Department for Education pulls all Learndirect contracts and funding

The Department for Education is to cancel all contracts with Learndirect, the adult training provider that tried to suppress a damning regulator’s report into its poor standards.

The Department for Education said on Tuesday that it would withdraw all funding from the organisation, which is responsible for almost 73,000 trainees, by July 2018 and that it had already banned it from taking on new apprentices.

Learndirect, which was privatised by David Cameron’s coalition government in 2011 and is majority-owned by the private equity arm of Lloyds Bank, has said it could collapse into administration if the DfE withdrew its funding, which was worth £158m in the year to July 2017.

After the DfE announcement, a Learndirect spokesperson said the Education and Skills Funding Agency “issues 12-month adult education budget contracts to the sector, with the current round scheduled to end in July 2018. This is just one source of funding into Learndirect Limited”.

The company, which has paid out tens of millions of pounds to its owners and managers since privatisation, had sought a court injunction to prevent the publication of a highly critical report by the education regulator Ofsted.

In its application to the court, Learndirect said publication could lead to the “catastrophic” withdrawal of government funding, according to the education publisher FE Week, which successfully lobbied for the lifting of reporting restrictions.

Learndirect had said publication of the report, which gave the provider the lowest possible rating, would create a risk of “irreparable damage including financial consequences”.

Angela Rayner, the shadow education secretary, called on the government to step in and protect trainees and apprentices and ensure they could complete their courses.

“It is clear that something has gone seriously wrong since the coalition government privatised this service, and the future education and training of thousands is now at risk,” she said.

“If necessary, ministers should be prepared to step in directly and ensure that trainees and apprentices are protected, their courses are completed and adult education is placed on a sustainable footing. Relentless cuts and incompetence by successive Tory governments have left adult education in a mess.”

Learndirect’s owners and managers were accused earlier this week of raking in millions of pounds of taxpayers’ money while overseeing a “catastrophic decline” in standards.

The Institute for Public Policy Research (IPPR) thinkthank calculated that the company has received £631m of public money since its controversial privatisation. An FT/FE Week investigation this week found that in the four years since it was sold off, it parent company spent 84% of its income, most of which came from the taxpayer, on payments to managers and financiers.

Joe Dromey, a senior research fellow at the IPPR, said it was “truly shocking” that Learndirect’s owners, which ultimately include Lloyds Bank, appear to have “raked in vast amounts of public money, extracted tens of millions of pounds from Learndirect, loaded the company with debt, overseen a catastrophic decline in standards, and tried to stop the truth coming out”.

“The owners of Learndirect have some very serious questions to answer,” he said. “This should be investigated by the Public Accounts Committee, and if Learndirect goes down, government should seek urgently to reclaim as much public funding as possible from their irresponsible owners.”

Dromey said that not only was the alleged mismanagement at Learndirect shocking, it was also the result of the systemic failure of public policy. “It was the government which privatised Learndirect, encouraged competition, reduced controls on quality and slashed funding in the system. They set the conditions in which this disaster played out. Government must urgently learn the lessons of the scandal at Learndirect, and act to ensure it never happens again.”

Ofsted said was it was “very pleased” that the company’s application for a judicial review to prevent publication of the report had been refused.

Among its criticisms, Ofsted said the management of apprentices was ineffective, while about a third of learners on apprenticeships “do not receive their entitlement to off-the-job learning” and fail to develop “the skills they require to progress to the next step in their career”.

Learndirect said it challenged Ofsted’s inspection over concerns the process did not give a true reflection of the company’s training quality and performance. “In particular, we felt that the sample size of 0.6% used by Ofsted to arrive at its conclusions is not sufficient to judge the quality of Learndirect’s training,” it said.

A Learndirect spokesman defended its financial position and deflected criticism about millions paid in shareholder dividends. “Learndirect Limited’s underlying business remains stable and we continue to be focused on supporting our learners as usual,” he said. “Normal dividends were paid to our shareholders when the business was growing rapidly, generating significant profits of more than £25m in 2013, and the sector outlook was positive.

“In addition to this, there were significant intra-group dividends paid as part of a group reorganisation. None of these resulted in cash leaving the group. No further dividends have been paid since.”

Lloyds Development Capital, the private equity arm of Lloyds Bank, which owns 65% of Learndirect, said: “Over the last six years and under private ownership, the business has helped more than half a million learners. We provided £37m of additional funding in the last three years to support the company during a period of severe public sector funding cuts.”

• This article was amended on 16 August 2017. The Department for Education, rather than the government has pulled all Learndirect contracts and funding.