The latest employment figures for Scotland show another drop in the number of 16-24 year olds in work.
For more than a decade, Scotland has been grappling with a tension at the heart of its post-16 skills and education system. On the one hand, more young people than ever before are staying in education beyond school and achieving higher levels of qualification. On the other, the link between qualifications, opportunity and prosperity is weakening. The graduate premium has been shrinking, productivity is flatlining and both employers and learners describe a system that feels increasingly misaligned with their needs and Scotland’s economic realities.
This tension is not new, or unique to Scotland. But as the country enters 2026, it faces parliamentary elections, a new tertiary education and training Bill and a period of political change. With economic pressures intensifying and institutional finances tightening across the board, it has become impossible to ignore the pressures on the skills system. A broad consensus is emerging: Scotland must strike a better balance between a qualification-led system and a skills-first system, one that is more agile, more employer-shaped, more capable of supporting better transitions into work, lifelong learning and more honest about the limits of the current institutional model.
The question for policymakers is no longer whether reform is necessary, but how far we are prepared to go? And whether the new Bill, while necessary, is sufficient to the challenge.
A Skills System Built for a Different Economy
From the Glasgow Athenaeum in the 1800s to the Scottish Credit and Qualification Framework (SCQF) in the early 2000s, Scotland has a proud history of innovation in the area of vocational education and training. Our post-16 landscape in Scotland was largely shaped in an era when occupational pathways were more stable and linear, when higher education reliably delivered upward mobility and when the labour market could absorb an expanding pool of graduates.
That world has changed.
Despite relatively high levels of overall employment, Scotland’s economy is being reshaped by technological disruption, demographic pressures, globalisation, green transition and the unpredictable impact on jobs at all levels. This is more complex than the hollowing out of mid-skill roles that was once predicted. AI and automation are expected to transform nearly half of all jobs by the end of the decade. Meanwhile productivity lags, low-wage service work expands, and regional labour-market inequalities deepen.
This is a profoundly different context from the one in which Scotland’s current post-school architecture: universities, colleges, apprenticeships and associated qualification frameworks were built. And yet, in important respects, policy and institutional behaviours remain anchored in a world that no longer exists.
How We Got Here: Three Phases of Scotland’s Skills Policy
While Scotland’s colleges, along with the rest of the education system, have always been a devolved matter, it is only since the Enterprise and New Town (Scotland) Act 1990 that policy responsibility for apprenticeships and training was vested in the Scottish Government. To better understand the crossroads Scotland faces today, it is useful to view the skills system as the product of three overlapping eras of policy since the late 1980s, each reflecting the challenges of its time while unintentionally creating constraints for the next.
1. The Expansion Era (1980s–2000s)
Characterised by rapid expansion of higher education, rising participation and the embedding of Scotland’s unique educational identity. This era broadened opportunity but created a structural tilt toward higher education pathways and the accumulation of qualifications. It also saw Scottish Vocational Qualifications (SVQ) more widely embedded, the launch of Modern Apprenticeships (MA) and a move away from the mass youth training programmes of the 70s and 80s.
2. The Human Capital Era (2000s–2015)
The system became increasingly focussed on ‘skills utilisation’, shaped by the logic of productivity and economic competitiveness set out in “Skills for Scotland”, the government’s 2007 strategy. Apprenticeships expanded and the creation of Skills Development Scotland combined with college restructuring moved towards a more centralised model. Despite the Wood Commission into the development of Scotland’s young workforce, employer leadership remained weak and work based pathways underdeveloped.
3. The Stretched System Era (2015–present)
The system has increasingly faced pressures from a rapidly changing labour market, with automation, rising inactivity, youth mental health challenges and demographic decline. Critically, this era was also marked by pressure on public finances, the impact of BREXIT on EU structural funds and COVID. Colleges, universities and apprenticeships, the pillars of Scotland’s post-16 system, now face unprecedented financial stress.
University funding per Scottish-domiciled student has fallen substantially in real terms, several institutions are carrying significant deficits and the international student cross-subsidy model has lost stability. At the same time, political discourse around student contributions remains frozen.
Colleges face similar pressures: reduced real-terms funding, declining enrolments, lower attainment and shrinking cash reserves. Demographic decline in the 16–24 population intensifies competition for learners across institutions, even as employers simultaneously struggle to recruit.
Employer investment in training continues its long-term decline, now around half the EU average. The Apprenticeship Levy has not produced the expected uplift in investment and apprenticeship demand consistently outstrips available government-funded places.
While each phase has contributed important gains, this era has exposed the limits of a system facing acute funding pressures and an operating model largely designed around linear progression and institutional silos. In the absence of a clear national skills strategy, they now leave Scotland with a system stretched across conflicting purposes and unable to meet the demands of the labour market emerging in the 2020s and 2030s.
Beyond the drivers set out above, there are also less obvious factors shaping our national skills system.
The Pull of Powerful Narratives
One of the barriers to change is Scotland’s enduring educational mythology. From the “lad o’ pairts” to the parish school to the modern mantra of free higher education, Scotland’s self-image is profoundly shaped by stories about social mobility, merit and democratisation through learning.
These narratives matter. They frame perceptions of what success should look like for young people and society more widely. They underpin political commitments, especially free tuition, that are difficult to reconsider even as structural pressures mount. They help explain why widening access has been prioritised over widening choice and why the system continues to channel a high proportion of school leavers into higher education, even as the labour market signals point elsewhere.
Narratives alone don’t determine policy, but they strongly influence where political risk is tolerated and where it is not.
Path Dependency: The Invisible Architecture of the System
A core challenge for reform and Scotland’s future skills journey is “path dependency”, or the way past decisions constrain future choices. Once institutional structures, relationships, funding mechanisms and qualification frameworks are established, they shape incentives long after their original policy intent and context has passed.
In Scotland, this could mean that institutional funding models prioritise organisational survival over the needs of learners, the economy and society. That we reinforce a qualifications-led culture where progression is equated with accumulating certificates. That employer involvement is encouraged but not embedded and we continue to have siloed governance across schools, colleges, universities and apprenticeships
Recent reports from both Our Future Scotland and Demos recognise that path dependency is one factor putting the handbrake on effective implementation and understanding why incremental reforms repeatedly fall short.
The Crossroads: Why Incremental Reform Won’t Be Enough
The pressures now building are structural misalignments, not cyclical or temporary blips. The fiscal reality of public finances and the needs of the labour market are set against a backdrop of accelerating technological transformation, changes to demography and employer investment in skills that will not rise without meaningful co-ownership and a clear national economic strategy as argued for by Sir Anton Muscatelli in his recent paper.
Colleges, universities, apprenticeships and the wider skills system cannot absorb continued real-terms cuts without pivoting and building on their considerable strengths. It is about recognising that the system (largely) designed for an industrial economy cannot deliver the Scotland of the 2030s
Gatsby Foundation’s recent paper “Towards a skills-first Scotland: pathways to prosperity”, sets out the case for distinct and clear national skills strategy built on the five pillars of:
– making work the central purpose
– aligning the skills system to economic priorities
– employer-led skills development
– rebuilding colleges as the enablers of opportunity
– a flexible skills system
Without a clear vision and coherent, interlocking economic and skills strategies that have broad support, Scotland risks trying to solve tomorrow’s problems with yesterday’s tools under today’s budget pressures. Incremental reform focussed on structures and institutions will not solve the fundamental misalignment between Scotland’s policy inheritance and its economic future.
A renaissance in Scotland’s skills system needs to harness the experience, commitment and talent of those that work in the sector and leverage more from the £2bn of annual public investment. A skills-first Scotland is a necessary next stage in the evolution of Scotland’s post-school system, through which Scotland can articulate and align its economic ambitions, social mobility goals and labour-market needs with vigour and purpose.
Jonathan Clark has several decades experience in economic and skills development. Formerly a Director at Scottish Enterprise and Skills Development Scotland, his work focuses on innovation and impactful strategy. His most recent report for the Gatsby Charitable Foundation, Towards a skills-first Scotland: pathways to prosperity, was published in November.