• Recommendations published today by The Coalition for a Digital Economy (Coadec) advises the creation of a new £100m “Future Skills Fund”, in order to enable those wishing to retrain or upskill to access funding, structured as Future Earnings Agreements (FEA).. 

  • Report comes as Ministers are looking at how they can provide government-backed financing to all British adults for lifelong learning.

  • Utilising FEAs for lifelong learning would provide better returns for the taxpayer than student loans, and would be cheaper for HM Treasury to deploy at a time when fiscal levers are constrained.

  • Due to the structure of FEAs, every 3-5 years approximately 120% of the Fund’s value could be disbursed again. This compares highly favourably to the Students Loan Company (SLC), where approximately only 43% of the value disbursed is returned.

 

DOWNLOAD THE REPORT HERE.

The Coalition for a Digital Economy (Coadec), the independent advocacy group that serves as the policy voice for Britain’s technology-led startups and scaleups, has launched a new paper arguing that the Government should allocate £100 million to a new “Future Skills Fund”, in order to enable those wishing to retrain or upskill to access funding, structured as a Future Earnings Agreement (FEA).

With a mounting unemployment crisis, which the Bank of England has predicted could see 5.5% unemployed by Autumn 2021, two challenges have been compounded: ensuring that Britain has the necessary workforce to compete and lead in the economic recovery, and turning huge numbers of NEET individuals into employable and productive workers. 

The UK’s tech sector is growing six times faster than the rest of the economy, and digital  roles are now some of the most in-demand by UK employers – second only to Healthcare. But a lack of financing options for post-18 training and lifelong learning is not only preventing individuals from accessing these high-paid jobs, it is also costing British tech startups £4.4 billion on an annual basis to backfill these roles, and threatens a swift economic recovery.

Yet there are a plethora of programmes run by technical qualification providers that are intensive and last only 12 weeks or so. Students are given focussed training that is specifically tailored to precise occupations, such as software engineering or web development that make them work-ready in the UK’s growing tech sector. But the same applies to training providers in further afield sectors – e.g. Healthcare, Social care, Law etc. 

Although the Government has announced that it will provide a Lifelong Loan Entitlement, the equivalent of four years of post-18 education from 2025, history shows that the UK needs a much quicker response than that. Gordon Brown took a year after Lehman Brothers fell before even announcing the Jobs Guarantee, which caused joblessness for under-24s to soar to 20%.

According to the research, a solution could lie in an innovative approach towards funding skills and retraining – known as Future Earnings Agreements (FEAs). Similar to government-backed student loans, learners who are able to use FEAs pay nothing up front for the course, and repayments are only made once the learner has a job and earns above a certain salary (e.g. 7% of earnings above £25k). Those that never get a sufficiently high paying job don’t need to pay back the FEA. 

But unlike student loans, the origination of FEAs is based on the predicted future earnings of each student upon graduation, rather than educational background or prior attainment. All of these features mean that they are attractive to a much wider group of people for whom training opportunities would otherwise seem like a far-away dream. They have significant potential in levelling the playing field and promoting social mobility. 

Those that do gain a high paying job may end up paying back more than the cost of the course (i.e. to ‘compensate’ the FEA provider for those who don’t repay), but this amount is capped in total (both through the number of payments, and as a multiple of the amount of finance), and also only ever a fixed proportion of salary above the threshold (e.g. 7% over £25k).

What makes this a great funding mechanism is the fact that the training providers only get paid if their graduates secure good jobs after their course. This means they have a strong incentive to invest in after-graduation careers support, and build strong partnerships with large employers. It is a market-driven, employer-led process of addressing skills gaps. 

By contrast, universities get paid by the Student Loans Company (SLC) regardless. Graduate employability might matter for league table performance, but If graduates don’t go on to earn decent salaries and pay back their student debt, it’s the Exchequer that suffers financially, not the institutions.

Key Findings and Recommendations:

  • The Government should allocate £100 million to a new “Future Skills Fund”, in order to enable those wishing to retrain or upskill to access funding, structured as a Future Earnings Agreement (FEA). 
  • Every 3-5 years approximately 120% of the qualification value can be disbursed again. This compares highly favourably to the Students Loan Company (SLC), where approximately only 40% of the value disbursed is returned. Effectively, the Government would be providing the seed capital for an evergreen skills fund, as repayments will be constantly recycled to fund new candidates.
  • For every one-off tranche of £100m provided, 10,000 qualifications would be provided over the next 4 years. This equates to approximately £1.6 billion of additional lifetime tax receipts based on the higher earning potential of each candidate – a 16x direct financial return in addition to the productivity benefits this scheme would enable.
  • The initial £100 million of funding could be repaid to HM Treasury in the future, or the Fund could be allowed to continuously grow with the proceeds reinvested in skills on an ongoing basis. If reinvested, the number of qualifications funded increases into perpetuity, totalling 75,000 qualifications over the next 20 years – which would equate to £11.8 billion of additional tax receipts.
  • The Fund could also help to crowd in private capital over the longer-term, laying the groundwork for a new asset class that has true social impact. As ESG becomes an increasingly important factor for fund managers, the Future Skills Fund would enable the government to reduce the poverty premium on education by harnessing the power of private capital. 

 

Commenting on the report Joel Gladwin, Head of Policy at Coadec, said: 

“Now is the time for the government to take bold actions. A new Future Skills Fund, based on FEAs, will not only improve equality of opportunity for all, it will also create a whole new industry and asset class with the UK leading the way internationally. 

We’ve seen this happen elsewhere, with forward-thinking approaches to fintech, peer-to-peer lending, and crowdfunding spurring on countless startups and making the UK a world leader. We now have a chance to do the same and be at the forefront of equipping people with the skills to thrive in the modern economy.”

Jonathan Slater, Co-Founder & CEO of CAPSLOCK said:

“At a time when the value of tech degrees is in decline, there is an urgent need for disruption in education. We’re determined to drive this disruption and close the cyber skills gap in the UK, which costs £27bn annually.

Being able to utilise FEAs has been extremely important; they’ve enabled us to achieve our own ambition of promoting greater diversity and inclusion in cyber security, since the financial hurdle no longer exists. Of our inaugural cohorts in February and March 2021, 32% were women and 35% were from ethnic minority backgrounds, more than double the average representation on a university degree in a similar subject.”

Notes for editors

  1. The report can be found in full here.