Spending Review 2002:
Public Spending and Adult Learning 

A NIACE Briefing
Published : August 2002

1. This briefing examines the plans for public spending on adult learning made as part of the Government’s spending review 2002 (SR2002), announced by the Chancellor of the Exchequer on 15 July 2002. The review, detailed in the white paper “Opportunity and Security for All: Investing in an Enterprising, Fairer Britain “ (HM Treasury, Cm 5570) covers the three year period from 2003/04 to 2005/06. More detailed information is also drawn from the Department for Education and Skills document “Education and Skills: investment for reform” (DfES, July 2002). This paper should be read alongside the separate NIACE Commentary.

2. Overall, the review sets out the biggest sustained commitment to investment in public services for a generation - and education, along with health, is one of the key priorities. As a result of SR2002, overall spending will rise by £24 billion in 2003/04; by £40 billion in 2004/05 and by £61 billion in 2005/06. This represents an increase of 5.2% a year after inflation.

3. While these increases appear large, they occur in a context where the UK was, in 2001, ranked 21st out of 27 OECD economies in terms of “tax and spend” as a proportion of GDP. This is lower than all EU nations apart from Ireland although above such economies as Japan, USA Canada and Australia. As a consequence, UK public spending is now increasing faster than in most OECD economies - but the significance of this depends upon a political judgement of the extent to which a degree of “catch-up” is necessary and desirable.

4. Although the overall headline figures for SR2002 cover the whole UK, the devolved administrations have freedom to make their own spending decisions, within overall totals, on functions which are under their control. This means that the remainder of this paper covers England only. In general, changes to the devolved administrations' budgets have been linked to changes in spending plans of UK Government departments. By 2005/06, spending in Wales will be £2.35 billion higher; in Scotland £4.1 billion and in Northern Ireland, £1.2 billion more.

5. In addition spending plans for each Department, SR2002 specifies the outcomes and targets that each part of government must deliver. These are expressed in terms of Public Service Agreements (PSAs). Resources are to be tied to reform and results, with targets are to be published, monitored and audited. This spending review is also the first to be undertaken under a resource budgeting framework rather than a cash-based system. Resource accounting and budgeting is intended to capture the full economic costs of providing services while incentivising departments to make best use of their assets.

6. In addition to Departmental allocations, SR2002 sets up seven cross-cutting reviews of topics which extend beyond departmental boundaries. These include such topics as science and research; services to small businesses; the public sector labour market and the role of the voluntary sector in public service delivery. The possible impact of these reviews on adult learning is not considered in this paper but will forms the basis of a separate briefing. This paper does, however, include a summary of the regional impact of SR2002, especially the consequences for spending by Regional Development Agencies (RDAs).

7. Before the Government’s detailed plans are set out, “Opportunity and Security for All” contains a section that sets out the underpinning themes of government policy. This is essential reading and contains important new articulations of lifelong learning policy together with the reasons for the introduction of new commitments. There are a number of developments of interest to NIACE (for example the continuation and expansion of the Neighbourhood Renewal Fund and the development of a National Framework for Parenting Support). The two most significant commitments however, are to:

“Reduce by at least 40 per cent the number of adults in the UK workforce who lack NVQ level 2 or equivalent qualifications by 2010.” (Chapter 2: “Raising Productivity”)

“Improve the basic skills of 1.5 million adults between the launch of Skills for Life in 2001 and 2007, with a milestone of 750,000 by 2004.” (Chapter 3: “Extending Opportunity”)

 

8. Chapter 3 also states:

“… the Government will also take a radical look at structures, funding and accountabilities for the provision of skills and training from April 2003 Learning and Skills Councils will be given 3 year budgets and 100 per cent end year flexibility. And pilots will operate in one or two regions whereby budgets for adult learning are pooled between local LSCs and RDAs and co-ordinated in partnership.”

 

9. Education is undoubtedly one of the main beneficiaries of SR2002.

10. The justification for these increases is Government’s belief that “Raising attainment and skills is fundamental to building a successful, competitive economy and a fair, prosperous and inclusive society, in which everyone can realize their full potential”. This formulation maintains the primacy of the economic imperative for lifelong learning but continues to acknowledge equity and inclusion as legitimate goals for lifelong education. The emphasis, however, in both the Treasury and DfES documents, is firmly on children’s schooling and pre-school learning:

11. Although the DfES document “Education and Skills: investment for reform” indicates (page 3) that further announcements on 14-19 education, on higher education and on adult skills remain in the pipeline, there are a number of indications of the direction of thinking. No budget allocations are given in SR2002 but the new PSA targets are elaborated:

 

“6.22 Seven million adults have poor basic skills, which hamper their ability to take an active part in everyday life and reduces their opportunities for learning and employment. By 2004, the Government will have helped 750,000 of these adults to achieve a basic standard of literacy and numeracy. This Spending Review allows the Government to stretch this target further, to help a total of 1.5 million adults with basic skills between 2001 and 2007.”

“6.23 Raising the wider skills of the workforce is critical to a more productive economy. The Government has therefore set itself the ambitious target to reduce by at least 40 per cent the number of adults in the UK workforce lacking NVQ level 2 or equivalent qualifications by 2010.” To which is appended a further phrase in a summary: “with 1 million adults in the workforce to achieve level 2 between 2003 and 2006.”

 

12. Prompted by a desire to encourage employer and individuals’ investment in learning, SR2002 also announces a fundamental review of adult learning and skills to:

… “look at better incentives, and how to encourage institutions to be more responsive to employers needs. The review will also consider how current funding arrangements could be reformed to enable Regional Development Agencies (RDAs) to play a full and effective role in developing and implementing regional skills strategies. The review will be completed in time for any new arrangements to be introduced from April 2004. In the immediate future, in order that the regional dimension to skills is strengthened, from April 2003, pilots will operate in one or two regions whereby budgets for adult learning are pooled between LLSCs and RDAs and co-ordinated in partnership.”

This was explained also in chapter 23 using the following words:

“consulting widely, in particular with employers, the Government will undertake a fundamental review of the funding for adult learning, to look better incentives, and how to encourage institutions to be more responsive t o employer needs. The review will also consider how current funding arrangements could be reformed to enable RDAs to play a full and effective role in developing and implementing regional skills strategies. The review will be completed in time for any new arrangements to be introduced from April 2004.”

 

13. In a further infrastructural reform, HM Treasury has given all departments three-year budgets with 100% end-year flexibility. From 2003, the post-16 learning funding system will also have three year budgets and 100% cascaded directly to local LSCs. Government expects the benefits of these new arrangements to be passed on to colleges, allowing them to plan provision on the basis of local strategic priorities and employer needs, rather than just on the basis of short-term affordability. In addition, FE colleges are promised a 1% real-terms increase in core funding in return for improved performance gains (unspecified) “tough new targets”, including engagement with local employers. Regional budget pooling is also proposed in the same paragraph (6.18).

14. SR2002 contains relatively little about higher education and how the government’s 50% participation target will be achieved. In particular there was nothing on tuition fees and student support. The paper says only that “With real terms increases in total funding per student and targeted pay incentives, institutions will be resourced to improve teaching and tackle pressing problems in recruiting and retaining key staff” (paragraph 6.21). In addition a £1.25 billion sum identified for science research from the Department of Trade and Industry.

15. The Office of the Deputy Prime Minister (ODPM) covers both local government, regional policy and also has responsibility for Neighbourhood Renewal where the government is committed to strengthening deliver of the national strategy to narrow the gap between the most deprived neighbourhoods and the rest of the country. It encompasses the Neighbourhood Renewal Unit, Social Exclusion Unit and Regional Coordination Unit. Working with Local Strategic Partnerships, its strategy will be underpinned by improved PSA floor targets which set out how the gap will be narrowed across key service delivery areas (including employment and education). Alongside the allocations to Departments to help them meet the floor targets, the Spending Review delivers ongoing funding for the most deprived neighbourhoods from the Neighbourhood Renewal Fund, increasing to £525 million in 2005-06. The 2002 Spending Review also provides ongoing funding for the 39 New Deal for Communities partnerships, as part of a £2 billion ten year programme.

16. ODPM also is the largest single contributor the Regional Development Agencies' Single Pot (see below). SR2002 gives ODPM a significant real terms increase in funding for RDAs, and also allows the recycling of savings from the wind-down of the Single Regeneration Budget into the Single Pot. This will give the RDAs significantly more flexibility in their funding arrangements.

17. The Foreign and Commonwealth Office (FCO) funds the work of the British Council and SR2002 provides it with funding to refocus its activities on transitional countries and the developing world. The British Council will also increase its support for the Prime Minister's Initiative to recruit more fee-paying international students to the UK.

18. As a result of SR2002, the Department for Trade and Industry (DTI) budget will grow by about 3% per year. The major developments related to learning include:

19. Adult learning is not one of the four main themes for the plans of the Department for Culture Media and Sport (DCMS) in SR2002. Nevertheless, it continues to aim to offer everyone the opportunity to improve the quality of their lives by being able to access high-quality cultural and leisure activities. As part of this, new PSA targets have been agreed including one to increasing the participation of adults in cultural and sporting opportunities. DCMS is also to begin to contribute to the RDAs single pot. (see below).

20. For the Department of Work and Pensions (DWP), a central reform of SR2002 is the national roll-out of Jobcentre Plus - the Government's one stop shop for job search and receipt of working age benefits - so that by 2006 there will be an additional 2 million work focused interviews a year providing more intensive 'back to work' help There will also be external scrutiny of Jobcentre Plus performance. Reforms will also be introduced to Employment Zones, including extension of this approach to lone parents and people returning to New Deal for the second time.

21. The regional dimension of SR2002 includes the promotion of economic development, increasing innovation and fostering enterprise. In order to promote fairer allocation of public spending at regional level, SR2002 announced

22. RDAs are seen by Government as being the key strategic drivers of economic development and regeneration in the regions. The Spending Review provides an increase of £375 million to the RDA's Single Pot by 2005-06, compared to 2002-03. Together with the reduction in the Single Regeneration Budget (SRB) commitments over the Spending Review period, which release an additional £535 million by 2005-06, this implies an increase in the uncommitted resources available in the Single Pot - the effective Single Pot - of £910 million by 2005-06 compared to 2002-03. The Single Pot will be £2 billion in 2005-06. The settlement also rebalances the RDAs' funding, with a switch of £200 million per year of existing funding levels from capital to resource, to help ensure the RDAs have the right mix of funding for their evolving role;

23. The new spending plans for the RDAs' Single Pot are set out below to illustrate the relative financial contribution of DfES resourcing. There is an average increase of 4.5 per cent per year in real terms overall during the next three years. This is an increase of £375 million in 2005/06, compared to 2002/03.

24. The regional dimension to skills is being strengthened, as part of a longer term vision of ensuring the priorities identified in the Regional Economic Strategies and Frameworks for Regional Employment and Skills Action are underpinned with financial resources. From April 2003, pilots will operate in one or two regions whereby budgets for adult learning are pooled between Local LSCs and RDAs, and coordinated in partnership.

If readers are aware of any omissions or errors, please e-mail Alastair.Thomson@niace.org.uk .

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