IFS: Skills White Paper – government’s target for skills lacks bite

The government's Post-16 Education and Skills White Paper, released last month, set out the government's new target for two-thirds of young people to participate in higher-level learning through university degrees or advanced technical courses.

The target lacks substance. It could, in practice, be met through changes in what constitutes higher-level learning, limiting its usefulness as a genuine indicator of progress. It has no time frame. Currently, around half of young people participate in higher-level learning. On current trends, the two-thirds target would be reached in the late 2030s. Meeting it earlier, by 2030, would require around 50,000 more young people each year to move into higher-level training than current trajectories suggest.

The White Paper is this government's most wide-ranging statement on skills policy to date. It is welcome that it considers the entire post-16 landscape together. It diagnoses some of the challenges in England's skills policies, including a lack of coordination and employer engagement. It sets out many individual policies aimed at addressing these issues, though with varying levels of detail and development. But the White Paper as a whole falls well short of a coherent plan. Key questions remain unanswered – including how national and local priorities will be balanced and how far employers will genuinely be able to shape training.

These are some of the key findings of a new IFS report published today, ‘Funding, finance and reform: an analysis of the Post-16 Education and Skills White Paper', funded by the Nuffield Foundation, which takes an in-depth look at the funding and spending implications of the White Paper. Other key findings include:

Funding boost to colleges and sixth forms, and a bit more certainty for higher education

• The White Paper confirms that the Spending Review allocation announced in June for further education will be front-loaded and focused on 16–19 education rather than adult skills, with a real-terms rise of £450 million next year. This amounts to a 3% real-terms rise in college and sixth form funding per student between 2025–26 and 2026–27. This is on top of an increase in the 16–19 budget this year and means that, overall, per-student funding will have increased by 9% over the two years. However, real-terms college funding per student will remain about 4% below its 2010–11 level and sixth form funding around 18% below.
• There are no new commitments on direct public funding for higher education teaching, but the government will increase the cap on undergraduate tuition fees in line with inflation each year. This will halt the long-running decline in real-terms per-student resources for teaching domestic undergraduates. Although the fee cap was already increased in line with inflation this year (to £9,535), confirming an ongoing path of inflation-linked increases provides some much-needed certainty for universities and prospective students.

Changes to student finance and support for post-18 learners

• The new Lifelong Learning Entitlement will be available from 2026. This will give adults from age 18 a flexible loan entitlement equivalent to four years of post-18 study (worth £38,140) to use across further and higher education – including, in some subjects, for individual modules of larger courses. This has the potential to be a major reform. But early evidence highlights the challenge of generating demand for modular study: in a recent trial of short courses, only 125 people enrolled against an expected 2,000.
• Under government plans, by 2029/30, some university students could receive more than £1,000 less living-cost support in real terms than equivalent students this year. Maintenance loans – the main form of living-cost support for students – will continue to rise in line with forecast inflation each year. But the government has not announced any plan to increase the income thresholds that determine entitlements. A long-running freeze in these income thresholds has seen support for students become far less generous over time, with equivalent students eligible to borrow less each year.
• Maintenance grants – which do not need to be repaid – are set to return by the end of this parliament, but only for low-income students on ‘priority courses'. The government has said little about the design of the grants, with more detail promised at the Budget. If the new grants were available to students on priority courses with household income of less than £25,000, only around 10% of students would currently qualify. Providing a £4,000 grant for these students would have cost roughly £500 million in 2023/24. Restoring the grant system that existed in 2015/16 – which was not restricted to particular subjects and saw more than half of students qualify – would cost around £2.6 billion in today's prices.

Introduction of an international student levy and reform of the apprenticeship levy

• The government plans to introduce a new levy on tuition fees paid by international students, with further details expected in Wednesday's Budget. The government has not been clear on the economic rationale for such a levy, which would constitute a tax on a major UK export. There is also no meaningful sense in which the revenues raised from this levy will ‘pay for' the reintroduction of maintenance grants for some students, as government has claimed.
• Labour's 2024 manifesto proposed broadening the apprenticeship levy into a growth and skills levy, allowing employers to use levy funds for a wider range of training. The White Paper confirmed that this will go ahead from April next year, but there are still big questions over design. The government has confirmed only that new ‘apprenticeship units' will fall within scope, but we do not yet know what these are. For employers and learners planning their training, greater clarity is needed sooner rather than later.

Imran Tahir, a senior research economist at IFS and an author of the report, said:

‘Skills policy is never straightforward. Successive governments have tried to tackle deep-rooted challenges in the system, and this White Paper is the latest attempt to move things forward. There are some consequential decisions here – especially committing the lion's share of the Spending Review settlement for post-16 education to funding 16–19 education, and announcing a clearer path for university fees.

‘But the bigger picture still isn't fully joined up. The government is moving on many fronts, but it hasn't really settled some of the big choices any skills strategy has to make. There are clear tensions in the approach: between national direction and local discretion, between employer involvement and central control, and between the need for stability and the desire for change. Unless there's a clearer sense of how these issues will be managed, the risk is that the reforms run alongside each other rather than pulling in the same direction.'

Kate Ogden, a senior research economist at IFS and an author of the report, said:

‘Wednesday's Budget will give us crucial information on the design of a new levy on international student fees, and on maintenance grants for low-income English students. There are big questions still to be answered: how high will the levy be; how will means-testing for the new maintenance grants work; and will the grants be additional to existing loan entitlements or replace them? Both universities and students will be watching to see whether the government is taking away with one hand and giving back with the other.'

ENDS

Notes to Editor

Funding, finance and reform: an analysis of the Post-16 Education and Skills White Paper is an IFS report by Kate Ogden and Imran Tahir.