Because it brings together all “non-university post-16 learning”, further education has several missions:

• Teach essential skills, such as English or maths, to improve access to employment.
• Offer course and apprenticeship opportunities to break into occupations that require technical knowledge, thus establishing a “pipeline” of skills for employers.
• Provide opportunities for learning throughout our lives, for personal and professional development.

This section shows how London’s further education system is currently struggling to fulfil some of these missions. We explore three areas of particular concern – the lack of resources and corresponding fall in participation, the relative rarity of progression opportunities between lower and higher level courses, and the low responsiveness to skills shortages.

1. Resource and participation

Investment in further education has suffered a double hit. Participation in in-work training has gradually fallen, as employers in London have reduced investment in training and development. At the same time, governments have reduced public spending on further education, which has stretched delivery and triggered a plummeting in take up of courses. Because of this neglect, Londoners’ participation in learning after the mandatory school age has dipped to its lowest level in 20 years, despite the urgent need for reskilling and upskilling. This section reviews the financial challenge facing London’s further education sector, and the implications for its offer.

The retreat from further education

Public spending on further education has been dramatically reduced since the last recession, leaving London with a weakened provision as the coronavirus recession hits. This has happened in three ways. Firstly, potential learners have seen a reduction in their eligibility for state support. Since 2013, most people over the age of 24 pay for education to a level 3 qualification entirely from their own pocket; even if it is the first time they have studied at this level. ¹¹ Secondly, maintenance grants have been replaced by a loan facility, the Advanced Learner Loan, with bursaries reduced to only cover costs such as books, travel or childcare. ¹¹ And finally, capital grants for college infrastructure have dwindled. ¹³

The overall impact of these changes has been a fall in learner numbers, and a corresponding fall in providers’ incomes. ¹⁴ The Institute for Fiscal Studies calculated that overall spending on adult education, apprenticeships and other work-based learning for adults fell by 37 per cent in real terms between 2009/10 and 2018/19, ¹⁵ and spending on further education for 16-18 year olds decreased by 22 per cent over the same period. ¹⁶

The treatment of further education in fiscal policy comes in sharp contrast with that of higher education, which has seen increased levels of public spending in the last decade. ¹⁷ This is the subject of the Augar Review commissioned by government in 2019, which highlighted that government funding is heavily weighted in favour of higher education:

“In 2017/18, over £8 billion was committed to support 1.2 million UK undergraduate students in English HE institutions. (…) There are 2.2 million full and part time adult further education students receiving £2.3 billion of public funding, a large under-investment relative to the state support afforded university students.”

One example of how this disparity plays out is around maintenance loans: university students are eligible for these, whereas loans for further education qualifications only cover tuition.

To respond to these funding reductions, further education providers say that they have made savings in several ways; closing courses or programmes, increasing class sizes, or reducing staff pay, according to a 2020 report to the Department for Education. ¹⁸ Median pay for staff at further education colleges in London fell by eight per cent between 2016/17 and 2017/18, ¹⁹ and pay for teachers in further education colleges is now lower than in secondary schools. ¹¹ Reflecting these substantial pay cuts in the capital, London has the highest turnover in college staff in England (21 per cent compared to the English average of 17 per cent). ²¹ Recruiting and retaining highly skilled staff who can deliver high quality courses is clearly a challenge, and this has an impact on the quality of courses that colleges offer. As of February 2019, 29 per cent of London’s colleges were Ofsted rated as requiring improvement or inadequate, compared to just six per cent of London’s schools. ²²

Employer investment in training

This retreat from government funding for further education has coincided with a decline in employers’ training investment. The Continuing Vocational Training Survey (CVTS), an EU-wide survey of employers, found that training investment per employee in the UK fell by over 20 per cent between 2005 and 2015, but had risen in the rest of the EU. ²³ This decline had a large impact on adult learning opportunities, especially since employers are the principal funders of adult learning.

To reverse this trend, ²³ a greater onus has been placed on large employers to fund apprenticeships through the apprenticeship levy. Since 2017, the levy has been paid by the country’s largest employers (those with a pay bill of over £3 million), who contribute 0.5 per cent of their total pay bill into the levy. ²⁵ While only two per cent of employers pay the levy, this funding supported almost 50 per cent of apprenticeships in 2017/18. ²⁶

Some of the implications of this policy for London are discussed later in this chapter, however, we note that the levy has not yet led to an increase in apprenticeship starts in the capital. ²³ Indeed, there are concerns that apprenticeships may displace current funding or encourage employers to rebrand existing training as apprenticeships, rather than creating genuinely new opportunities. The Chartered Institute of Professional Development’s (CIPD) 2019 survey of employers found that 49 per cent of levy-paying employers believe that the levy will have no overall impact on overall training expenditure, while nine per cent report that it will decrease overall levels of spending. ²³

Falling participation

The fall in public spending in further education has been accompanied by a dramatic drop in course take up. Since 2004/05, participation in further education has fallen by 22 per cent for 16 to 18 year olds, and by 37 per cent for adults. After taking into account the population increase over this period, the proportion of working-age Londoners engaging with the further education system has decreased from 13.6 to 7.5 per cent. ²⁹

As mentioned above, employer-led training has decreased too. The proportion of London staff (employer or self-employed) who say they have received on-the-job training in the last quarter has declined from 30 per cent in 2004 to 25 per cent in 2019. ³⁰

While further education participation has fallen, participation in higher education has risen and is much higher in London than in the rest of country. In 2016/17, 61 per cent of young Londoners chose to study at a higher education institution compared to 52 per cent nationally. ³¹

But despite wider access to higher education, adult participation in learning has fallen overall. According to an annual survey by the Learning and Work Institute, only 28 per cent of Londoners said they had engaged in some form of learning in the last three years, down from an average of 45 per cent in the 2000s, and the lowest level since the survey began in 1996. ³² This finding is deeply concerning, especially given that Londoners today have longer working lives, shorter job cycles, and that a significant minority of jobs in the capital are at high risk of automation (see a discussion of this at the end of the chapter).

2. Access and progression

London’s labour market is a particularly tough one. The city has more graduates than it has graduate-level jobs. And there is evidence of graduates taking ‘non-graduate’ jobs, an issue much more marked in London, as the chart below shows. Overqualification ³³ is not a good situation for graduates, who tend to be unhappy in roles they are overqualified for, and leave. It is also damaging for the large minority of people who face tough competition from graduates “trading down” for jobs that do not require graduate-level skills.

The city is also home to many young people failed by the education system. A 2019 study of school leaver outcomes found that one in six Londoners aged between 20 and 24 are neither in education, employment nor training – and this share is as high as in the rest of England. ³⁴ Half of these young people had level 1 or level 2 qualifications, (equivalent to GSCEs or below), ³⁴ leaving them poorly equipped to succeed in a competitive labour market.

Despite strong evidence that gaining additional qualifications comes with a wage boost, many Londoners fall between the cracks of the city’s polarised tertiary education system.

This section describes the challenges facing London, as a city that is a higher education success story and a magnet for graduates, but where learners can struggle to progress from basic skills to the qualifications that would deliver a wage boost and enable them to prosper in a fast changing and demanding economy.

Lack of progression

Further education has a dual mandate to provide both basic and higher level skills, ³⁶ but in London (and across the UK), the balance is tipped in favour of lower level qualifications. As Figure 4 shows, three quarters of funded learners take courses at level 2 and below, and only one percent at level four and above.

Lower level qualifications equip learners with essential skills and produce a range of positive health and employment outcomes. They are much needed: the last survey of adult skills found that Londoners were performing at or below the national average, despite a much higher proportion of graduates in the population. ³⁷ And their supply has fallen dramatically in recent years, partly as a result of reductions in funding entitlements.

But the longstanding deficit in intermediate qualifications needs addressing. Research on learners’ labour market outcomes found that middle and higher level qualifications offer a greater boost to probability of being employed. ³⁸ Londoners with level 4 qualifications will, on average, earn a third more than those with no qualifications, ³⁹ and depending on the sector and the learner, more than graduates (Level 6). ⁴⁰

Despite the prevalence of lower level qualifications outlined earlier, we have heard from colleges that they face difficulty in attracting students who are not in employment, education or training (NEET). ⁴¹ This is explored in a recent study of young people in this position, with a number highlighting that their poor GCSE attainment limits the courses and institutions they could get into, with some suggesting that they could only access relatively low level courses at less favoured academic establishments. ⁴² Generally, undertaking these courses failed to improve employability and could lead to a cycle of taking short, low level courses one after another, or a return to NEET status. ⁴³ Thus, there are both problems with access and progression for those who are (or were formerly) NEET, which may act as a deterrent from entering the further education system.

There is more work to be done to understand why young people who are NEET are not benefitting from London’s further education opportunities, and what policies and programmes would be most effective to support them. Centre for London is planning further research in this area.

Cold spot for apprenticeships

Apprenticeships have a long history in London, and whilst they went through a decline in popularity alongside the shift away from routine manual occupations, for which they were most used, apprenticeships offer a good deal for young people, allowing them to train while earning a wage, with a good chance of a job offer at the end. Apprenticeships have been reformed and offer standardised qualifications in order to ensure transferability. They are also the only area of further education funding that has seen public spending increases in the last decade. ⁴⁴

Despite these benefits, apprenticeship take-up in London is very low by English standards, which are already low in comparison to other OECD countries. Londoners’ preference for academic education, and the capital’s specialism in the knowledge economy could explain some of this difference, but only up to a point. Apprenticeship reforms have aimed to extend apprenticeships to a broad range of sectors, and London has deep skills shortages in sectors that have traditionally made use of the apprenticeship model, such as construction and hospitality. The reasons behind London’s poor record on apprenticeships are still unclear, and should be the subject of an investigation with employers and young people.

In response to the low number of apprenticeship starts, in 2017 government introduced the apprenticeship levy, as a payroll tax on large employers which they can claim back to fund the training element of an apprenticeship.

Early data shows a welcome increase in apprenticeship starts, including in London, but raises new concerns. The profile of apprentices in England is shifting, with the majority of apprenticeships going to existing employees (62 per cent) rather than new labour market entrants, ²³ and confirming this, the recent growth in apprenticeships was driven by starts for the over 25s (see Figure 6). ²³ Without downplaying the importance of workforce development, a key part of the apprenticeship remit is to create access into work for younger or less experienced individuals. This trend should be monitored, to ensure that those who were set to benefit from higher investment in apprenticeships do not miss out.

London’s further education offer is hollowed out. Colleges have focused their provision on lower level qualifications – which are needed, and their provision has fallen the most. But colleges have been providing very few middle level qualifications. On top of this, London employers offer very few apprenticeship opportunities compared to the rest of the country.

3. Supply and shortages

The underfunding of further education has not just led to falling participation and a hollowing out of provision. The further education sector also faces challenges in meeting current employer demand and in adapting to ensure that learners are equipped for predicted changes to London’s labour market.

London has a highly skilled and diverse workforce, but there are gaps, many of them persistent, between employer needs and Londoners’ skills. The number of cases where employers have been unable to fill a vacancy due to skills shortages has more than doubled in the capital since 2011 (rising from 14,000 to 37,000), ⁴⁷ with 23 per cent of vacancies down to a lack of applicants with the right skills. ⁴⁷ The number may seem modest, but there is little doubt that without immigration, which averaged 80,000 quarterly registrations for National Insurance numbers between 2008 and 2019, skills shortages in the capital would have been of a very different scale.

The technical skills shortage

London is a hub for the knowledge economy, and by extension, a magnet for graduates. But at least 40 per cent of the capital’s jobs are outside the ‘graduate-oriented’ managerial and professional occupations, which are the top three occupational groups in the table below (and even those include many technical jobs).

London’s skills shortages are especially concentrated in occupations that require technical qualifications – such as IT, heath and care, hospitality, engineering, and construction. Some of these occupations have been on the UK ‘shortage occupation list’ (which identifies priority occupations for immigration) for over a decade. The tech sector faces particular problems; 58 per cent of London start-ups say that the lack of highly skilled workers is their main challenge. ⁴⁹ And, looking to the future, there are several anticipated areas of growth in London’s digital sector that will require a pipeline of digitally skilled talent. ⁴⁹ It will be important to nurture this pipeline of talent to ensure that London remains a global leader in this space, and to help Londoners make the most of these new opportunities for high skilled employment.

But despite its best efforts, the further education sector has struggled to respond to changes in employer demand. Figure 7 shows participation in courses and apprenticeships offering skills directly relevant to sectors experiencing technical skills shortages. Given these skills have been in persistent shortage, one could expect to see provision increase over the last five years.

Yet for most of these skills shortage areas, participation in related further education subjects has fallen. Construction and IT are exceptions, probably reflecting a great deal of employer initiative and some public investment. But even in these subjects, increases in learner numbers have been modest (respectively +3,000 and +2,700) compared to employment growth in these sectors over the same period (+47,000 and +60,000).

How can there be such contrast between employer need and skills supply? The Augar Review suggests that there are systemic issues:

“Funding rules are complex, inflexible and encourage certain types of provision for financial reasons, rather than those in the interests of students or the local economy. They do not allow colleges to respond to local labour market needs. The regulatory regime is also complex and burdensome.” ⁵¹

For example, as the Review explains, further education institutions are funded by annual contracts, the value of which is determined by the number of learners in the previous year, thus discouraging any expansion into new areas. On the other hand, if institutions struggle to fill a course, their funding for the course is reduced in the following year. The system incentivises short-term thinking.

With rules and funding limiting both their ability to innovate and invest, London’s colleges have faced an uphill struggle in tackling the capital’s current skills shortages, let alone preparing for future changes.

Colleges have been encouraged to merge, in order to pool resources and coordinate course provision. The devolution of the Adult Education Budget to the Mayor of London also offers an opportunity to change the incentive structure. The Mayor has signalled this by opening further education funding rules to consultation. ⁵² But there is only so much the Mayor can do, given that the regulation of 16-18 education and of apprenticeships remains with the government.

Changes ahead

Beyond plugging present skills needs, colleges and other training providers should also play an important role in supporting the city throughout the immediate challenge of a recession and the longer-term changes entailed by the growth in artificial intelligence and automation. Their ability to do so will bear significant impact on London’s future prosperity and social inclusion. But London is entering this period of intense change with its stretched further education system, and it is difficult to see how it can respond without additional support.

Automation

In coming years, the world of work will undergo significant changes, as artificial intelligence and machine learning enable more and more routine tasks to be automated, but potentially boost demand for other roles. And with 80 per cent of the UK’s 2030 workforce past school age and already in work, further education will be key to respond to this changing demand.

Modelling suggests that around a third of jobs in the capital have high potential for automation, and another 20 per cent are classed as “medium”. ⁵³ Losing some low quality jobs from the labour market is not always a bad thing; but there must be opportunities for workers in these jobs to upskill in order to transition into new, and perhaps more fulfilling, work. The scale of change will require London’s education system to ensure workers have the skills they need to secure good employment, and to adapt to changing requirements as the economy is transformed. ⁵⁴

Ageing

The next decade will also add demographic pressure to London’s education system. As Figure 9 shows, the number of Londoners age 15- 19 and 40 and above is projected to increase, two age groups more likely to engage with further education to prepare to enter the labour market or for a career change. Alongside this growth, the statutory retirement age is likely to rise further in the future, meaning that there are likely to be more older Londoners in the workforce. This is likely to increase demand for further education, as older workers seek to meet changing skills needs and employment demands.