How Further Education colleges can help meet skills challenges and enhance place-based productivity

Education and skills development has a significant part to play improving productivity, innovation, and economic prosperity in the UK. Research conducted by The Productivity Institute highlights the crucial role of Further Education colleges (FECs) in driving local and regional economic development through skills delivery.

The landscape of education and skills development in the UK is marked by challenges ranging from skill mismatches to regional disparities and underinvestment. Despite the acknowledgment of the importance of human capital – the economic value of a worker’s experience and skills - in driving growth, stagnant productivity, wages, and living standards have brought into question the effectiveness of existing policies.

There are also increasing funding challenges across all parts of the English ‘system’. Arguably, further education and adults in learning have suffered the most from this. According to the Institute For Fiscal Studies , between 2010/11 and 2019/20, spending per student aged 16-18 fell by 14% in real terms, leaving spending per student at around the level it was in 2004/05.

Over a similar period in England, total adult skills spending in 2024/25 will be 23% below 2009/10 levels, while spending on classroom-based adult education will be more than 40% lower.

Since 2022, the Further Education sector has been re-classified to be part of the public sector, the productivity of which has been under the spotlight amid a government productivity drive spearheaded by Chancellor Jeremy Hunt.

Shifting focus to demand-side dynamics

Traditionally, education policies have predominantly focused on the supply side, emphasising the accumulation of skills and qualifications by individuals. However, recent insights suggest the need for a paradigm shift towards understanding the demand side of the labour market. Employers' evolving needs, coupled with regional differences and technological advancements, necessitate a more nuanced approach to skills development.

The investment will need to come not just from government, but from employers too. At present, the amount that employers invest in training compares very poorly with other countries and it has been in long-term decline.

Empowering Further Education providers

FECs emerge as key players in addressing the challenges and opportunities in skills delivery. The Productivity Institute's research identifies six critical areas where government and businesses can collaborate to enhance skills delivery:

1.?????? Alleviating the shortage of FE lecturers

FECs are facing challenges in meeting industry needs due to a shortage of lecturers in key areas, compounded by wage gaps between industrial and educational sectors. Additional funding in targeted areas and enhanced flexibility in job specifications and benefits are essential to bridge this gap.

2.?????? Encouraging short-term skills qualifications

The current policy environment emphasises long-form qualifications, while skills needs are often better addressed through flexible, shorter, or modularised training.

3.?????? Recognising FECs as part of social and economic infrastructure

FECs should be regarded as social infrastructure, with a better understanding of their civic mission. This could be achieved through more devolved decision-making, long-term commitment in funding and policy terms, and more room for scaling up.

4.?????? Encouraging employer investment in skills

Improved productivity requires reinvigorated efforts to stimulate employer investment in training and development. Initiatives like Local Skills Improvement Plans play a positive role, but more needs to be done to stimulate employer investment.

5.?????? Reducing constant policy churn

Overregulation, intervention, and systemic overcomplexity create barriers between providers and industries in meeting skills needs. A culture of professional trust between funders and providers is essential for effective skills delivery.

6.?????? Aligning FEC needs across different ministries

FECs fulfil goals shared by both education and innovation policy streams, but these don't always align. Closer alignment between government departments presents an opportunity to eliminate tensions and reconcile objectives across portfolios.

Future focus

For both employers and individuals, more incentives are required to tackle declining levels of investment in training. This could include the extension of full expensing for businesses to provide training or offering more generous tax credits or personal allowances.

There will also need to be a clearer-eyed assessment of the role of employers in driving the skills system – it will provide little benefit if they are drawn from the many low-productivity sectors and places that make up the UK economy.

More coherence for employers and individuals, as well as better integration across the different sectors in England, is needed. For example, a tertiary approach where the different parts of the system fit together better and where funding and entitlements are consistent across types of learning, age and institution would bring improvements.

There will also need to be improved coordination with other policy areas related to growth and productivity, including those for broader economic and industrial strategy, research and development, innovation, and local and regional policy.

Part of this should involve greater powers for places and regions to determine the shape of the system and a move away from a ‘one-size-fits-all’ approach (because in England’s unequal economic and industrial geography, one size doesn’t fit all).

Investment and sustainable funding for all parts of the FE system will be needed, along with a significant shift in the approach to developing a long-term education and skills policy, including drawing on the industry and region-specific knowhow of trade unions.

Find out more

Read Skills, Innovation, and Productivity – The role of Further Education Colleges in Local and Regional Ecosystems, by Jen Nelles ( Oxford Brookes Business School ), Ben Verinder ( CHALKSTREAM ), Kevin Walsh (Oxford Brookes Business School) and Prof Tim Vorley OBE (Oxford Brookes Business School).

Read How can education and skills policy in England boost productivity, by Andy Westwood – first published in the Economics Observatory .

Read FECs, innovation, and skills: A literature review, by Jen Nelles , Kevin Walsh , Michalis Papazoglou and Prof Tim Vorley OBE .

Listen to Skills, Innovation, and Productivity: Further Education Colleges and Place, an episode of Productivity Puzzles featuring Jen Nelles and Ben Verinder.

Read Skills for productivity growth, chapter six of The Productivity Agenda by Damian Grimshaw ( King's Business School ), Mary O'MAHONY ( King's Business School ) and Andy Westwood .

The Productivity Institute??

The Productivity Institute is a UK-wide research organisation exploring what productivity means for business, for workers and for communities - how it is measured and how it truly contributes to increased living standards and well-being. It is funded by the ESRC: Economic and Social Research Council .