OECD

OECD Economic Surveys - United Kingdom

July, 1995

SECTION: Pg. 46; ISSN: 0376-6438

IAC-ACC-NO: 19161834

LENGTH: 14926 words

HEADLINE: Education and training in the United Kingdom.

BODY: Introduction

There is a long-standing perception that the United Kingdom has suffered from a history of inadequate education and training. In particular, critics felt that the education system was excessively oriented to ensuring high academic standards for the elite, while standards for the majority were more variable and vocational training was undervalued. These shortcomings are often cited as a reason for Britain's relative economic decline after 1945.

In the past decade, a series of reforms have aimed to increase the efficiency and effectiveness of education and training on a number of fronts:

* government-funded education and training has been exposed to a greater degree to the operation of market forces, with the level of spending in part related to the ability of schools and colleges to attract pupils;

* the introduction of a national curriculum, designed to set standards for pupil attainment in key subjects;

* the introduction of new qualifications and certification structures, aimed at improving the quality of vocational education;

* increasing the responsiveness of education and training supply to the demands of employers, through employer involvement in designing the system of vocational qualifications and by setting up local consortia of employers to identify local training needs;

* encouraging employers and employees to engage in "lifetime learning"

Although many of these reforms are still very recent, they appear to have contributed to a significant change in participation in education. The proportion of young people staying on in full-time education for at least one more year after the end of compulsory schooling has risen from 47.8 per cent in 1983/84 to 72.5 per cent in 1993/94. The proportion entering higher education has risen from 14 per cent in 1987 to 31 per cent in 1993. Participation in job training has also grown significantly. These trends have been reflected in increased levels of attainment: between 1987 and 1994 the number of people in the workforce with a qualification rose by over 4 million.

Despite this progress, it is recognised that trends in international trade and technology imply that it is imperative to maintain and improve the skills of the workforce necessary for an economy to remain competitive in high productivity industries. The United Kingdom faces three challenges: first, and most immediately, to ensure that skill levels rise sufficiently to prevent the re-emergence of skill shortages, which contributed to the deterioration in productivity growth, inflation and the trade balance at the end of the 1980s. Second, to ensure that improvements in education and training contribute to a high quality workforce, in order to reduce the "productivity gap"(30) between the United Kingdom and other leading economies. Third, to ensure that popular attitudes to education and training, and business values and strategies both change sufficiently to allow the United Kingdom to break out permanently from what some commentators have described as a "low skills equilibrium".(31)

A broad consensus, including official opinion, accepts that UK skill outputs have been inadequate and remedial public action has been necessary. An unofficial commission has produced a widely supported agenda for further reforms in education and initial training (National Commission on Education, 1993). There has been less agreement, however, on the course that public policy should take. Successive governments have increasingly since 1980 undertaken a series of market-oriented reforms in both education and training as part of a wider agenda of economic revitalisation through privatisation and deregulation. The institutional landscape has been extensively reshaped. While many of the changes have gained wider acceptance, much remains controversial.

This chapter reviews the institutional changes in education and training of the past fifteen years, complementing the discussion of health service reform in last year's Survey. The United Kingdom is first considered in contemporary comparative perspective on the basis of data available for the late 1980s and early 1990s. After outlining the attributes of UK institutions before 1980, the chapter discusses key elements of the reforms undertaken. Recent changes in activity and outputs in education and training are then reviewed in more detail, followed by evidence on the economic benefits of education and training. There then follows a discussion of the contributions of pro-market reforms(32) and areas warranting further attention. A glossary of abbreviations to guide the reader is presented in Box 1.

International comparisons

The United Kingdom lagged behind many other advanced economies on some (but not all) indicators of education and training performance in the late 1980s and early 1990s. Such comparisons provide a useful snapshot of the training effort in different countries. Nevertheless they should be interpreted with some care, both because it is difficult to ensure strict comparability across countries, and because these are imperfect measures of the extent and the quality of investment in human capital (since the quality of investment will depend not only on the level of education and training, but also on the extent to which the training provided is relevant to the needs of the economy). The following survey reviews both input and output measures. Input data, the more readily available, indicate the level of resources devoted to education and training; output data indicate how effectively these resources are being used in developing "human capital".

Inputs

Input-based measures include spending and enrolments. Public spending on education in the United Kingdom amounted to 5.3 per cent of GDP in 1991, more than 1 percentage point below Canada, Sweden and Norway, but roughly comparable to the United States and France and more than 1 percentage point higher than in Japan and Germany (Table 13). Public spending on higher education amounted to 1 per cent of GDP, significantly below the United States, but comparable to Germany and considerably higher than in Japan. It is difficult to obtain reliable measures of the level of spending on training by employers and individuals, but estimates suggest that this may have amounted to around 5 per cent of GDP in 1986/87. Although comparable data for employers' expenditure on training are unavailable, the proportion of national resources devoted to education and training in the United Kingdom appears to be broadly comparable with that of other leading economies.

Historically, participation rates in post-compulsory education in the United Kingdom have been low compared with other OECD countries. However, in recent years participation in post-compulsory education has risen strongly. In 1991, participation rates amongst 16-18 year olds in all forms of full-time and part-time education was 76 per cent, significantly lower than in Germany, and somewhat lower than in France, but comparable to the United States (Table 14). However, in the United Kingdom the full-time participation ratio was considerably lower than elsewhere.

[TABULAR DATA FOR TABLE 13 OMITTED]

Table 14. Educational participation(1,2)

Percentages of population aged 16-18

	Full-time	All
Germany	89	89
France	87	87
Belgium	85	85
Denmark	79	79
Canada	78	78
Netherlands	78	80
Sweden	76	76
United States	75	76
Ireland	73	73
Spain	63	63
Australia	61	76
Japan	61	63
United Kingdom	43	76(3)

1. Part-time training counted as full-time for some countries (e.g.

apprenticeship in Germany and France) and part-time in others (e.g.

YT in UK).

2. 16-18 year old enrolments in education and training, circa 1991,

ranked by full-time rate.

3. Includes YT which has no college element (i.e. is entirely with

employers).

Source: Department for Education (1995), Table BB.

Inputs, however, are only part of the picture. Although German and Japanese governments spend proportionately less on education than the United Kingdom, their education and training systems nevertheless attract widespread praise. The UK government has insisted that there is scope for increasing productivity in education and training. Skill outputs and stocks are prospectively more important.

Outputs

The outputs of education and training are often gauged by qualification rates, although these can be an imperfect measure of the level and quality of skills acquired. OECD data indicate that the graduation rate from secondary education in the United Kingdom is comparable to that in Canada, the United States and France, but much lower than in Japan and Germany (Table 15). However, differences in the structure of secondary qualifications across countries mean that this comparison is not very informative. In the United Kingdom, students take examinations in single subjects rather than a multi-subject examination in which satisfactory performance is required in core subjects (such as the baccalaureat in France).(33)

[TABULAR DATA FOR TABLE 15 OMITTED]

Table 16. Vocational qualifications in various European economies, circa 1990

Percentage of economically active persons of working age

	Britain	France	Germany	Netherlands	Switzerland
	1989	1988	1988	1989	1991
Degree	11	7	11	8	11
Technician	7	7	7	19	9
Craft	18	33	56	38	57
None	64	53	26	35	23

Source: Prais (1993), Table 1.

Standardised tests provide a more reliable guide to student performance across countries. In 1990, 13 year olds in the United Kingdom scored close to the international average score for mathematics and science in tests conducted for the second International Assessment of Educational Progress.(34)

The United Kingdom has lagged particularly in vocational education and formal training. The share of the British workforce holding a vocational qualification is low by European standards, particularly at craft level (Table 16). However, it is difficult to assess the extent to which informal on-the-job training compensates for differences in formal training at this level.

The share of science and engineering in higher qualifications has declined in recent years. In 1991, 26 per cent of the degrees awarded in university education were in science and engineering, a rather lower proportion than in Germany (32 per cent), but comparable with Japan and much higher than in the United States and Canada (15 and 16 per cent respectively).(35)

Economic benefits

The implicit presumption behind much public discussion of education and training is that more is necessarily better. However, this view takes no account of the costs incurred. From an economic perspective, public spending on education and training can be appraised as an investment, which is worthwhile if the net present value of its expected benefits to society exceeds the net present value of expected social costs. Furthermore the costs and benefits accruing to individual students and employers typically differ from the costs and benefits to society, so that the private decision whether or not to invest in education can be considered independently of the social rate of return.

Evidence on the net benefits of training falls into four main categories, considered below: estimates of the wage differential by level of qualification; rates of return to education; the effects of government training programmes on trainees' subsequent earnings; and the association between skills and sectoral productivity. With each approach, it is difficult to obtain a definitive answer to the question of whether further expansion (or contraction) of public funding of education is economically desirable, generally because it is difficult to quantify the full economic benefits of education and training, and to allocate how much of these benefits are "social" rather than "private" (that is how much of the benefits accrue to society as a whole rather than to the individual student or trainee).

Trends in wage differentials

Wage differentials by occupation and by level of education widened significantly in the United Kingdom during the 1980s.(36) Together with declining employment opportunities for unskilled labour, this has raised the prospective returns to education and training, providing a strong "market signal" that may well have been an important factor behind the sharp increase in participation rates in post-compulsory education. It is noteworthy that this increased participation has occurred despite a decline in the real value of government grants to students.

Rate of return analysis

A number of studies have attempted to estimate rates of return to education in the United Kingdom, principally rates of return to higher education (Table 17). The Department of Education estimated that the rate of return to individual students at between 20-30 per cent in the early 1980s,(37) suggesting that students could be asked to finance more of the cost of their own education, without a significant reduction in demand. Using a different methodology, another study estimated the private rate of return to a degree of only 5 to 8 per cent in the mid-1980s, suggesting that increasing the costs borne by students might reduce participation.(38)

[TABULAR DATA FOR TABLE 17 OMITTED]

The Department of Education study estimated the social rate of return (which takes account of the cost of government subsidies) at 5 to 8 per cent, which is low relative to hurdle rates typically demanded for both private and public investment. However, there are a number of methodological problems associated with rate of return analysis. One problem is that the studies relate to the rates of return available to previous generations of students and may not be very relevant to the present cohort, especially in a period of widening pay differentials for highly educated labour.(39) In addition recent growth theory proposes that some of the benefits of education and training accrue to non-participants, by enabling faster growth of productivity and living standards.(40) Until these and other externalities are quantified, rate of return analysis will only give an approximate estimate of the true social rate of return to education and training.(41)

Effects of training programmes

A number of studies have evaluated the effects of public training programmes on the economic fortunes of participants. One study found that trainees on the Youth Training Scheme gained little if any improvement in pay and employment, apart from moderate employment gains for females (Dolton et al., 1994). Other studies have found moderate employment gains. Training programmes for adults appear to have led to significant gains in employment and pay (Payne, 1990).

One difficulty with evaluating training programmes is to decide how immediately the effects of the training should affect employment and earnings outcomes - it has been suggested that some studies of youth training have not allowed sufficient time for the full effects of the training programme to be reflected in better employment and earning performance. Ideally, such studies should comprise a full cost-benefit analysis, incorporating programme costs and spillovers, including allowance for substitution of trainees for other employers during and after training.(42) However, full cost-benefit evaluations have not been undertaken even by interested government departments, because it is difficult to obtain reliable estimates of such substitution effects and of expected lifetime earnings and employment profiles.

Skills and productivity

A decade of research into the relative productivity of matched British and continental plants in sectors as diverse as metalworking, clothing and retailing, has found that inadequate employee skills (particularly at intermediate level) have contributed to lower productivity in UK plants.(43) Inadequate skills increase downtime and manning rates on equipment, and encourage managers to steer away from the small volume, high quality products which international markets increasingly value.(44) The sources of inadequate training in intermediate skills include poor scholastic attainments in prior general education (Prais, 1993).

Scepticism has been expressed about these primarily qualitative findings,(45) although the conclusions are supported by statistical relationships across sectors between worker qualifications and economic performance in Britain and Germany.(46) This research has contributed strongly to the drive to improve the structure of vocational training and qualifications in the United Kingdom. Nonetheless, it remains unclear what role differences in intermediate skills play in explaining the productivity gap between the United Kingdom and the United States, which also has a weaker tradition of formal vocation training.

Institutional context

The situation before 1980

Although the majority of UK supply-side reforms were introduced in the early 1980s, reform in education and training largely dates from the late 1980s or early 1990s. Prior to 1980, education and training were largely distinct in the United Kingdom. Education was undertaken overwhelmingly in full-time schooling during childhood and adolescence. The secondary curriculum was broadly academic, driven by the school leaving examinations taken at age 15-16 and 17-18 (O- and A-Level, respectively) through which an elite progressed to higher education and a subset was launched into top careers by way of an "Oxbridge" degree.

Vocational studies and contact with industry were generally absent from schools. Wartime plans to develop technical schools and compulsory part-time education to age 18 had come to little. The reorganisation of secondary schooling along comprehensive lines in the 1960s actually accentuated the gap between education and training. The secondary curriculum became more narrowly focused on the academic studies involved in O- and A-Level syllabi. Vocationalism was rejected as conducive to streaming and as impeding access for working class children to better careers. Technical studies had been encouraged at tertiary level by the growth of polytechnics from the mid-1960s. Most pupils left school at the statutory age without gaining any qualifications, or even having faced any formal assessment of their learning - though the raising of the leaving age to 16 and the introduction of the Certificate of Secondary Education for lower achievers at O-Level had begun to change that during the 1970s.

Training was associated primarily with employment and the workplace. More than in other countries, employers favoured informal job training and learning-by-doing in the context of mass production and mechanisation. Sub-professional skills were certified only in craft and technician occupations, and there through time-serving rather than through skill assessment. Part-time technical education for apprentices had spread during the post-war years, but apprenticeship operated in only a subset of male-dominated occupations, where its availability declined after the late 1960s. Otherwise young people received only informal training, after having left schooling for good.

Education and training did share a tradition of decentralisation and local autonomy. State schooling was supplemented by a small and declining, but still influential, private counterpart which recruited along lines of ability to pay rather than religion or ethnicity. Central government provided the funding for public education but exercised little authority over either the Local Education Authorities (LEAs), responsible for all but university education, or the universities, autonomous bodies funded through the sector-dominated University Grants Committee (UGC). Local politicians and teachers ran the public system on administrative lines in pursuit of ill-defined and varied goals, both political and professional. The principal responsibility of central government was quality inspection; the main influence of central government had been to spread comprehensive secondary education throughout most of Britain.

Training in the private sector had been treated traditionally as the responsibility of employers and trade unions, regulated at sectoral level or below by collective bargaining or employer fiat. Craft-oriented unions looked to apprenticeship to regulate entry to the occupational labour markets which still functioned in much of industry. Some public responsibilities had developed, notably in the form of public training centres and, after 1964, the powers given to Industrial Training Boards (ITBs) to identify good training practice in their sectors and provide grants, funded by payroll levies, to encourage it. Nation-wide intervention arrived only in 1973 with the semi-independent, tripartite Manpower Services Commission, funded to develop and administer national training policies but increasingly preoccupied with unemployment.

The unsuitability of such education and training arrangements for a modern economy was widely recognised by the end of the 1970s, but a clear course of reform emerged only during the 1980s.

Pro-market reforms since 1980

The Conservative governments of the past sixteen years have tended to view many of the public services, including much of education and training, as inefficient bureaucracies, overly responsive to the interests of producers, particularly trade unions, professional associations and bureaucrats, rather than those of clients. These defects have been attacked by injections of market forces, including private ownership, financial incentives and competition. In private training, the preference has been for a full "training market" in which government is at most a secondary player; in education and public training, for a quasi-market, in which government remains the key player, retaining ownership of the system and important powers of initiative, but using competition to cut costs while expanding consumer choice.(47)

The effectiveness of allocating resources by markets works well when:

* large numbers of producers and customers compete, offering agents a range of choices;

* behaviour is motivated by economic self-interest, including the avoidance of bankruptcy;

* outputs are easily measurable, permitting low cost, output-based contracts;

* and external effects on agents outside particular contractual relationships are negligible.

There may be a case for administrative methods when such conditions are not satisfied, though they in turn often suffer from the inefficiencies associated with bureaucratic inertia and political volatility (Finegold, 1995).

Policies which have promoted conditions favourable to market forces are considered in this section. The emphasis is placed on complementarities and coherence within the pro-market agenda. Policies which exceed or conflict with market requirements are discussed in the following sections.

A distinction is drawn between institutional reforms, which are intended to endure, and particular policies - or "initiatives" - which attempt to achieve specific objectives within the wider institutional framework. The leading contents of the two categories are listed in Tables 18 and 19.

Private provision

The development of markets in the public sector has been encouraged partly through private provision. Public assets have been sold; the delivery of publicly financed services has been contracted out. Commercial organisations face profit-oriented incentives to respond to customer demand, reinforced by the threat of bankruptcy or take-over if they fail. Education and training offer considerable scope for privatisation and external contracting to increase competition: economies of scale are limited and many external providers, for-profit as well as non-profit, [TABULAR DATA FOR TABLE 18 OMITTED] [TABULAR DATA FOR TABLE 19 OMITTED] compete for business. Privatisation has been pursued more extensively in public training than in education.

In training, the government favours a division of responsibilities in which employers and employees take care of their own training within a full scale training market, while government takes responsibility for training the unemployed and for young people entering the labour market for the first time (Employment Department, 1988). In the government's area of responsibility, public training programmes have been converted from public to private delivery by privatisation and external contracting. In adult training, public facilities have been closed or sold. Training for unemployed adults has since 1990 been delivered entirely under contracts with external providers, among whom private companies have become increasingly numerous.(48)

Private provision has also been encouraged in education. Private schooling has been encouraged to expand primarily through the Assisted Places Scheme, which funds a number of places in independent schools for state sector pupils from lower income backgrounds. Helped also by the fiscal squeeze on public education, private schools have since 1979 expanded their share of secondary enrolments to 11 per cent.(49) The chartering of the private University of Buckingham apart, higher education continues to be provided wholly by what are in effect public bodies, although these have obtained an increasing proportion of their income from private sources.

Some ancillary services have been contracted out, including school meals and careers advice. Schools inspection has now joined them: HM Inspectorate has been replaced in England by Ofsted, whose external contractors must involve lay members in their inspections. Schools and universities have been variously encouraged or required to develop private sources of income, from parental contributions, facility rentals, conference fees and foreign student tuition payments.

Core educational functions continue, however, to be provided largely by state schools and colleges at all levels. Instead of private provision, government has opted for a quasi-market, in which it retains ownership and finances activity through the tax system, while inserting market-like relationships between public suppliers and their customers.

Output measurement

One of the above conditions for markets to work is the measurability of output - as opposed to that of inputs, the traditional locus of administrative control. The traditional view of the outputs of education as heterogeneous and nonquantifiable has been discarded. Outputs are nowadays defined for schools as pupil learning in core disciplines, relative to the attainment levels specified by the National Curriculum, as developed under the 1988 Educational Reform Act. The curriculum, as it stands after the 1994 Dearing report, applies to all students between ages 5 and 16 in state schools in England and Wales. Curriculum requirements are estimated to take up 60 or 80 per cent of lesson time, according to pupil age, in up to ten subjects, among which English, maths, science and technology are both core and compulsory throughout.(50)

The National Curriculum promotes output measurement by expecting that children will study stipulated topics in each subject by four "Key Stages" (ages 7, 11, 14 and 16) and by providing for assessment, at each Stage, of each child's progress relative to attainment targets, coded on eight point scales. The most able pupils are expected to attain point eight by age 14. Pupil scores on these assessments, in addition to GCSE and A-Level grades, provide potential measures of educational output, for pupils, teachers and schools alike.

That potential has been pursued by publishing "performance tables", which compare the outcomes achieved by individual schools, confined initially to grades in public examinations, but currently including truancy rates and time spent in lessons. The informational value of the early performance tables was marred by reporting errors and the lack of any adjustments to allow for differences in pupils' prior attainments and social background. The initial controversy over the tables appears to have abated and a regular flow of output measures assured for the future. Moreover, the frequency of school inspections is being increased to provide all parents with an annual summary of the inspectors' report on the performance of their children's school.

Output measurement in higher education has been encouraged by creating a unified administrative structure for the sector. Teaching quality and research output are now assessed for each institution within particular disciplines, by the Higher Education Funding Council and the Research Councils respectively, and the results published.

[TABULAR DATA FOR TABLE 20 OMITTED]

Output measures have also been developed for a training market which previously lacked a common set of qualifications which are widely accepted by employers. The National Council for Vocational Qualifications (NCVQ) has since 1986 systematised and built on the existing set of qualifications with a view to permitting all workers to become eligible for formal skill certification.(51) The resulting five level set of National Vocational Qualifications (NVQs) now covers 86 per cent of the workforce, but how and when the professional qualifications at Level 5 will be incorporated remains to be determined (Table 20). A parallel range of general vocational qualifications (GNVQs) is currently being introduced in upper secondary education. (For a representation of the broad equivalences between NVQs, GNVQs and General Education, see Box 2.)

[TABULAR DATA FOR BOX 2 OMITTED]

The activities of training providers are now judged increasingly by the number and level of the NVQs obtained by trainees - instead of just enrolments or training weeks provided. Similarly, the efforts of the Training and Enterprise Councils (TEC) which have since 1990/91 organised public training programmes at local level are indicated by several output measures, including qualification rates and costs per qualification, some of which have since 1993 been compiled into league tables and published (Felstead, 1994).

Competition and choice

The choices facing customers of education and training providers have been widened through decentralisation and deregulation. Schools are encouraged to compete for the business of an increasingly informed parental clientele. In primary and secondary education, decision making powers have been extensively devolved from Local Education Authorities (LEAs) to parents and schools. The 1988 Act stipulated "open enrolment", increasing the ability of parents to choose between schools by removing from LEAs the power to impose intake limits on particular schools and requiring schools to respond to requests from parents to transfer, albeit subject to capacity limits. Under "formula funding", the budgets of LEAs are set by a standard national formula, and their allocation to schools is closely related to enrolments. Under Local Management of Schools (LMS), most school spending decisions are made by the school itself rather than by the LEA, as had previously been the case. LEAs are required to distribute 85 per cent of their budgets directly (and, thus far, more generously) to local schools. Finally, schools have been encouraged to opt for "grant maintained" status, under which they are funded directly by the national Funding Agency for Schools rather than by their LEA, and increased powers are given to school governors. The decision is, however, left to a majority of parents rather than to governors or head teachers.

In both further and higher education, public funding has been brought wholly under new national Funding Councils, and based increasingly on enrolments. Universities have been encouraged to compete for enrolments, initially through a formal bidding procedure and subsequently through increases in government-funded tuition fees.

Competition has also been encouraged in the public training quasi-market. Although their areas of operation do not overlap, TECs compete at the margin for government funding of public programmes. Training providers compete in turn to deliver the programmes to TECs. In addition, all youth programmes are currently being brought under Youth Credits (YC), which offer all early school-leavers training vouchers which they can use to buy, from the provider of their choice, training to at least NVQ Level 2. Training providers and employers are expected to compete to train YC holders, who are in turn provided with increased careers guidance to help them make informed choices.

The effectiveness of competition in quasi-markets can be curbed, however, if there are other important influences or constraints that limit the extent to which the system can respond to market signals.(52) The popular schools which are supposed to expand their enrolments in response to parental demand often do not want to do so, and are able to refuse to do so once they are "full" (Adler, 1993). The unpopular schools which are supposed to close to release resources may be allowed to continue by public authorities which wish to avoid political conflict (a situation akin to the problem of closing hospitals). Some small schools facing closure by their LEA have been able to avert the threat by opting for grant maintained status. Transport costs and community ties also limit competition. Many parents wish their children to attend a local school and there may not be a "good" one within their locality. The main vehicle of inter-school competition is, thus, likely to be a professional desire to improve performance rankings rather than high pupil mobility or parental influence.

Process deregulation

Improved measurement of outputs has been complemented by reduced interest in regulating inputs, which previously featured prominently. Consistent with a view of market functioning in which only decentralised decisions can tap local information, education and training managers are freed to pursue output goals by the methods they judge appropriate.

In schools, the managerial powers given to governing bodies and head teachers under LMS have been augmented by new public regulations concerning classroom staffing, physical facilities and teacher training. Calls to adopt maximum class sizes along Scottish lines have been rejected. Payscales for teachers are set nationally, but under LMS schools have scope to determine the position of teachers on the payscales. State-funded schools in the independent sector are able to develop their own payscales and employment practices. Thus far, only a few schools have done so. In further education, colleges have been pressed to negotiate more demanding contracts, including longer hours of work, with lecturing staff.

In training, the NCVQ has adopted an output-oriented approach to qualification. NVQs are based on standards of competence for particular occupations, determined by business. Assessments for NVQs are concerned with competence in the job role, irrespective of how the relevant skills were acquired - in marked contrast to the process-oriented requirements, such as time spent in training, hours spent in classwork, which previously applied in apprenticeship, for instance. The costs of training are reduced by excising unnecessary material and avoiding inefficient training methods. The benefits of training are increased by ensuring that qualifications focus on the key skills required by employers. In addition, access to qualifications has been extended to many workers previously excluded, whether by process requirements which they found it difficult to satisfy, by age restrictions on entry to training or by excessive training costs (Jessup, 1990).

Financial incentives

Output measurement not only facilitates effective contracting, it also permits agents' incomes to be linked to performance, creating pecuniary incentives to attain high performance. When their incomes are tied to output indicators, market agents face potentially powerful incentives to deliver high levels of those indicators. The incomes of a wide range of agents in public education and training, including schools, colleges, universities, TECs, training providers and individual employees, have been tied to measured performance.

In education, the linking of funding for schools and colleges to enrolments rewards popular institutions and encourages them to provide the services demanded by parents. Schools have also been encouraged to compete for the additional public funds provided by particular programmes, such as those for vocational education under the Technical and Vocational Education Initiative (TVEI) (cf. Table 19). The government has encouraged schools to pay teachers in shortage subjects and shortage regions more than others. In higher education, research funding is now significantly dependent on the university's rank in recent research assessments; similar developments are expected for teaching, drawing however on assessments of methods rather than results. In public training, contracts for adult and youth training between both government and TECs, and TECs and providers, are currently moving towards output-related funding and in some instances are already based wholly on outputs.

Money incentives have also been injected for individuals, notably through merit pay and performance-related pay in public education. Pay settlements for universities allow them to adopt discretionary payments for individuals and to differentiate pay within grades, preferably according to merit and scarcity.

In private training, employers have been encouraged to offer more training by reducing trainee pay and employment protection. Young people were taken out of minimum wage coverage in 1986, well before statutory minima were abolished. Standard terms and conditions in public training have stipulated low allowances instead of "rate for the job" wages, and fixed-term training contracts instead of open-ended employment ones, thereby reducing the payroll costs of training.(53)

Beyond the market

The government has not seen the enhancement of market forces in education and training as in itself sufficient to realise its education and training goals. In training, in particular, agents have been exhorted to invest more than they would choose to if left to their own devices. Detailed guidelines have also been applied throughout education and training in order to achieve particular outcomes. Moreover, while market-related reform has in many ways decentralised decision making, reverse movements have also been marked. The powers of LEAs have been transferred upwards as well as downwards. Central government has taken new powers of direction and control, notably in the Department for Education's promulgation of the National Curriculum. A range of quasi-governmental organisations now regulates from the centre such educational functions as curriculum, assessment, careers, inspection and funding.

A sustained campaign of exhortation, publicity and prizes encourages agents to undertake more training. White Papers and official periodicals regularly proclaim the value of training to agents who are seen as insufficiently appreciative of this. The Investors in People (IIP) award, for which businesses can qualify by satisfying training-related criteria, has received considerable publicity, as have the recipients of the annual National Training Awards.

Overarching such activities stand the National Education and Training Targets, which stipulate rates of participation and qualification by the year 2000 for both youth and all categories of workers, representing Foundation and Lifetime categories, respectively. The three key targets call for 60 per cent of employees, both young and adult, to be qualified at NVQ Level 3 - equivalent to a craft apprenticeship or two A-Level passes - and for 70 per cent of medium- to large-sized employers and 35 per cent of smaller employers to be IIP certified by the year 2000. The youth participation rate in higher education is targeted at 33 per cent for the same year (cf. Table 20).

A number of initiatives are aimed at increasing "lifetime learning". Skill Choice is an adult vocational guidance programme, which has helped nearly 250 000 people to develop action plans and initiate acquisition of NVQs. The Investors in People initiative encourages businesses to develop career development programmes for their employees. Career development loans provide financial assistance to trainees.

Government has also turned to regulation and subsidies to encourage outcomes which are unlikely to be realised under market-based choices alone. The main focus has been on education, where quasi rather than full markets have been adopted partly because government wishes to retain control over the overall scale and direction of the educational system.

The first and foremost instance is the National Curriculum, whose objective is "to provide a broad and balanced curriculum for all pupils". The curriculum specifies what should be learned and is intended to increase pupil attainments, particularly in reading, writing and mathematics. The adoption of the curriculum implies that parental power and inter-school competition are not considered capable of achieving such goals on their own.

A second area is the encouragement of vocational subjects in an upper secondary curriculum traditionally dominated by academic ones. The Technical and Vocational Education Initiative has since 1983 funded programmes offering technical and vocational training to 14-18 year olds. Work-Related Further Education and its successor, the Competitiveness Fund, encourage colleges to be more responsive to local labour market needs when planning and developing courses. The National Council for Vocational Qualifications has recently developed General NVQs for full-time studies at age 16-18 with considerable success, and plans during 1995/98 to pilot GNVQ Part Ones for 14-16 year olds.

Third, business values and school-business links are promoted, to alter an educational ethos seen as detached from, and even hostile to business methods and values. Companies have been encouraged to enter into compacts with local schools, offering recruitment and training rewards to pupils who achieve attendance and examination targets. Education-Business Partnerships encourage schools and employers to develop a variety of contacts, including company provision of work experience for pupils and teachers.(54) Some City Technology Colleges were set up in the 1980s as technology-oriented secondary schools with curricular orientations towards local business, which was in turn expected to help fund them. In higher education, public funding has been taken from the University Grants Committee and LEAs and vested in the Higher Education Funding Council, whose membership contains extensive business representation. Enterprise in Higher Education funds projects which promote student awareness of business issues and values.

Fourth, publicly financed training has been re-oriented. Off-the-job training has moved towards on-the-job methods, with work experience in a central position. The goal has been to relate training more closely to the needs of employers and give trainees an early introduction to actual employment. Requirements that YT trainees spend at least one-fifth of their time in off-the-job training were discarded in 1990. Adult schemes were converted to largely work-based provision in 1987/88, when the precursor of Training for Work was launched. The competence which NVQs certify is defined in work-related terms; it is assessed where possible on the job itself and, where not, at least partly, through simulated work experience. In education, almost all upper secondary students now undertake some work experience.

Finally, government has extended its responsibility beyond that for training the unemployed and increased significantly its support both for mainstream youth training and for individually sponsored training. There is a guarantee of a place on Youth Training to all unemployed school leavers who want one. The conversion of Youth Training to the Youth Credits (YC) format will entitle all school leavers to a voucher through which they can obtain public funding for training. YC will also be the mechanism through which young people can access a new system of government supported "Modern Apprenticeships", offering substantial public funds for craft and technician training. These expanding public commitments suggest that market-led decisions are not seen as fully adequate in youth and intermediate skills training.

Assistance to individuals who want to sponsor their own training can be justified by market failure in the finance of human capital, as well as by non-price rationing of employee access to employer-sponsored training.(55) Public subsidy to training sponsored by individuals who are ineligible for unemployment-related programmes has increased considerably. The introduction of Youth Credits is a leading component. Career Development Loans give individuals interest-free loans to finance tuition fees and some living costs during vocational courses lasting up to one year. Since 1992, under the rubric of tax relief for training, public funds have offset one quarter of the course fees payable by individuals taking NVQ-related courses "off the job".(56)

Public assistance to individuals has long been taken for granted in higher education, where the United Kingdom still provides exceptionally high rates of public subsidy to the tuition fees and living costs of full-time British students studying for first degrees. Support levels have been reduced, by cutting the real value of the maintenance grant and converting it progressively into a low interest loan, but tuition costs for full time British (and EC) participants are still paid entirely from public funds (Department of Education and Science, 1988).

Intermediate training institutions

Almost all of the intermediate institutions standing between economic agents and the training market which had been instituted between 1964 and 1979 - notably the ITBs and the tripartite Manpower Services Commission (MSC) - had been abolished by 1991. The ITBs were converted into non-statutory Industry Training Organisations, dependent for funding mostly on voluntary employer contributions and sales of training services. Two construction-related Training Boards have, however, been allowed to operate until at least 1998, consistent with the increase in craft training in construction under their aegis during the 1980s and the implications of their closure for a sector dominated by small firms and self-employment.(57)

A new type of intermediate institution has also been created: the Training and Enterprise Council. The organisation of public training programmes was during 1988-90 devolved from the MSC and central government to a network of 104 local TECs.(58) This was intended to allow training programmes to be tailored more effectively to meet local needs and to ensure better co-ordination of public and private training activity. TECs are incorporated businesses, operating on commercial criteria and charged with mobilising local business interests in pursuit of local training needs and national training goals. Their boards are comprised primarily of senior local managers; educational and trade union representation is marginal. TECs receive public funding ([pounds]1.8 billion in 1993/94), tied to national programmes, but they lack powers to require the membership or support of local employers and remain heavily dependent on government funds. The TEC role is, however, broadly consistent with the pro-market agenda. In public training, competition is supposed to govern their funding and subcontracting; in private training, they are expected to encourage and exhort private agents, but enjoy no public powers and modest public funding.

Recent developments in activities and outcomes

The long-term trend towards increased participation in post-compulsory education has accelerated in recent years. Until 1990, more than one-half of young people left full-time education by age 16; by 1993, the share had fallen to 31 per cent.(59) The upward trend in the participation rate for 16-18 year olds as a whole has accelerated markedly. Participation in higher education among 18-19 year olds has more than doubled recently, rising from 14 to 31 per cent between 1987 and 1993 and closing rapidly on the official target of 33 per cent by 2000 (cf. Table 20). Post-16 participation has increased particularly rapidly for vocational courses. The share of 16 year olds taking a full time vocational course rose between 1989/90 and 1993/94 from 17 to 28 per cent.(60)

This rapid increase may have been partly a response to the lack of employment opportunities during the recession. However, the fact that the beginning of the increase predated the recession, and the scale of the increase has been much greater than in the early 1980s suggest that this reflects a more permanent development.(61) Higher staying-on rates may also prove significant in the long-term, as "peer group influences" enhance the desirability of continuing education beyond the compulsory school leaving age. Although the increase occurred as cohort sizes declined, the absolute number of young people in education has also risen strongly, increasing for full-time courses by nine percentage points between 1992 and 1993 alone(62) (Table 21).

Participation in job training has also grown significantly. The share of employees receiving training in the previous month rose from 8 to 14 per cent between 1984 and 1994. In contrast to education, however, the entire increase in training occurred during the 1980s. Economic recession held training activity below its 1990 peak until the end of 1993, albeit less severely than in the previous downturn.(63)

Table 21. Educational and economic activity of 16-18 year olds,

Great Britain, January 1976-92

Percentages of population aged 16-18 on 31 August of previous year

	1976	1981	1986	1992
Full-time education	27	28	31	47
Part-time education(1)	14	13	8	7
Training schemes	0	5	10	11
Other(2)	59	53	50	35
Population (thousand)	2,409	2,748	2,633	2,126

1. Day courses in public sector only (excluding YT courses), taken by employed and unemployed.

2. Employed (ex-YT), unemployed and residual.

Source: Department for Education (1995), Table 19.

There are signs of increased interest in continuing training amongst individuals already in the labour market. Nearly 250 000 people have received guidance on vocational training through the Skill Choice programme. Nearly [pounds]13 million was claimed in tax relief on vocational course fees in 1994/95, while the proportion of individuals funding their own training rose from 9 per cent in 1987 to 17 per cent in 1993.

Outputs have also grown rapidly. The trend decline in the share of young people not taking or passing a public examination at age 15-16 has accelerated since 1980, while the share gaining a pass at A-Level at age 18 has risen from 20 to 32 per cent. However, a large minority still leaves school at 16 with at most mediocre grades in a small number of subjects (Table 22).

Qualification in vocational education, which will until 1996 remain restricted to 16-plus studies, has also grown rapidly. Led primarily by the Business and Technology Education Council's National awards, full-time vocational outputs have grown so rapidly as to provide a broad equivalent to the intermediate vocational routes developed earlier in France (Green, 1995). The early popularity of GNVQs among 16-18 year olds suggests that rapid expansion of vocational outputs will continue.

Gains have also been registered in work-based training, which is certified through NVQs. The diffusion of NVQs has, however, been much slower than that of school-based qualifications. It has been held back in some sectors by design problems,(64) as well as by the 1990-93 recession. Nevertheless, the Labour [TABULAR DATA FOR TABLE 22 OMITTED] Force Survey indicates that 750 000 employees, accounting for 3 per cent of all employees, either hold an NVQ or are training for one. 30 per cent of employers offered NVQs to some or all employees in 1994, a marked increase over the 24 per cent reported for 1993. Progress has been patchy in publicly financed training. The proportion of YT/YC and TFW participants gaining a qualification is indeed much higher than it was seven years ago, when NVQs first became available and output-related funding had yet to be introduced.(65) Nevertheless, significant numbers leave YT and TFW without any qualification or only one at a very low level.

To date, NVQ attainments have been uncomfortably slanted towards lower levels. Nearly one-quarter of awards in early 1994 were at Level I, covering "routine and predictable" tasks; only 15 per cent were at craft (Level III) or above. The proportion accounted for by Level I awards, which contribute little to the United Kingdom's skill needs, has certainly declined markedly from its 1990/91 level of one-half and it is expected that the share of higher level qualifications will increase as the new system matures. Nevertheless, employer-provided training remains predominantly short, informal and uncertified - and part of the 1984-90 increase was simply a response to changes in health and safety regulations. Although some 770 000 NVQs have now been awarded, the revolution in employer-sponsored training which NVQs have been expected to facilitate is progressing at a slow pace.(66)

Table 23. Highest qualifications held, United Kingdom, 1984-92

Percentage of population aged 16-59

	1984	1992
Degree and equivalent	7	10
Other higher	6	7
Higher technical	n.a.	3
Teaching and nursing	n.a.	3
GCE A and equivalent	22	26
A levels	n.a.	7
City and Guilds certificate	n.a.	10
Technical	n.a.	3
Apprenticeship completed	n.a.	6
GCSE/O and equivalent	16	19
Other qualification	9	10
None	39	27
Total	100	100

Source: Department for Education (1994), Tables 38, 40.

Taken as a whole, these increases in education and training outputs have already augmented significantly the stock of qualified labour in the United Kingdom. The proportion of people of working age holding no qualification declined by nearly one third between 1984 and 1992. The incidence of qualifications increased noticeably at intermediate level, where shortages in the United Kingdom have caused most concern (Table 23).

Output increases have also improved the prospect for meeting national education and training targets, at least at youth level. The youth target for higher education participation has almost been reached already; those for Levels 2 and 3 look likely to be attained as well (cf. Table 20). Work-based qualifications - NVQs - are, however, contributing only weakly to progress. In the youth category, academic and vocational qualifications are making the running. The CBI, the leading employers' organisation, has called for target participation in higher education to be raised to 40 per cent, but further increases have instead been suspended for four years, in view of their implications for public expenditure.(67) In the adult category, where increases in academic qualifications are less likely, and where work-based qualifications have been introduced relatively recently, the targets are more challenging, and a higher rate of progress is needed if they are to be achieved. The situation is similar for the Investors in People target for employers.

Towards an assessment

The links between changes in participation and outputs and those in institutions and policies are varied and difficult to disentangle from broader environmental changes that affect behaviour. For example, changing signals from the labour market and a shift in peer group attitudes may have contributed to increased youth participation in full-time education. The post-1989 recession reduced employment opportunities for less qualified workers and intensified credential-based competition for jobs. Rapidly increasing demand for highly educated labour has increased its relative pay and curbed graduate unemployment. It remains to be seen whether the labour market will adequately reward the increasing number of young people who opt for full-time vocational studies at age 16-18. Again, the upward trend in measured training incidence may have been generated partly by the repackaging of training away from extensive courses taken early in working life - as under apprenticeship training for occupational markets - towards the sequence of shorter doses associated with recruitment and promotion in internal labour markets, as a result of underlying changes in the organisation and management of work within enterprises.(68)

Nevertheless, it is clear that reforms have spurred significant increases in outputs and efficiency in many areas of public education and training, and their contribution should increase as recent reforms - e.g. the introduction of the National Curriculum, NVQs and GNVQs, and assessments of research and teaching in higher education - settle down. More precise assessments will become possible as the availability and reliability of output measures increase.

The reforms appear to have improved educational efficiency and outcomes in several ways. In higher education, almost one in three young people now study for a degree, compared with just one in seven in 1987. Between 1989-90 and 1993-94, participation in full-time and part-time education at schools and colleges has risen from 70 to 80 per cent at age 16 and from 56 to 67 per cent at age 17. Many other 16 and 17 year olds receive education and training in independent institutions or from employers under the Youth Training scheme.

Higher participation has been accompanied by higher attainment. The proportion of young people achieving two or more A-level passes rose from 17 per cent in 1988-89 to 28 per cent in 1993-94, while the proportion of 15 year olds passing 5 or more GCSEs at grades A to C increased from 26 per cent in 1986-87 to 43 per cent in 1993-94.

Schools are using the increased flexibility provided by Local Management of Schools (LMS) to employ more classroom assistants, give responsibility payments to valued staff, and raise revenue by hiring out school facilities. Most head teachers see LMS as having already increased their school's performance. Published tables of exam results have increased local demands for improved performance by schools.(69)

In higher education, research assessment has encouraged less productive staff to increase their efforts and their departments to help them to do so. Teaching assessment is starting to overcome widespread indifference to pedagogic success. Many universities have developed innovative teaching programmes, attracted more overseas students and reduced their dependence on public funds.

In public training, output-related funding and competition for places have driven down costs per trainee and contributed, albeit thus far to an only limited extent, to increased qualification rates. TECs have encouraged many innovations in training practice. Commercialisation has created a new breed of training entrepreneur, whose ability to meet qualification targets substantially exceeds those of traditional providers.

In general, the exposure of public provision to the influence of market signals, and increased use of performance measures have resulted in a system in which the pattern of education and training is driven much more by the demands of students and employers, rather than the preferences of producers. There are a number of potential problems warranting further attention, outlined below. In addressing these, it will be important to ensure that the reductions in unit costs, and improved responsiveness of the supply of education and training to the demand of students and employers are maintained.

Areas warranting further attention

Output measurement and financial incentives

Electronic technologies make it cheaper to measure outputs and the National Curriculum assessment tests should provide standardised measures of educational outputs. Nevertheless, output measurement remains more difficult in education and training than in many other sectors. The first problem arises from the multi-dimensionality of outputs: the costs of assembling and aggregating information are high. Secondly, the qualitative nature of many output dimensions means that indicators are often intrinsically incomplete, as such dimensions cannot be measured accurately.(70) Educational testing is forced to rely on a subset of relatively measurable outputs, which may result in "teaching to the test" in ways which neglect, and even conflict with, wider educational and cultural objectives.

It has been argued that NVQs are particularly vulnerable to output distortion because of their focus on the outcomes of training and the absence of training process requirements.(71) In principle, injecting written tests and external assessment alongside work-based tests would ensure that candidates display wider occupational competences and underpinning knowledge. However, the NCVQ argue that their existing guidelines already require that candidates display such knowledge. A review of the quality and rigour of the 100 most frequently used NVQs has been launched, to consider how effectively knowledge and understanding are assessed in practice. It is important to ensure that the quality assurance arrangements required by NCVQ are operating effectively.

Thirdly, the outputs upon which policy should focus are net ones, such as how much has been learned during a particular course, whereas most measures are gross ones, such as what grades have been earned. The difficulty of controlling for prior attainments in schooling in order to measure value added outputs will undoubtedly fall as National Curriculum test results at the earlier stages become available as indicators of pupils' ability and previous attainments.(72) Such controls cannot, however, be more than partial and some reputations will still depend on gross outputs.

The problem of unmeasured outputs becomes potentially more serious when financial incentives are present, as under commercial contracting in general and output-related funding in particular. Tying rewards to outputs encourages performance in the dimensions stipulated, but offers no incentive to outputs within non-stipulated dimensions - and it encourages substitution of the former for the latter. Such problems are endemic to payment-by-results, as it used to be called, in the business sector, where painful lessons led many employers to abandon highly geared individual incentive schemes in the 1970s. It is important that such lessons are taken into account in the design of incentive schemes in the education and training sector.

Output-related funding may entail some undesirable side effects. The first is concentration by providers on qualifications which are relatively cheap, such as those in services rather than engineering. The second is to reject pupils and trainees with special needs, who cost more to qualify. To minimise such problems, output-related payments need to take account of the benefit of the course, and include provisions for trainees with special needs, as appropriate.

A third problem is potential debasement of the qualification currency. NVQs - and, initially at least, GNVQs - are often assessed in public training by trainers and teachers whose incomes and job prospects may depend on a favourable result. The extent to which standards will be reduced by such incentives is a matter of controversy. No clear evidence has yet been produced of widespread abuse of the system. However, the risks are sufficiently clear to underline the importance of ensuring that the quality control systems run by bodies such as the NCVQ are effective, regularly monitored, and improved if they are shown to be failing.

Demand factors and externalities

In a well-functioning labour market, employers have incentives to adjust to skill shortages either through higher investment in training or through offering higher pay - thereby raising employees' incentives to invest in their own training. Some commentators have argued that persistent complaints of skill shortages suggest that such mechanisms have not worked well in the United Kingdom, resulting in a "low-skills equilibrium".(73) One explanation for such market failure is the possibility of "poaching" - firms may be unwilling to bear the costs of training workers if they think that the returns will be reaped by a rival firm. Proponents of the low-skills equilibrium also argue that firms adapt production techniques to the skills on offer, and may have limited use for an increased supply of skilled labour.

The inadequacy of the incentives to employers to offer occupational training when other employers can recruit their skilled workers has yet to be adequately addressed.(74) The obstacles to increasing employer training have been underlined recently by the slowness of progress towards national targets through work-based training and IIP certification (see above).

The recently introduced Modern Apprenticeship initiative may help overcome the externality problem in occupational training. It offers substantial public funds for craft and technician training, including shortened courses for 18 year old school-leavers, and extending to skills for which traditional apprenticeship never functioned. Employers' choices between training, "poaching" and deskilling work should gravitate over time towards training if the programme remains a priority. The programme should also require the complementary qualifications in technical education, along Industrial Training Board and German lines, which can be avoided under NVQs.

Equity

Increased reliance on market forces may increase economic inequality, either by aggravating existing inequalities or by creating new ones. At this point, it is difficult to assess the likely impact of the reforms on equity as different aspects point in different directions. On one hand, the greater investment in vocational educational services should benefit those students - including many coming from poorer households - who fared relatively poorly under the previous, more academically oriented system. On the other hand, the middle class may be better placed to take advantage of other aspects of reform. For example, decentralised, output-related funding may tend to reduce the access of disadvantaged agents to education and training. To the extent that providers are judged by gross outputs, such as exam results and NVQs, they may be encouraged to "skim the cream", i.e. select the more motivated and able pupils and trainees. For example, grant maintained schools typically pursue selective admission policies, which helps to raise their performance, as currently measured.

Some steps have been taken to reduce these risks, by relating funding to net rather than gross outputs, to allow for differences in backgrounds, and by increasing the funding provided for each disadvantaged participant, to allow for slower learning.(75) Such arrangements may, however, be undermined by intensified market forces, partly because of the incompleteness of measures of need, partly because of the increased priority given to exam grades and qualifications. There are no separate national targets for the disadvantaged.

Reverse causality also matters here: economic inequality in general hampers education and training reform. Income distribution has widened significantly since 1979.(76) High income inequality can act to constrain pupil achievements in the lower tail of the distribution: learning can be a struggle for pupils from households which lack the resources to support their learning. The children of the working poor are under particular pressure to leave school as early as possible in order to bolster family income. Continued increases in educational participation and attainment may be difficult to achieve so long as inequality is high and/or rising in the wider economy.(77)

Post-compulsory education

There are several key issues in post-compulsory education. For some of them, desirable directions of reform are evident. The first concerns the narrow range of subjects studied in general education after age 16. Sixth form (final year) students take at most four A-Level subjects, or distinct vocational courses, with no requirement to continue mathematics or language past 16, and considerable incentive for most not to do so (Wolf, 1992). Early specialisation reduces the cost of producing high subject-based standards at degree level, but that benefit imposes costs in other ways. A-Level courses are inappropriate for the middle third of academic achievers, who are turning increasingly to vocational courses anyway. They are also inappropriate for their own clientele of higher achievers, whose intellectual development is restricted by early specialisation. The partial curricular widening represented by one year Advanced Supplementary levels has amounted to little. Calls from a spectrum of educational, business and parliamentary representatives for the adoption of a multi-subject, 18-year old baccalaureate-type qualification have been rejected in favour of the "gold standard" of A-Levels.

The second issue concerns heavy public subsidisation of full-time university participants, which diverts public spending from other priorities such as part-time higher education, nursery schooling and occupational training, even though most participants could afford to pay more themselves, either from existing resources or by borrowing against future earnings. The government has started to tackle this anomaly by converting maintenance grants into loans, but progress has been slowed by opposition from predominantly middle and upper income beneficiaries.

Finally, policy remains divided over whether to support full-time education or part-time education and work-based training as sources of intermediate occupational skills. The merits of the two routes are disputed, by both social scientists and the government departments identified with Education and Employment, respectively.(78) The issue may be resolved in practice by rising youth and employer preference for the full-time route, but Modern Apprenticeship should bolster the part-time one, following protracted neglect. It is likely that both routes will be kept and developed, perpetuating the United Kingdom's unusually mixed system, to the benefit of diversity and youth choice.

Adequacy of funding

Central control in education has been maintained through the Treasury's power over overall funding, in a political climate oriented towards cutting the share of government expenditure in GDP. Budgetary pressures on schools and universities have been only partly offset by increased income from private sources. Resource costs per pupil in state schools declined steadily relative to those in independent schools during the 1980s, standing at little more than one-half by 1990.(79)

Restrictions on capital spending have adversely affected libraries, classrooms and equipment, particularly in science and technology. Underfunded institutions are poorly placed to deliver the more costly types of vocational and scientific education (e.g. in information technology and engineering), which diverts vocational secondary education in particular away from industrial areas, where intermediate skills are most in demand.(80)

Prolonged fiscal restriction has been defended by government in terms of the scope for efficiency savings - which, for example, currently require a further 10 per cent cut in higher education costs during 1994-97, on top of the relatively severe fiscal squeeze applied during the past two decades (cf. Table 13). The scope for increased productive efficiency in education, particularly as it stood in 1979, is undeniable. However, it is not obvious how education can sustain rates of productivity growth comparable to those in industry. If the scope for raising productivity growth is limited, fiscal restriction can lead to allocative inefficiencies in the provision of public services:(81) output levels inadequate relative both to customer and national needs. In education, as enrolments have risen strongly, it is the quality rather than the quantity of output that bears the brunt.(82)

Conclusion

The balance of gains and losses in market-oriented reform cannot be drawn yet, while the more important reforms are still working their way through the system. The prospects are intrinsically mixed. The pursuit of financial gain will continue to harness considerable energy to the pursuit of national education and training goals. Government can in principle adapt the reforms in the light of their results - e.g. improving output measurements and acting against perverse incentives. On the other hand, increasing financial pressure on agents within underfunded quasi-markets can encourage opportunistic behaviour, to the detriment of professional commitment and quality standards. The net effects of these opposing tendencies remains to be seen. But, seen in historical perspective, recent reforms are yielding early results as manifested by greater post-compulsory participation in education and training, the rapid take-up of GNVQs and the prospective revitalisation of apprenticeship training.

The broad thrust of reform, in opening-up alternative routes to achieving labour market skills, is promising. This reorientation of policy should contribute progressively to improving the United Kingdom's stock of intermediate vocational skills in particular. A particularly promising development has been the rapid rise in post-16 year old staying-on rates. The reforms to the institutional structure, and in particular the opening up of the vocational route in upper secondary education would appear to have been an important catalyst, together with a more widespread appreciation of the value of education and training. Supply-side policies alone may not be sufficient to resolve the problem. This will also require business to upgrade their production techniques and demand for skills. But, if business continues to adapt to the increasingly more competitive international economic environment, and if the trend towards improved skills output is sustained, Britain's perceived deficiency in developing its human capital may now be on the way to being effectively addressed.

Box 1. Glossary of abbreviations

A-Level Advanced level General Certificate of Education

Leading upper secondary qualification, usually obtained at age 17-18 in between one and four academically oriented subjects. Universities typically specify their entry requirements in terms of A-level grades.

GCSE General Certificate of Secondary Education

Intermediate secondary qualification, usually obtained at age 15-16 in between one and ten academically oriented subjects. Introduced in 1988, to replace Ordinary-level and CSE qualifications.

GNVQs General National Vocational Qualifications

Vocationally oriented qualifications for full-time secondary studies, usually obtained at ages 16-18, accordingly to level. Intended as a route to higher education as well as directly to employment, and aimed at "parity of esteem".

IIP Investors in People

Initiative which encourage employers to develop high quality human resource development and management practices, offering certification when particular criteria have been satisfied.

ITB Industry Training Boards

Bipartite statutory sector-level institutions created from 1964 onwards to identify good training practice and encourage it with training grants funded by payroll levies. Only two Boards continue to function, both related to construction.

ITOs Industry Training Organisations

Non-statutory sectoral bodies, direct successors of ITBs, providing training-related advice and services to employers, funded largely from contributions and fees.

LEA Local Education Authorities

Until the 1988 Education Act, the focus of funding and administration in all public non-university education.

LMS Local Management of Schools

Post-1988 initiative under which spending decisions have been largely devolved from LEAs to individual schools.

NCVQ National Council for Vocational Qualifications

Set up in 1986 to develop and administer NVQs; currently doing the same for GNVQs.

NVQs National Vocational Qualifications

Work based qualifications developed by NCVQ within a five level-classification and awarded by "competence" focused-assessments.

TECs Training and Enterprise Councils

Local employer-led institutions charged since 1990 with contracting for the delivery of publicly funded training, as well as identifying and meeting local training needs.

TFW Training for Work

Government funded scheme providing work based training to the adult unemployed.

YC Youth Credit

Umbrella, voucher-based scheme under which all publicly funded youth training is to be financed from 1995.

YT Youth Training (previously YTS)

Scheme to provide work-based training for unemployed young people, now being superseded by Youth Credit scheme (see above).

WRFE Work Related Further Education

Scheme to fund further education colleges for attending to local labour market needs; superseded in 1994 by the Competitiveness Fund.

Notes

30. Englander and Gurney (1994) estimate that labour productivity in the business sector in the United Kingdom in 1990 was more than 10 per cent lower than in the United States, France, Canada, Germany and Italy, but higher than in Japan.

31. Keep and Mayhew (1995) describe a low-skills equilibrium, in which employers organise their working practices to accommodate a low-skilled workforce, while individuals perceive limited returns to acquiring skills, preferring to offer the low skills demanded by employers.

32. Differences between education and training institutions in England and Wales, on the one hand, and Scotland and Northern Ireland, on the other, are largely elided. The discussion refers to England and Wales in cases of divergent practice, but much applies to the remainder of the country as well. The main intra-UK differences involve education, where Scotland operates a broader secondary curriculum and Northern Ireland retains a selective secondary system. Each system is run by a single UK government department responsible for training programmes as well (National Commission on Education, 1993). Education in Northern Ireland was brought into a single system by legislation passed in 1923, under which local government took over responsibility for its administration, supervised by the Ministry of Education. For further details see Britain 1995, HMSO.

33. There are arguments for both approaches. The United Kingdom system enables students to study individual subjects at greater depth, but the range of subjects studied is narrower, forcing students to make an earlier choice of which subjects to pursue further.

34. See OECD (1993), Education at a glance, Tables R2 and R3.

35. OECD (1993), Education at a glance, Table R7.

36. See OECD (1993), Employment Outlook; Gregg and Machin (1994).

37. Department of Education and Science, 1988.

38. Bennett et al. (1992).

39. Gregg and Machin (1994). Similarly, rapid growth of new full-time vocational qualifications weakens the relevance of findings based on the set which had been available to the workforce of the early 1980s (Green, 1994).

40. See Romer (1990).

41. See Weale (1993).

42. High rates of displacement of regular trainees and employees have been found by studies of work-based public training programmes (Begg et al., 1990, and Deakin, 1995).

43. See Prais (1989).

44. See, for example, Steedman and Wagner (1988).

45. Shackleton (1992), Chapman (1993).

46. O'Mahony (1992), Oulton (1995). Plant-level international comparisons do not invariably suggest economic losses as a result of lower skill inputs. Labour productivity is similar in British and German chemicals notwithstanding a gap in employee qualifications at intermediate level similar to that in other sectors (Robinson, 1994).

47. Glennerster (1991), Le Grand and Bartlett (1993), Finegold (1995), Ryan (1995).

48. The Skillcentres which in 1979 provided off-the-job occupational training, primarily at craft level to the unemployed and to female re-entrants, were initially required to seek private funding by selling unsubsidised training to employers. The move to work-based adult training after 1986 reduced government demand for their courses. Centres which lost money on increasingly commercial criteria were closed. The remaining ones were grouped into the Skills Training Agency, which was privatised in 1990.

49. Smithers and Robinson (1991).

50. Financial Times, 11 November 1994. For details, see Department for Education (1995).

51. The previous qualifications system was fragmented and incomplete. The new system of NVQs provides opportunities to progress from lower to higher levels and for movement between skill areas. They also extend the qualifications into occupations which were not adequately covered previously.

52. See Hirsch (1994).

53. Garonna and Ryan (1991).

54. Employment Department, Skills and Enterprise Executive, November 1994.

55. Ryan (1991, 1995a), Payne (1994).

56. Tax relief is a misnomer for a subsidy which is available to non-taxpayers as well (Pratten and Ryan, 1994).

57. Financial Times, 13 July 1994.

58. The Scottish equivalent is the Local Enterprise Company, which is charged with wider economic development functions than its southern counterpart (Bennett et al., 1994; Bennett, 1994).

59. Employment Department, Skills and Enterprise Executive, August 1994.

60. Department for Education, Statistical Bulletin, No. 10/94, July 1994.

61. The move towards increased post-16 participation may have originated in greater awareness of the benefits of obtaining further qualifications, together with greater confidence gained from the new GCSE qualifications, which allowed competences to be assessed by course work as well as by written examinations.

62. Financial Times, 31 August 1994.

63. Employment Department, Labour Market Quarterly Report, August 1994; Green and Felstead (1995).

64. For example, retailers rejected the original set of NVQs for their industry as being inappropriate and too narrow. But after consultation and adaptation, large retailers are backing the system. By contrast, the original NVQs for the mechanical engineering sector were well designed and quickly gained acceptance.

65. In 1993/94, 71 per cent of trainees completing training under YT had gained a full or part qualification, and in 1992/93 70 per cent of those gaining a full qualification had achieved NVQ Level II or above, compared with 37 per cent in 1990/91.

66. National Council for Vocational Qualifications, NVQ Monitor, Autumn 1994; Department for Education (1994), Table 35; Steedman and Wagner (1988); Payne (1994); Green and Felstead (1995).

67. Department of Employment, Skills and Enterprise Executive, September 1994; Financial Times, 6 June 1994.

68. Marsden and Ryan (1990, 1991); Ryan (1995b).

69. The Times Educational Supplement, 2 September 1994.

70. For example, the criterion "employer commitment to IIP", for which TECs are rewarded, can be satisfied by commitments which vary from the serious to the procrastinatory, but the data cannot indicate which applies in practice. Similarly, it has proved difficult to find objective indicators to which performance-related pay for headteachers can be tied.

71. See Jessup (1991), Prais (1991), Smithers (1993), Steedman (1992), Further Education Funding Council (1994).

72. The Curriculum, Education and Management Centre at Newcastle University have produced net output (or value added) measures of A-level results for over a decade, (Fitzgibbon 1994).

73. Keep and Mayhew (1995); Finegold and Soskice (1988).

74. Stevens (1994), Marsden and Ryan (1991).

75. The needs of the disadvantaged pupil and trainee have been catered to in various ways. Payments made to schools under formula funding depend on indices of local social deprivation. Under LMS, LEAs retain 15 per cent of their budgets to fund special needs teaching, inter alia. Additional funding is provided in YT and YC for disadvantaged youths with "endorsed" status, who enjoy least access to employer-sponsored training. TECs are rewarded for ensuring that unemployed young people, including the hard to place, are offered a YT/YC place within eight weeks.

76. Atkinson, Rainwater and Smeeding (1994), Prais (1993).

77. An adverse role for inequality, rather than simply absolute living standards, has been established for public health in the United Kingdom and economic performance in the United States (Glyn and Miliband, 1994; "Inequality: how the gap between rich and poor hurts the economy", Business Week, 15 August 1994).

78. Marsden and Ryan (1990), Soskice (1993).

79. National Commission for Education (1993), Figure 14.2.

80. The emerging scope for universities to raise funds from capital markets may relax the squeeze on capital account for those with increasing income from private sources (Financial Times, 20 June 1994).

81. The government's relationships with schools, universities and TECs are close to monopsonistic, allowing it to under-reward inputs, to the detriment of teacher quality in particular.

82. Ryan (1992). Universities award their own degrees with only limited external monitoring and concern that teaching and degree standards may be declining has been voiced even in government circles (Financial Times, 26 September 1994).