G20 Performance on Economic Governance
Alissa Wang Policy Brief
Technological change and other challenges have inspired many countries to seek new approaches to funding and financing post-compulsory education and there is a growing body of evidence on the efficacy of specific approaches in particular circumstances. It is not easy for policymakers to learn from the experience of other countries however and a risk that mistakes will be expensively and wastefully repeated. This paper proposes a way to develop a trans-national resource that would enable those responsible for this sector rapidly to identify those approaches to funding and financing that might be most appropriate to their circumstances.
Developing new and more effective mechanisms for financing post-compulsory education is a matter of increasing concern for governments in many countries. The nature and pace of technological change makes increased investment in this stage of education more necessary even as other social changes, for example those associated with an ageing population, make competing claims upon the public purse. Rapid change emphasises the need for flexibility and responsiveness on the part of education institutions while issues of inequality and social exclusion point to a need to direct resources more accurately to where they are most needed.
The same technological changes that present challenges to the education system also open up an increased range of potential solutions. For example, governments can now access much more detailed information about the circumstances, progress and achievement of students and use this to modify funding allocations to institutions. It is possible to develop systems of individual learning accounts or implement loan arrangements where repayment is contingent on a student’s income. It is also the case that the potential of technology to improve the operation of post-compulsory education might be overstated or misapplied leading to adverse consequences.
There are now many examples of innovation in financing mechanisms to which policymakers could refer when seeking to adapt their post-compulsory education systems to new contexts. Some are described in international literature such as the publications of the OECD or CEDEFOP. Many however are only accessible in research papers or grey literature for individual countries. For illustrative purposes this paper draws on twelve approaches developed in England over the past two decades for which some descriptive and evaluative material is available. (Brief details are given in the appendix.)
The challenge for policymakers is twofold. Firstly there is a need to identify the range of potential examples from which they might learn and from those select those approaches which appear most promising given the specific circumstances and policy priorities they face. The fact that the twelve examples used in this paper represent only some of the innovations developed in one country illustrates the scale of such a task. The second challenge is how to evaluate the potential efficacy of the selected approaches, bearing in mind that contexts and objectives differ both between jurisdictions and over time. There is therefore a need for a systematic approach to collecting, describing, evaluating and sharing information on successful (and unsuccessful) attempts to introduce innovative approaches to funding and financing post-compulsory education.
The proposal is that the T20 should seek to develop a trans-national resource that would enable policymakers rapidly to access information about new approaches to funding and financing post-compulsory education and to identify which examples might be particularly relevant to their own circumstances. This would involve the collection and collation of information from different countries but would also involve the systematic analysis of this information against agreed criteria so that it is more readily accessible in summary form. It is with this latter aspect of the task that this paper is principally concerned.
It is proposed that policymakers should seek to evaluate the appropriateness of any specific mechanism with reference to two sets of criteria. The first relates to what might be termed the internal characteristics of the mechanism, regardless of context; the second set seeks to identify the principal objectives with which policy makers could be concerned and might be termed external. They are described in some detail below.
‘Internal’ criteria
This section outlines six key criteria against which the suitability of any financing mechanism might be judged. Limiting the length of the list to any specific number is to some extent arbitrary as it is always possible to argue for splitting one of the criteria into two or more. The primary principles applied in determining the list however have been completeness – that all important considerations might be included under one or another of the criteria; distinctiveness – that it is possible for a mechanism to be judged as performing well on one criterion but not on another; and manageability – the list needs to be short enough to be applied in practice. This is not to say users should consider it ‘cast in stone’: any discussions around this topic should include consideration of whether potentially important issues are excluded or obscured, or indeed whether two or more criteria might be combined without serious loss.
The key criteria proposed are:
‘External’ criteria.
As noted earlier, the suitability of a mechanism will in part be determined by the purposes of the education system it serves. This section therefore outlines aspects of policy that might be emphasised at different times or in different jurisdictions. It is important to emphasise that although they are presented as ideal types it is highly unlikely that one policy thrust would ever rationally be pursued to the exclusion of all others; it is hard to conceive for example that any government would completely ignore the efficiency of the system or equally, have no interest other than reducing its unit cost.
Financing mechanisms are not the only lever available to governments seeking to influence the behaviour of institutions. Arrangements for governance, inspection or performance management can have an equal or in some cases more powerful effect and may be the more appropriate policy choice. The role of these other levers is not considered further here but a good overview of experience in England 1994-2014 can be found in ‘Coming of Age for FE’.
It is also relevant to note here that the distinctive nature of financing mechanisms for post-compulsory education derive in part from its specific context. The six criteria outlined in the previous section could equally well be applied to schools in the compulsory phase of education. In the post-compulsory sector financing mechanisms have also to reflect the fact that participation is voluntary for example or that learners are also voters. It is probably the case that the content of post-compulsory education, as defined for this paper, is more varied than either the compulsory phase or indeed initial higher education.
The policy objectives considered the most important for this paper are:
As an illustration the two sets of criteria have been applied to twelve financing mechanisms applied in England in the past two decades (further details are presented in the appendix). The results are summarised in the grids below.
In order to take this proposal forward it will be necessary to undertake work in two stages. The first stage would be for an expert group to be tasked with developing and refining the evaluative criteria described above. Among the questions that need to be considered are whether the ‘internal’ criteria are
The group would also need to address the question of whether the list of policy objectives identifies the major ones for consideration or whether there are others to add.
Finally the group would need to consider how best to present the summarised information whether using grids as illustrated or in some other fashion. Part of this task would be to reach agreement on a scoring system; whether to use judgements (High, Medium, Low as illustrated) a numerical scale or some other method.
The second stage would be to identify, analyse and collate information about funding and financing systems on the basis of the format agreed by the expert group. This could take the form of a single commission to an individual company or agency, or an agreed programme of co-operation between a set of nominated institutions. The expert group might be able to advise on the most appropriate vehicle for taking the work forward.
Analysis of selected financing mechanisms
Operational Efficiency | Transparency | Predictability | Flexibility | Acceptability | |
Competitive funding | high | high | medium | medium | medium |
Price competition | high | medium | low | high | low |
Output-related funding | medium | high | medium | high | medium |
Income contingent Loans (HE) | low | high | medium | medium | medium |
Loans (FE & apprentices) | low | high | low | medium | low |
Learning Accounts | low | high | low | medium | medium |
Co-Funding rules | medium | high | low | medium | medium |
Financial institutions | low | low | low | medium | medium |
Apprenticeship levy | low | medium | low | medium | medium |
Train to Gain programme | medium | medium | low | low | medium |
Bursaries & EMA | low | medium | low | low | medium |
W P funding uplift | medium | medium | medium | medium | high |
Impact of selected financing mechanisms on policy objectives
Efficiency | Sustainability | Equity | Growth | Prioritising | |
Competitive funding | high | high | |||
Price competition | low | low | |||
Output-related funding | med | ||||
Income contingent Loans (HE) | high | ||||
Loans (FE & apprentices) | low | ||||
Learning Accounts | low | ||||
Co-Funding rules | medium | low | medium | ||
Financial institutions | low | ||||
Apprenticeship levy | high | low | medium | ||
Train to Gain programme | low | medium | high | ||
Bursaries & EMA | medium | high | |||
W P funding uplift | medium | medium |
Appendix
This section briefly describes twelve separate mechanisms used in financing post-compulsory education in England in the last 25 years.
Competitive funding.
Over the past 25 years there have been several initiatives aimed primarily at increasing the efficiency of the post-compulsory education system by stimulating competition between providers.
Price competition
Several examples from England suggest that seeking to increase institutional efficiency by stimulating price competition has been of limited efficacy.
Output-related funding.
There have been several examples of linking institutional funding to outputs rather than just numbers recruited– successful students as measured by examination success or some other proxy.
Income contingent Loans (HE)
Public subsidy for higher education in England has been progressively transferred from grants to institutions to loans which support the payment of fees of up to £9,000 pa by students.
Loans (FE & apprentices)
From 2013/14 advanced learner loans were progressively introduced into the adult further education sector, initially for those aged 24+ and then from 2016 to those aged 19+.
Learning Accounts
A major trial of Individual Learning Accounts (ILAs) occurred in England in 2000 – 2001. There was a rapid take-up of the scheme which recruited over two million participants but it was then abruptly halted owing to a number of cases of fraudulent behaviour.
Co-Funding
Policy for post-compulsory education in England states that for some programmes institutions should seek a financial contribution from individuals or employers to help meet the costs of training. Institutions have shown considerable reluctance to collect such a contribution.
Financial institutions
Attempts to involve private financial institutions in developing loans for learning or learning accounts have had limited success.
Apprenticeship levy
The apprenticeship levy – a payroll tax of 0.5% on employers with a pay bill of over £3 million pa is intended to contribute to the sustainability of funding for apprenticeships by raising an additional £2bn in a full year and to focus apprentice training on the priorities set by employers.
Train to Gain programme
The Train to Gain programme sought to increase the skills of the workforce by offering free or highly subsidised training in the workplace for specified programmes and s categories of employee. It focussed both on basic training for those with low or no qualifications and higher level (3&4) programmes for those in priority sectors.
Bursaries & EMA
The Educational Maintenance Allowance (EMA) was a system of means tested allowances of up to £30 per week designed to incentivise young people to stay in full time education after the end of compulsory schooling – at that time at age 16.
Widening Participation funding uplift
Formula-based funding for colleges includes an uplift for disadvantaged students. Although the calculation is complex the principle is relatively straightforward, and the complexity is handled as part of the general funding algorithm.