Planning UK Vocation Skills Requirements

The City & Guilds Centre for Skills Development (CSD) issued the 104 page report "Britain's Got Talent: Unlocking the demand for skills". The UK Government has introduced a loan model for vocational students, as is being done in Australia. While better than direct government subsidies, the authors of this report argue that this will discourage students from enrolling in courses which have out of pocket expenses, even if these have better job prospects. The authors propose payment by results, with the institutions receiving payments proportional to the higher salary the graduate obtains after graduation. This sounds cumbersome to implement, but the tax office will have the past and future salary details of the students who take out loans, and so would be able to calculate a bonus for institutions where the student gets a salary increase.

Executive summary

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Many adult skills courses offer excellent wage returns, and the average return for vocational qualifications the Government funds is 8%. However, too much of the UK’s provision fails to match the underlying demand. This is because the main government lever – subsidy of training – tends to aggravate misplaced incentives for learners and employers.

Would-be learners lack information about the skills that are most likely to secure the best employment outcomes, and so err towards courses they find interesting, rather than skills that will maximise their productivity. When government subsidises individuals, by offering them a range of free or reduced-cost courses to take, it reinforces the tendency to pick a course based upon its ‘consumption’ value, instead of a hard-headed appraisal of the benefits. While the extent to which a learner enjoys a course is an entirely legitimate aspect for teachers and learners to consider, it should not be the primary consideration of public subsidy, which should aim to maximise the productivity and employability of learners. Where learners are not putting their own money on the line – or less of it – they need appraise the course less as an investment and more as something to consume. Subsidy handed to individuals therefore weakens the link between government investment and employers’ demand for skills. ...

Improving the system’s performance depends upon strengthening accountability in order to reduce the number of:

• Types of qualification taken that do not lead to good employment or earnings outcomes
  
• Subjects taken within those qualifications that employers do not value
  
• Providers that teach to a mediocre or poor standard.

The Government therefore needs a mechanism to encourage learners to take the types of qualification and those subjects that add value, and which puts pressure on poor and mediocre quality providers to improve. Marginal improvements on each dimension could have a substantial impact on labour market outcomes, and hence the productivity of government skills spending....

The Government is introducing income-contingent loans, along the lines of the student loans model in higher education.

This reform will ensure that learners over 25 and those who already have qualifications must co-invest alongside the state. This should encourage learners to view training as an investment and appraise the costs and benefits of each course. But it will swap poor state investment under a more subsidised regime for under-investment by individuals under the new regime, as people are less likely to take a course if they have to invest themselves. ...

The state’s investment in human capital would be far more efficient if an actor in the system was liable for the labour market value of the skills delivered. Providers are the obvious candidate. They are 13 embedded in local economies, so are in a position to understand, forecast and supply the skills local employers need, and steer candidates towards more profitable courses. Exposing providers to the demands of the labour market would also make them more accountable for how well they impart skills employers value: the quality of their teaching as defined by the labour market.

A payment by results model would achieve this. Providers could be paid according to learners’ pay uplift and employment rates upon finishing courses. This would incentivise providers to act upon the ‘prices’ set by the demand for skills – higher pay and employment rates arise for those skills that are in relatively short supply. As they would be paid a premium for a course that led to good employment outcomes, providers could have strong incentives to invest in skills that local employers demand, and which allow workers to build the transferable skills that allow them to navigate the market.

Under such a system, providers would offer courses in, and steer individuals towards, skills that are most likely to lead to labour market success. Providers would have an incentive to seek out information from employers about what mix of skills they need and supply suitably trained workers. ...

From: Britain's Got Talent: Unlocking the demand for skills, John Springford and Ian Mulheirn, City & Guilds Centre for Skills Development (CSD), 2012