Leading article: An investment that has yet to deliver the right returns

When New Labour came to office, its rallying cry was "education, education and education" and the first issue it sought to tackle was primary class sizes. The second goal it set was a dramatic improvement in the percentage of young people going on to university: a 50 per cent participation rate by 2010. Yesterday's report from the Organisation for Economic Co-operation and Development (OECD) shows how far it has fallen short.

Not only do we have nearly the largest primary school class sizes in the Western world, but we are actually dropping down the international league table for participation in higher education. All this is despite an admirable record of investment - the percentage of GDP spent on education is now above average for the first time, and we spend more than any other country bar the US on the under-fives. The trouble is that we are not receiving enough return on our investment.

Part of the explanation may be that the pre-fives who are currently benefiting from the Government's largesse will not move on to GCSEs until the start of the next decade. But there was an expectation at the start of Labour's term in office that the modest cut in primary class sizes would be the start of a bigger programme. The large investment in the under-fives could be frittered away if the children move into the fourth largest class sizes in the developed world when they transfer to compulsory schooling.

The picture in higher education is, if anything, even more worrying. We have slipped from 10th of 30 nations to 14th, compared with 2000, and from second to eighth in the proportion of youngsters graduating. And the position is likely to deteriorate because not enough youngsters are leaving school qualified to go to university. It is not that we are failing to expand student numbers - we are. It is that the numbers are growing more slowly than in the countries we regard as our competitors.

So why is it that, despite the Government's best intentions, we have failed to increase the numbers going on to higher education as quickly as others have done? The report suggests two reasons. One is that most other nations have better-quality vocational qualifications than we do, and this encourages more youngsters to continue in education. The second is that the financial support offered elsewhere - a mix of loans, bursaries and housing assistance - is generally superior to ours.

It may be that the new financial arrangements for students - with top-up fees and the restoration of grants to help pay living costs for the poorest - will go someway towards narrowing the gap. The survey data goes back to 2004, so fails to take that into account.

The quality of our vocational education, however, may be more difficult to tackle. The inadequacy of this sector was identified by the Tomlinson inquiry, which also proposed a reform of the curriculum and exam system that would have addressed the problem. Unfortunately, the Government rejected that report and it is unlikely that the new specialist diplomas in vocational studies, planned to run alongside A-level, will enjoy the same cachet among employers and universities as the vocational qualifications that already operate abroad.

The OECD report is proof, if more proof were needed, of the Government's failure to get to grips with that perennial weakness of our education system: the academic-vocational divide. It has honoured its "education, education, education" promise with investment and an exhausting sequence of reforms. But it lacked the courage to adopt the Tomlinson proposals for root and branch change of the exam system. Having set so much store by international competitiveness, perhaps ministers will find the OECD findings more persuasive.