Funded by the Nuffield Foundation
Few areas of public policy have seen as much change as adult education and skills. Since the early 2000s, a series of major reforms has shaped a post-18 education system that can often be challenging for both individuals and employers to navigate. The pace of change shows no signs of slowing under the new government, with the creation of Skills England, major reforms to the apprenticeship levy, and the introduction of the Lifelong Learning Entitlement (LLE) all on the agenda. Underpinning these policy reforms is a funding environment characterised by substantial real-terms reductions since the early 2000s and significant shifts in the allocation of public funds across different areas of adult education.
We divide public spending on adult education and skills into three main categories:
- classroom-based learning, including basic skills and qualifications at multiple levels;
- subsidies for work-based learning, such as apprenticeships;
- loans for further education courses, known as advanced learner loans.
Adult education spending over time
Figure 1 illustrates public spending on adult education and apprenticeships, covering the period from the early 2000s to the present, along with projections for 2024–25. The chart presents total public funding and divides it into three categories: classroom-based learning, work-based learning, and loans issued through advanced learner loans.
Public funding for adult skills has declined significantly since its peak in the early 2000s. In 2023–24, spending stood at approximately £4.3 billion, which means it has fallen by a third compared to its inflation-adjusted high of £6.3 billion in 2003–04. The decline has been particularly steep in classroom-based learning, where expenditure has fallen by two-thirds, from £5.1 billion in the early 2000s to £1.7 billion in 2023–24.
In the 2000s, some of the reductions in classroom-based funding were redirected towards work-based learning, keeping overall spending relatively stable during this period. Expenditure on work-based learning reached its highest point in 2009–10, driven by the introduction of the Train to Gain programme, which peaked at £2.8 billion. In the 2010s, spending on work-based learning settled at around £2 billion annually (in today’s prices) as funding for classroom-based learning continued to decline. Since 2020, public spending on apprenticeships has increased and currently stands at around £2.5 billion. Advanced learner loans, introduced in 2013–14, have consistently accounted for a small portion of total skills funding. By 2023–24, approximately £100 million was issued through these loans, making up just 2.5% of the overall skills budget.
The 2021 spending review allocated an additional £900 million in day-to-day funding for adult education in 2024–25 compared with 2019–20 (Drayton et al., 2023). As a result, total spending on adult skills is projected to rise by 12% in real terms over this period. However, similar to funding for 16–18 education, these funding increases only partially offset previous reductions. By 2024–25, total skills funding will be 23% lower than in 2009–10. The decline is particularly stark for classroom-based adult education, where funding – even with the additional investment – will still be over 40% below 2009–10 levels.
Public funding for classroom-based learning
There have been large and sustained reductions to public spending on classroom-based learning over time, which have been driven by two factors. The first is a sharp fall in the number of adults enrolling in classroom-based further education courses. As shown in Figure 2, the number of publicly funded qualifications taken by adults in England dropped from 5.6 million in 2004–05 to just 2.3 million in 2023–24 – a reduction of 58%. While participation has declined across all qualification levels, the steepest drop occurred at the lowest levels (below level 2) during the 2000s.
The reduction in participation in classroom-based learning has had a direct impact on funding for colleges and education providers, as funding is largely determined by the number of courses delivered. The fall in the number of classroom-based learners can be traced to several policy decisions, including the withdrawal of public funding for low-level qualifications during the 2000s, a deliberate shift in focus from classroom-based education to apprenticeship training, and tightening of eligibility criteria for funding entitlements introduced in the 2010s. While a substantial decline in the number of adult learners may seem like an inherently undesirable trend, the implications depend on which courses have declined. There is variation in the value of different further education qualifications for learners, with many low-level classroom-based courses offering limited labour market returns (Tahir, 2023).
The second driver of the fall in public funding for classroom-based learning is the large real-terms reduction in funding rates for these courses. The funding that further education providers receive for teaching a learner is determined by a formula that includes the course funding rate, a disadvantage uplift and an area cost uplift (to account for higher costs in specific regions). Since 2013–14, the Education and Skills Funding Agency (formerly the Skills Funding Agency) has used the following formula to allocate funding through the Adult Education Budget (AEB):
Funding received for teaching a learner = Course funding rate × Disadvantage uplift × Area cost uplift
The course funding rate, which is based on the number of guided learning hours and the course subject area, is the key component in this formula. Between 2013–14 and 2023–24, the funding rate for most adult education courses remained fixed in cash terms. Over this period, inflation eroded the value of these rates by nearly 25% in real terms (Drayton et al., 2023). Although the previous government applied a 2.2% increase to the final earnings for formula-funded provision under the AEB in both 2022–23 and 2023–24, this small adjustment did not offset the prolonged cash-terms freeze. Freezing rates for a decade has likely led to funding becoming detached from the actual resource needs of education providers, eroding their capacity in an unpredictable and arbitrary way.
For the 2024–25 academic year, the previous government introduced new funding rates. Under this system, courses are grouped into five funding bands, each with a fixed hourly rate ranging from £6 an hour to £12 an hour. This new structure should lead to increases in funding rates for most courses and simplifies the funding schedule by eliminating cliff edges present in the current system. While it is not feasible to detail how the funding rate for each adult education course has changed, Figure 3 illustrates the changes in the hourly funding rate for the two most common subject areas: ‘Preparation for work and life’ (38% of all further education courses undertaken in England in 2022–23) and ‘Health, public services and care’ (12% of all further education courses).
Figure 3 illustrates that the previous funding structure resulted in widely varying hourly funding rates across courses, whereas the new funding structure establishes a consistent hourly rate. This is a positive development, as it simplifies the funding system, making it easier to understand, and reduces potential distortions in the length of courses. The overall impact on funding levels will depend on the length of courses and subject area. For ‘Preparation for work and life’ courses, which attract the lowest base funding rate, the changes may result in small increases or even decreases in hourly funding rates. In contrast, other subject areas, such as ‘Health, public services and care’, have seen more substantial increases in their base rates, resulting in higher hourly funding levels across all course lengths.
Public funding for apprenticeships
Employers receive public subsidies to offset the cost of apprenticeship training. Since 2017, these subsidies have been financed through the apprenticeship levy, which requires businesses with annual pay bills exceeding £3 million to contribute 0.5% of their payroll above this threshold. These contributions are then topped up by 10% in public funding and can be used by firms to cover apprenticeship training costs. For non-levy-paying firms, there is a generous public funding system where employers pay only 5% of the training costs, with the remaining 95% covered by the government.
The government has announced that it will replace the existing apprenticeship levy with a growth and skills levy, which would give firms flexibility to use their levy contributions for specified forms of non-apprenticeship training as well as shorter apprenticeships (i.e. apprenticeships that last less than a year). The types of training eligible for funding will be determined by Skills England, a newly established body tasked with identifying the skill needs of the country. In principle, providing greater flexibility should help employers to invest in additional training that they and their employees find valuable. But the history of these wider training subsidies, such as the former Train to Gain programme, suggests that the result is often that much of the spending goes on training that firms would have provided – and paid for – even without the subsidy. In determining the list of eligible training, Skills England must ensure that subsidised training is likely to be additional and genuinely productive.
As part of reforms to the apprenticeship levy, the government also plans to remove some level 7 apprenticeships (the highest level of apprenticeships) from the scope of levy funding. Figure 4 presents the share of the apprenticeship budget allocated to apprenticeships by level. The proportion of funding directed to higher-level apprenticeships (level 4 and above) has trebled between 2017–18 and 2021–22 from 13% to 39%. There has been an especially sharp rise in level 7 apprenticeship spending from 1% in 2017–18 to 10% by 2021–22. These apprenticeships are predominantly taken by older adults who already hold degrees, with nearly 70% of higher apprenticeship starts by individuals aged 25 and over.
The exclusion of certain level 7 apprenticeships is intended to redirect funding towards younger, less-skilled apprenticeships. While restricting subsidy funding is likely to reduce the demand for level 7 apprenticeships, it does not address the underlying costs businesses incur when hiring and training apprentices at lower levels. For many employers, these costs will remain a significant barrier to taking on younger apprentices, particularly those who require more support and training. As a result, this policy may have limited impact on achieving its broader goal of incentivising businesses to hire younger apprentices.
Further education loans
The government provides access to loans for further education courses through advanced learner loans. These represent a tiny fraction of public outlay on student loans: in 2023–24, the amount lent through advanced learner loans (£101 million) was less than 1% of the amount lent through higher education loans (£20.1 billion), and the amount lent through further education loans has shrunk over time. The previous government announced that the system of further education loans is set to be reformed through the introduction of the new LLE.
The LLE is best thought of as a package of three reforms to the existing post-18 loan system. First, it will unify the two existing post-18 loans systems, with learners studying further education courses being offered maintenance loans like their counterparts studying at university. Second, the LLE will introduce ‘modular funding’, which will allow learners to access loans for specific modules and short courses rather than just entire courses. Third, the LLE will remove existing restrictions on accessing loan funding known as ‘equivalent and lower qualification’ rules. These rules prevent most students from receiving student finance for a qualification at the same or lower level to one they hold. Their removal could, for example, allow a student to study a level 6 qualification (e.g. a first degree in history), but then receive funding to return to a college or university to study a level 4 qualification (e.g. a Diploma in electrical engineering).
The current government has confirmed its commitment to the LLE but has delayed its launch. Initially scheduled to begin funding course enrolments from January 2026, the LLE’s rollout has now been pushed back to January 2027. This continues a pattern of delays since the policy was first announced in 2023, and significant questions about its design remain unanswered, such as the courses that will be eligible for LLE funding. It is essential that the current government addresses these uncertainties and provides a clear implementation roadmap as soon as possible.
