Good afternoon. With so much going on in the world it can be hard to focus on domestic policy — as no doubt Sir Keir Starmer is finding — but the preparations for the coming Spending Review and the looming debate over “guns and butter” is already starting to be felt in the real world.
This week I wanted to highlight one particular area — further education colleges — which, as I reported this week, have been ordered to take a cut to their funding this year despite all the government’s rhetoric around “Opportunity for All”.
Paradoxically there is a good news story underlying these cuts, which is that they were dished out because an unexpectedly large number of students students got places at FE colleges in the 2024-25 academic year. So many, in fact, that it blew the in-year budget at the Department for Education.
It’s mildly complicated, but FE college annual budgets are based on last year’s student numbers. That means that if a college with a budget predicated on, say 4,600 students then takes on an extra 800 students, they need an “in-year” top-up to pay for the additional intake.
Those are actual numbers from the City of Liverpool College which, based on a government pledge last August to fund 50 per cent of the cost of those extra learners, was expecting to receive an extra £2.7mn this February. But this week the education department announced it would only be two-thirds of that amount, or £1.8mn. A £900,000 shortfall.
This matters because FE colleges are themselves integral to the “State of Britain” and, as this Institute for Fiscal Studies report explains, they have been cut to ribbons over the past 15 years.
Real-terms funding is still 10 per cent below 2010 levels even with a £300mn bump in the last Budget. This has real world consequences, both economic and social.
Building no bridges
First economic: the government has an industrial strategy that includes advanced manufacturing as one of its eight key sectors. But since 2017, when the apprenticeship levy came into force, Make UK, the sector body, says engineering apprenticeships are down 40 per cent.
Why? Because FE colleges were forced to cut such courses as a result of a decade of budget squeezes. The government funding offered for a course of about £27,000 doesn’t cover the £35,000 cost of delivering the course which requires more kit and laboratory space than, say, training an estate agent or hairdresser.
That means the 250,000 SMEs in the sector often have nowhere to send their apprentices to train. Big companies such as Dyson or Rolls-Royce run their own academies, but SMEs can’t do that. So when the government rightly enjoins business to spend more on training, there needs to be a good answer to the question “great, but where?”
Given the skills bottlenecks created by plans to meet the government’s ambition to improve healthcare, build 1.5mn extra homes and transition to net zero (see last week’s item on BCG’s report into infrastructure investment) that is clearly a structural problem with the UK skills landscape.
Opportunity, but for not everyone
Then there is a social component to the challenges FE colleges are facing when they struggle to get airtime from a political and media class that has very little personal connection to, or affinity with, this part of the education sector.
Universities are in a crisis of their own (see below) but when it comes to access to opportunity, they are in a different category to FE colleges because places are unlimited: if you can get the grades and a place, you can go. The government will then underwrite your study with a protected loan.
Not so with FE, where places are limited by DfE budgets. Elaine Bowker, the principal of City of Liverpool College, told me she turned away “several hundred” students last year because of a lack of available places.
Those students, according to David Alexander, the principal of Gateshead College in north-east England, are often from the “hardest to reach” parts of UK society, with many studying for GCSE-equivalent qualifications or below.
His college took on 400 extra students this year and expects to take on another 500 next year. That will mean the college, which has the physical space to accommodate these learners, will have expanded by 30 per cent in two years. Or so he hopes.
But this week’s last-minute cut to his budget — equivalent to about £350,000 — leaves Alexander asking how he can offer places to those extra students when he has no certainty the government won’t renege on its funding promises once again?
Alexander, like other FE heads, is also waiting to hear if the National Insurance increase in last year’s Budget will be fully covered by the Treasury. If the government funded 60 per cent of the extra cost, as in Scotland, he’d need to find an extra £16,000 a month to meet his higher wage bill.
And even before you account for the fact that the average FE teacher is paid £9,000 less than the average secondary school teacher, that lack of certainty makes it incredibly difficult to hire staff when you can’t be sure you’ll be able to pay their wages.
None of that even touches on the parlous state of adult learning, where budgets were cut by 3 per cent for the 2025-26 academic year last month, leading Bowker and other FE heads to write a furious letter to local mayors.
From a pure numbers point of view, addressing the skills gaps in construction, healthcare and other strategic priorities will require retraining existing workers as much as skilling up new entrants.
And yet the average funding rate for an adult in the Liverpool City region is about £1,700 compared to about £7,000 for a 16-18-year-old, according to Bowker, forcing her to cross-subsidise adult courses from young learners’ funding. As she writes:
“Over time this will exacerbate skills shortages, undermine growth plans and entrench barriers to skills development for those furthest from education, training and employment.”
Alexander is keen to impress that what matters is not FE principals grumbling over their budgets, but about what it means for the opportunities for young people in some of the least prosperous parts of the UK.
As he says (with considerable passion):
“This is about so much more than funding. We’ve got 500 young people that want to come and learn with us, so it’s about giving people the best start in life and supporting their ambition. Those applying can be the hardest to reach in our society. The government says that tackling poverty is a key strategic priority. We want to help them in that mission, but we need a funding mechanism that enables us to deliver on that.”
We live in hard times, but if the government is serious about making strategic choices and delivering on its Plan for Change, it has to grip the skills agenda and help colleges to provide businesses with the facilities to help themselves. The current signals are not encouraging.
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Britain in numbers
It’s not just FE colleges that are in a state. The higher education sector is also undergoing a period of intense upheaval as it adjusts to a sharp drop-off in lucrative international students following a visa policy change introduced by the last Conservative government.
That change, which has not been reversed by the Labour government, reduces the rights of postgraduates to bring family members. That, in turn, makes it harder to compete for the foreign students universities were told to recruit in lieu of an increase in tuition fees.
Labour has agreed to bump this up by inflation, from £9,250 to £9,535 this year, with further inflation-linked increases expected to follow, but that is only papering over the cracks, not really addressing the underlying funding shortfalls in the UK HE system.
The result is strategically unplanned staff and course cuts that (see above, re engineering apprenticeships) can come back to haunt us. The University and College Union this week said the sector was “in crisis” and would see more than 10,000 staff losing their jobs, with 5,000 of those redundancies already in train.
Today’s chart, based on data from the onboarding platform Enroly shared with my colleague Amy Borrett, offers a glimmer of hope for the sector, which finds year-on-year growth of more than 16 per cent in the UK in January 2025, the month that accounts for about one-third of UK’s annual student intake.
The data shows Nepal leading the recovery of a low base, and Nigerian businesss returning after a currency crisis contributed to a sharp drop-off in numbers (see chart). It’s a start, but the reality is that the sector is still a long way from recovering its post-pandemic boom, on which it predicated some highly unrealistic growth expectations.
Data published by the Home Office last week shows there were more than 50,500 applications by prospective university students for sponsored study visas in the fourth quarter of last year — that’s a rise of 4 per cent on the year before, but down almost a third from the end of 2022.
“While these January figures reflect short-term growth, the overall trend indicates a decline when comparing the full academic years 2023-24 and 2024-25,” says Enroly chief executive Jeffrey Williams who says the fall is “largely linked” to the visa policy change on dependants.
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