uncoordinated approach to tertiary education led to duplication, it can also create ‘cold spots’ where there is insufficient provision of one form of another. A recent report identified 46 towns in England with a population of over 80,000 that have no university of their own, including large and economically disadvantaged towns such as Hartlepool and Doncaster. There have been some successes in filling cold spots, such as ARU Peterborough – a £30 million university campus that opened in 2022 – and a new £65 million campus for ‘University Centre Blackpool’ to be used by Blackpool and the Fylde College in collaboration with Lancaster University. There are also cold spots in FE and technical education, as the Augar Review observed, leading the Review to propose that specialist provision needs to be “managed” to ensure that “learners in more isolated communities have access to a range of opportunities.” Even so, the decision-making power and funding to tackle cold spots in HE and FE remains firmly rooted in Whitehall.
Cold spots in apprenticeship provision have only worsened since the introduction of the apprenticeship levy, with significant drops in apprenticeships in the North East (-23 per cent), North West (-19) and Yorkshire and Humber (-16). Research by UCAS found that, of those who did not proceed with an application for an apprenticeship, the most common reason for doing so – cited by 61 per cent of applicants – was not being able to find one in their local area. A research report in 2022 showed that the overall fall in apprenticeships had also been much greater in areas of high deprivation. These figures will disappoint anyone wishing to see apprenticeships used to tackle regional imbalances or improve economic growth.
The role of employers
The Dearing Report in 1997, which preceded the introduction of tuition fees in England, named employers as one of the “major beneficiaries of [HE] through the skills which those with [HE] qualifications bring to the organisations which employ them”. This led Dearing to recommend that government should “seek an enhanced contribution” from employers towards the cost of HE. No such contribution has ever materialised. Instead, the much-lamented apprenticeship levy – essentially a payroll tax on large employers – has led to a collapse in apprenticeships for young people, delivered poor value for money and encouraged employers to simply rebadge their previous training courses as ‘apprenticeships’ to access the available funding. That half of apprentices do not even finish their training (with 70 per cent of dropouts reporting problems with the quality of their training) suggests that employers’ current involvement (both financial and otherwise) in tertiary education should be reassessed.
The lack of coordination in how and when employers invest in tertiary education is evident in many areas. These include the previous government’s ‘National Skills Fund’ that has been tightly gripped by ministers ever since its inception, and the 38 Local Skills Improvement Plans (LSIPs) that are supposed to bring education and employers closer together within local areas but inexplicably only involve colleges – not universities or apprenticeship providers. The West Midlands and Greater Manchester Combined Authorities now have a ‘Deeper Devolution’ deal with central government that includes some additional oversight of adult education and training, while the 2024 Labour Party election manifesto outlined plans for new ‘Local Growth Plans’ through which “local leaders will work with major employers, universities, colleges, and industry bodies to produce long-term plans that identify growth sectors and put in place the programmes and infrastructure they need to thrive.” Devolution of this nature is therefore poised to become an important part of any solution to upskill and reskill adults at all levels.
Conclusion
Over the last decade, the previous government embarked on a large-scale experiment with tertiary education. This experiment has led to exorbitantly high tuition fees for students, the ‘marketisation’ of HE, slashing budgets for adult education, reductions in the quantity and quality of apprenticeships and further entrenching the dominance of full-time university degrees over colleges and other tertiary provision. What we are left with is cohort after cohort of university students carrying unsustainable (and unfair) levels of debt, an unstable and incoherent provider landscape and an uncoordinated system of HE, FE and apprenticeship programmes that will hamper any attempt to deliver a highly skilled and productive workforce. In other words, the previous government’s ‘experiment’ has failed.
As the Augar Review noted in its verdict on tertiary education in England, “with no steer from government, the outcome is likely to be haphazard”. When the autonomy of institutions is prioritised over coherence, collaboration, equity and sustainability across the tertiary system, a haphazard outcome is arguably the best that anyone can hope for. If the new government wishes to increase economic growth then this longstanding attitude is no longer tenable because the needs of the system should always outweigh the needs of individual institutions. Instead, a collective and collaborative effort is needed to deliver high-quality education and training that recognises the role of everything from entry-level literacy and numeracy courses all the way up to university degrees and professional development courses.
To achieve this goal, the Government should remove the distortions and biases in the funding, regulation and oversight of tertiary education that favour full-time degrees over all other routes. To this end, the recommendations in this report aim to integrate HE, FE and apprenticeships by switching to a devolved model for tertiary education that can create new pathways and opportunities for all adults to gain the knowledge, skills and qualifications they need. Those universities, colleges and apprenticeship providers that work together to deliver these new pathways and opportunities will not only be largely unaffected by the proposed changes, but they would most likely see their funding increase over time. Conversely, any institutions that prioritise their own self-interest may struggle as their funding dwindles.
Crucially, the new approach set out in this report gives every beneficiary of post-18 education – students, government, employers and local communities – a clear financial stake in building a high-quality tertiary system. As a result, every stakeholder will have a say in what is provided in each local area. This will, in turn, help tackle the economic and social challenges that lie ahead. Other countries such as Australia, New Zealand, Ireland, Scotland and Wales have already set off on their journey towards a more coherent, collaborative, equitable and sustainable tertiary system, even if that means challenging the orthodoxies and legacies that dominated such conversations in the past. It is now time for England to do the same.
Recommendations
A new foundation for tertiary education in England
- RECOMMENDATION 1: To create a consistent and coherent approach to education in England, the system should be formally divided into four phases: Primary (ages 4-11), Lower Secondary (ages 11-14); Upper Secondary (ages 14-18) and Tertiary (ages 18/19+). The tertiary phase will cover learning at all levels as well as bringing together classroom-based and workplace training in existing HE, FE and apprenticeship settings.
- RECOMMENDATION 2: To create a single approach to the funding, regulation and oversight of the tertiary phase, a new independent body – the National Tertiary Education Council (NTEC) – should be established to bring together these functions for post-18 education and act as the steward for the whole system.
A better deal for students
- RECOMMENDATION 3: The fees charged to students for classroom-based tertiary education courses will be capped at £6,000 a year – a significant reduction from the present £9,250 fee cap.
- RECOMMENDATION 4: As envisaged by the Lifelong Learning Entitlement, a single tuition loan system should operate for all tertiary education courses at Levels 4-6. The repayment of loans should be reformed by using a ‘stepped repayment’ system to achieve two goals: (i) The future loan system will operate more like a ‘graduate tax’ to make loan repayments more progressive by reducing monthly repayments for many low-earning graduates and increasing repayments for the highest earners; (ii) the combination of stepped repayment thresholds and 0-3% real interest rates (post-study only) will free up government funds through reduced tuition fee and maintenance loan write-offs. These funds will be used to create a new £2 billion ‘Student Support Fund’ (SSF) to help poorer students cover their living costs and support other activities around widening participation.
- RECOMMENDATION 5: A single unified system of maintenance support should be introduced for all tertiary provision across universities and colleges. Alongside the introduction of the SSF, student loans will be reformed to increase the level of maintenance funding available to students and increase the earnings thresholds for accessing maintenance support.
A fairer funding settlement for tertiary education
- RECOMMENDATION 6: To support the delivery of high-cost classroom-based courses in universities and colleges, a new £5 billion ‘Teaching Support Fund’ (TSF) will be created. The TSF will be funded from two sources: (i) The present £1.4 billion of teaching grants distributed by the Office for Students; (ii) A new £3.6 billion ‘employer levy’ of an additional 0.4 per cent Employers’ National Insurance contribution for organisations employing graduates.
- RECOMMENDATION 7: To support adults who need to complete a classroom-based course at Level 3 or below, the Government should combine the Adult Education Budget and the free Level 3 qualification offer into a single ‘Local Skills Fund’ (LSF). This LSF will provide grant funding to help low-skilled adults gain the skills, confidence and motivation they need to participate in our economy and society (e.g. literacy, numeracy and digital skills qualifications).
- RECOMMENDATION 8: To simplify the support available to tertiary education providers, the Government should combine the existing capital funding available to HE and FE providers into a single capital funding pot.
- RECOMMENDATION 9: To ensure that all employers have a stake in the new tertiary system, the Government should convert the apprenticeship levy into a new ‘Apprenticeships and Skills Levy’ (ASL). All UK employers with at least 10 employees will contribute 0.4% of their annual payroll costs towards the ASL, raising approximately £4.1 billion a year. The ASL will be split into two funding streams: (i) A ‘National Apprenticeship Fund’ to deliver world-class apprenticeships that will help learners of all ages enter skilled occupations, including bursaries for apprentice employers; (ii) A ‘National Skills Fund’ to drive economic growth and productivity through strategic investments in skills and training, all of which will be guided by employers.
A localised model for delivering tertiary education
- RECOMMENDATION 10: Combined Authorities should work closely with universities, colleges, apprenticeship providers and employers to create a Local Tertiary Education Plan (LTEP) that sets out how the tertiary education system and the providers in their area will contribute to boosting economic growth and productivity, including through widening access and participation. The LTEP would feed into the Government’s proposed ‘Local Growth Plans’ for towns and cities across the country.
- RECOMMENDATION 11: To deliver their LTEP, the NTEC will send Combined Authorities their proportionate share of the six national funding pots described in earlier recommendations:
CLASSROOM-BASED PROVISION
-
- Teaching Support Fund: to support the delivery of high-cost courses at Levels 4-6 in classroom-based settings
- Student Support Fund: to help students from poorer households cover their living costs and support widening participation activities
- Local Skills Fund: to fund adult education courses / basic skills at Level 3 and below
- Capital Funding: to fund investments in new facilities and equipment
WORKPLACE-BASED PROVISION
-
- National Skills Fund: to drive economic growth and productivity through strategic investments in skills and training
- National Apprenticeship Fund: to deliver world-class apprenticeships that will help learners of all ages enter skilled occupations
Combined Authorities will also be allowed to top-slice the funding they receive from the NTEC to invest in strategically important courses prioritised in their LTEP.
- RECOMMENDATION 12: To provide greater stability for providers, Combined Authorities will award the main grants for classroom-based provision (TSF, SSF and LSF) on a 3-year funding cycle based on how effectively each provider contributes to the LTEP. Capital funding and workplace training such as apprenticeships will continue to operate on a demand-led basis.
- RECOMMENDATION 13: To give Combined Authorities the ability to shape provision in their area and combat inappropriate franchising and subcontracting arrangements, tertiary providers (including classroom and workplace provision) will need to obtain a ‘licence’ from each Combined Authority if they wish to receive funding to deliver courses from premises in their locality.
Rethinking the quality and regulation landscape
- RECOMMENDATION 14: To ensure the available funding pots support the provision that delivers the greatest value, the NTEC will design the ‘accreditation’ criteria that courses and programmes must meet to receive government funding (either through institutional grants, student loans or via workplace-based training).
- RECOMMENDATION 15: To create a coherent approach to regulation, Ofsted will inspect all classroom-based provision from Levels 1 to 5 and Ofqual will regulate all qualifications from Levels 1 to 5. For degree-level courses, Combined Authorities will decide how best to monitor the quality of delivery as a condition of tertiary providers receiving a licence to operate in their area.
- RECOMMENDATION 16: As part of a new drive to improve the quality of apprenticeships, including ‘degree apprenticeships’, the Government should hand responsibility for inspecting apprenticeship providers and improving quality to a new body – the National Apprenticeship Inspectorate – which will report into the NTEC.
Building a tertiary qualification system
- RECOMMENDATION 17: To create a simple and transparent funding system, the NTEC will set the price of tertiary courses in universities, colleges and apprenticeships. The prices will operate in a similar way to the existing ‘price groups’ used in HE and FE, with more expensive courses receiving the most funding.
- RECOMMENDATION 18: To eliminate the divide between HE and FE qualifications, there will be a single set of sub-degree qualifications delivered by both universities and colleges: Tertiary National Certificates (Level 4) and Tertiary National Diplomas (Level 5). In addition, providers with degree-awarding powers will be required to offer them as ‘exit’ qualifications if learners choose to leave a course early. Tertiary National Certificates and Tertiary National Diplomas will also become protected terms.