Super-profits for some while bankruptcy threatens for others

Two big stories about further education have surfaced in recent weeks. One concerns the scandal at the large apprenticeship provider 3aaa, where it’s alleged that the owners of the company financed a lavish lifestyle on the back of some pretty dodgy reporting practices. The other concerns the question of whether a college (or more interestingly for the mainstream media, a university) might be allowed to go bankrupt.  The point needs to be made that these represent two sides of the same coin.

Some excellent investigative reporting by FE Week has revealed in painstaking detail just how much profit was extracted from the apprenticeship contracts operated by 3aaa.  I have no knowledge of the company so cannot comment on the charges of criminal activity; but it is clear that whether there was or was not, the siphoning off of so much income as profit is indefensible.  It’s not as if the company developed a fantastic new product that was of clear benefit to consumers; rather the company identified a loophole in a poorly drawn contract that gave an opportunity for the owners to enrich themselves.  It was much the same pattern as the Elmfield Training scandal of a few years ago and many others.

The difficulty is that in a complex world like education it isn’t possible to frame every contract with such precision that similar scandals won’t occur; and the prospect of easy pickings regularly attracts the wrong sort of organisation into the sector – just look at the long list of chancers with no track record and hardly any staff seeking a place on the register of approved training providers.  With public sector bodies or not-for-profits, any windfall from such loopholes is merely used to cross subsidise other provision – not mansions, luxury cars and vanity sponsorship deals.

It’s ironic that at the same time as this scandal has been unfolding there has been renewed public comment about whether civic institutions such as colleges should be allowed to go bankrupt.  It was the prospect of a university (or three universities) ‘failing’ and comments from the regulator about not bailing them out that raised the profile of the debate but it’s a serious issue for colleges of FE as a new insolvency regime approaches.  Up to now ‘restructuring funds’ have been provided as a way of staving off disorderly collapse, but colleges are being warned that this mechanism is coming to an end.

Although the advocates of ‘market discipline’ believe that the fear of failure is essential if spending is to be kept under control, the reality is that the failure of a major FE or HE provider would have seriously damaging consequences for students, employers and local economies.  The likelihood is that those institutions most at risk are those serving disadvantaged communities, acting as one of the few ‘anchor institutions’ in a deprived area and providing a valued service to local business. It’s inconceivable that a major city might be left with no FE provision if it’s one college goes under.   Like a ‘No-deal Brexit’, it’s a so-called trump card that can’t be played because of the awful consequences.

The logic of a competitive market argues that institutions are led to serve the public good by two factors – the prospect of large profits if they meet needs well and the prospect of bankruptcy if they fail to do so.  The risk of the latter serves as justification for the former.  Unfortunately in the case of public services neither the stick nor the carrot can work effectively as the response to recent events demonstrates. Providing public institutions with the stick without the corresponding carrot seems particularly unfair; yet it is doubtful that people are any more relaxed about the super profits of 3aaa and others because of the current bankruptcy.

The conclusion has to be that a market is not the best way to run education.  While markets have their place the incentive structures that drive them just cannot work well in this setting.  We need to return to a model based on the ethos of public service.

Michael Lemin
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