How not to manage a market

By: Mick Fletcher

FE Policy Analyst

Friday 06 October 2017


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The core problem with government skills policy is that it is ultimately founded on a deceit.  The claim is that employers are in the driving seat.  In practice however all it means is that government has chosen to manage a pseudo-market by manipulating employers rather than manipulating providers.  I’ve made this point before (see FE Week 22/04/14) but now some of the perverse consequences of this shift are becoming more apparent.

Manipulation, or as ESFA would prefer to say ‘adjusting the incentives to employers’ is necessary because not every outcome of an unfettered market would be acceptable to government.  Since we are talking about public money (remember even the apprenticeship levy is a tax) this is right and proper.  It underlines the point however that, like bus drivers, employers may turn the wheel but they are not free to fix the destination.

Trying to steer the system by tweaking incentives to employers rather than incentives to providers is problematic. Firstly there are perhaps 100,000 employers compared with around 1,000 skills providers; and employers are much more variable.  Gauging their response to any stimulus will be tricky.  More importantly, colleges and other providers are well used to reading the signals from government and responding quickly; it is their core business and they can’t afford to get it wrong.  For most employers, managing government funded training is a marginal activity; even those who engage fully have nowhere near as much at stake. 

The task for ESFA seems akin to entering an unfamiliar shower. An initial cautious turn on hot produces no effect; one turns further, then further still until suddenly its scalding; whereupon one frantically reverses, overshoots and is numbed with cold.  One can expect dramatic swings around any policy objective as first ESFA undershoots, then overcompensates.

Beyond the target of 3 million starts however, which most sensible stakeholders are seeking to downplay, it is not clear what outcomes the government seeks.  Would it be content for example to see the numbers of 16 and 17-year-old apprentices fall as some suggest is probable? Does it have a view on the balance of opportunities by region, by sector or by level?  Is it concerned about opportunities for those with learning difficulties or disabilities; or imbalances by gender?  It may suit DfE to be vague on these points for now (after all if you don’t have a target you can’t miss it) but hard questions will increasingly be asked.

Assuming some clarity on priorities emerges from DfE it is still not clear how incentivising employers might work.  Under the old system, to incentivise providers to focus on young people, ESFA could increase the rate they pay for them.  In the new system increasing the amount employers have to pay out of a limited levy pot for a young apprentice could have the opposite effect.  Furthermore the answer is not as simple as just reversing the lever: cutting the rate for young people sharply might enable employers to pay for more out of their pot but they could find that there are no providers willing to do the work.

The underlying problem here is that the ideological obsession with market theory leads government to downplay the very important role that a stable and well supported network of providers can play.  Any sensible system should be built around institutions that want to do the right thing because of their mission, not because they can spot an opportunity for a quick profit. Moreover, a network of colleges, rooted in and answerable to their communities, is far more likely to deliver what is needed locally than a bunch of opportunist providers seeking to second guess employers’ responses to government sticks and carrots informed by imperfect data and a few soundbite priorities.

Winston Churchill once said that you could always rely on the Americans to do the right thing, but only after first exhausting every other possible option.  It sounds a little like DfE apprenticeship policy.

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