Skills Funding Agency chief executive Geoff Russell reflects on a ferocious year but is hopeful for longevity in 2011 as he considers the magic of the marketplace.

Welcome to 2011, which if Chinese mythology is to be believed is the Year of the Hare, the emblem of longevity. This is surely a propitious sign after what was, I'm told, the ferocious Year of the Tiger. Interestingly, it's also the international year of chemistry, where the United Nations will celebrate the global significance of chemistry. What better time for FE to get its chemistry right?

To my mind, these can only be good omens as we emerge from ferocious 2010, which closed with the publication of the two most important strategies the sector has probably ever seen.

As the nation pins its hopes on economic recovery in 2011, the Coalition has made it clear that skills will be the key to accelerating growth and promoting fairness. The role of the FE sector in underpinning economic growth is critical. Certainly, the economic and political environment we are in gives FE a remarkable opportunity to capitalise on what it does best.

But let's not gloss over the challenges the sector needs to overcome if it's to seize that opportunity. The chemical formula has to be right. So the Agency must put the right elements of incentives and accountabilities in place that are needed to start the reaction between supply and demand in the market. And then get out of their way, supplying just the right heat and oxygen – or should I say funding and information – so customers and providers can make their own decisions in the market.

Before Christmas providers received their initial adult funding allocations from the Agency. Most significantly, this now takes the form of one single adult budget. Within that overall budget there is requirement for a minimum level of Apprenticeship activity, which of course reflects the Government's expectation to substantially grow Apprenticeships. But if providers are to deliver the right results they will need to go beyond that minimum and keep increasing and growing their Apprenticeships. Overall, the allocations may not look too bad, but the devil is in the detail on changes to the unit of funding, to what is funded, to uplifts etc. The next year will be one of working harder for your money - and the same is true for 16-19 funding. Future years will just be about less money.

So 2011 begins a world of less money and harder work. But let's not fool ourselves. Yes, it's because of reduced public sector finances - but don't forget it's also because the world overall is a tougher, more competitive place. And the same economic pressures that are driving the sector to greater competitiveness are also driving our customers, who wisely know that equipping themselves with better skills is the way forward in a highly competitive world.

Some of our greatest shining lights have already skilled themselves for this tough new world: our recent Euroskills medallists. I congratulate them wholeheartedly on their success. The UK Team, all aged under 25, secured 17 Medals, including eight golds, in skills ranging from Mechanical Engineering through to Landscape Gardening and Hairdressing at the European Skills Competition www.ukskills.org.uk.

And on the subject of success, if you can inspire people like those young people do, work dynamically with your customer and create a different offering for learners, then you too are onto a winner. The new-found freedoms and flexibilities that the sector has at its disposal can and should drive it to yet greater enterprise, with or without public subsidy, where getting up close and personal with the customer - whether that be employer or individual - is the norm. Gone are the days where demand is expressed through the bureaucracy of national planning. That's the magic of the marketplace.

Yet I am clear that competitiveness must have a social conscience too. Colleges and providers do need to make best use of any public subsidy that's available to them, but they need to do so by working closely with local stakeholders in the communities they operate in. That's why the Outcome Incentive Payment being trialled in 10-11 will mean that a proportion of the allocation is held back and will only be paid on the achievement of economically valuable outcomes.

So working closely with the community is of great value to maximising your income. But financial health is not just about looking after the top line, it must also be about reducing costs by working closely together. Which takes us once again to the hobbyhorse of efficiency. In times of austerity, the sector must do better with less, not less with less. FE is already pretty efficient but must now become ruthlessly so. So shared services, joint contracting, federation, combined back office functions and whatever else can be dreamed up must be considered. Not only can collaboration save money, but it can actually lead to income generation if it is done well - think curriculum specialisation - which should also lead to improved quality. More for less – the right answer.

So with the clean slate that the New Year brings and the new, magical dynamics of a customer-driven world, I am confident that the FE sector will achieve the longevity that the Year of the Hare promises. Which is reassuring, as 2012 is the Year of the Dragon...

Happy New Year

Geoff Russell is chief executive of the Skills Funding Agency, part of the Business, Innovation and Skills Department


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