1. HM Treasury should increase spending on education and training to 5% of GDP to introduce fair funding for colleges

Recommendation 1

HM Treasury should increase spending on education and training from 4.3% now towards 5% of GDP in order to introduce fair funding for colleges which will enable a new technical and professional offer to young people, ensure adults have opportunities to learn and smooth the transition to the new apprenticeship programme.

Public spending on education is 4.3% of GDP in 2016-17[1] and is forecast to fall to 4.1% by 2019-20[2] at a time when the total number of pupils and students in the system are due to rise[3]. The squeeze in spending involves flat cash allocations in schools and sixth forms at a time when total pay costs are rising partly because of labour shortages and the decisions to increase teacher pension costs in 2015 and national insurance rates in 2016. Although there is a collective realisation that the UK needs to compete globally on the skills and capabilities of its people, budget decisions are forcing cutbacks.

There is a positive economic case for higher investment in education and training both for individuals and employers[4]. Exit from the EU makes this issue even more critical. If there are new controls on immigration, employer behaviour will need to change. In some sectors, the non-UK EU workforce is 15% of the total[5]. Government action is needed to ensure that the young population is properly prepared for the future but also to help train adults to fill future vacancies. This should imply more spending not less. Therefore, a target to raise the education spending to 5% of GDP would be a rational objective.

[1] Public Spending Statistics 2016, Chapter 4.

[2] Office for Budget Responsibility Fiscal Sustainability Report, 2015 forecasts education spending will be 4.1% of GDP in 2019-20, Page 69.

[3] DfE National Pupil Number Projections July 2016 forecast a rise in the 5 to 15 age group in schools from 6.5 million to 7.0 million.

[4] “Estimation of the labour market returns to qualifications gained in English Further Education, December 2014” Department for Business, Innovation and Skills (BIS), Research Paper 195).

[5] Keohane, Broughton and Ketola “Working together: European Workers in the UK”, SMF, June 2016.