The government should cut half a billion pounds funding from ÖйúAƬ to safeguard the further education sector in the next spending review, according to a new report by a leading thinktank.

In their paper published today, Policy Exchange argues that the Department for Business, Innovation and Skills (BIS) should redirect ?532 million grant funding ¨C earmarked for widening participation efforts and provision for high-cost subjects ¨C into further education to boost higher-level professional and technical education. Any remaining grant funding should be directed towards universities with the smallest financial reserves.

It states that BIS should consider whether ¡°universities should not only be required to maintain their responsibilities in these areas but to now partially fund them themselves¡±.

The report found that funding for ÖйúAƬ institutions has increased markedly since the introduction of tuition fees, with a rise in overall income of 26 per cent since 2009-10 and universities sitting on ?12.3bn of unrestricted reserves.

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In comparison, further education colleges have seen a significant drop in their revenue. According to the National Audit Office, more than one in four of the entire further education college network could in effect go bankrupt within a year.

Prioritising funding in favour of ÖйúAƬ, it says, is also hampering the growth of training that is desperately needed for a range of technical and professional jobs in the UK labour market.

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The report cites data that show that more than a quarter of firms that require technicians qualified in science, technology and engineering or maths (STEM) already report difficulty in recruiting, and that the Royal Academy of Engineering forecasts the UK economy to require 830,000 more engineers by 2020.

The paper also calls for an expansion of the university student loan system, as well as the introduction of maintenance support, to further education students. It would mean that, regardless of the education route a student decides to go down ¨C either university or a high-quality technical pathway ¨C they will have equal access to finance to support further study.

Jonathan Simons, head of education at Policy Exchange, said that the UK needs ¡°many more people with high-class technical and professional skills¡± as well as those with degrees.

¡°It is clear that ÖйúAƬ is significantly better funded than its further education counterpart,¡± Mr Simons said. ¡°Universities have substantial cash reserves which could be much better utilised than sitting in banks.

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¡°That is why we think a proportion of the government grant to universities should be reallocated towards offering more students higher-level technical qualifications at further education institutions, and why the student loan system should be expanded so that young people have access to finance to support their higher-level study whichever route they choose.¡±

John Widdowson, president of the Association of Colleges, who recently called on government to provide ¡°proper and fair funding¡±?to further education, said that the report made a ¡°strong and convincing case¡± to rethink spending on post-18 education.

¡°The government must now¡­ensure that the further education sector has the funding it so desperately needs to enable colleges to tackle the massive skills challenges faced by this country,¡± he said.

¡°The outdated practice of highly funding our universities while continually taking money away from colleges is creating a surplus of graduates and not enough people with the qualifications required for technical and professional jobs, such as engineering and construction.¡±

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However, Nicola Dandridge, chief executive of Universities UK, said that it should not be an ¡°either-or¡± choice between the two sectors and it was ¡°misleading to suggest universities are awash with cash reserves¡±.

¡°Our universities are critical to developing the highly-skilled workforce our economy needs,¡± she said. ¡°The increase in the fee cap in England to ?9,000 was largely a replacement for cuts in direct government funding. Fees, also, do not cover the cost of high-cost subjects such as science and engineering.

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¡°Universities also need capital investment to invest in world-class facilities and to leverage additional funding from external sources.¡±

john.elmes@tesglobal.com