27 November 2003
Speech by the Chief Economic Adviser to the Treasury, Ed Balls to the Conference on Employment, Skills and Enterprise: Regional and Local Solutions organised by Neil Stewart Associates in London
Opportunity and skills - the regional challenge
Introduction
I am delighted to be here at the afternoon session of this important conference, to follow the Adult Skills minister Ivan Lewis who spoke this morning and to join Ivan in welcoming to his new post as Chief Executive of the Learning and Skills Conference Mark Haysom.
Under the leadership of the first adult skills minister John Healey, now Economic Secretary at the Treasury, and more recently Ivan Lewis, I believe that this government has made great strides in recognising the central role that education and skill policy plays in delivering the government’s economic goals – high and stable levels of growth and employment with economic opportunity for all.
And that recognition explains why in recent years we have seen increasingly close collaboration between the Treasury, the Department for Education and Skills and the Learning and Skills council at national level and in the regions of England and Wales.
It is a co-operation has so far delivered real results:
- record levels of resources for investment in education and skills: ensuring education spending will grow by 5.9 per cent a year in real terms over the next three years, raising education spending as a percentage of GDP from 4.5% in 1997 to 5.5% by 2005-06, and a record level of investment in learning and skills with £9bn a year for the Learning and Skills Council by 2005-06;
- ambitious new skills targets: to reduce the number of adults without basic skills by 1.5m by 2007; to reduce by 40% the number of adults in the workforce who lack level 2 qualifications by 2010; and to ensure that, by 2004, 28% of young people will start a modern apprenticeship
- improvements in the Further Education supply-side through investment in quality and tougher accountability: the Success for All reform programme for Further Education was funded with 19% real terms growth in the last spending review, and includes three year budgeting and planning - which will enable more effective local planning and agreement of funding priorities, investment in teaching, learning and leadership - and a tougher accountability regime with stretching minimum floor targets put into place and targeting success rates across the sector.
- and important new directions in policy which we have developed together: Education Maintenance Allowance, the new National Modern Apprenticeships Taskforce, the Employers Training Pilots, more Centres for Vocational Excellence, Sector Skills Councils, the Union Learning Fund, new incentives for Investors in People and action to strengthen regional and sub-regional delivery of skills policy with greater freedoms and flexibilities for local Learning and Skills Councils and pilots to improve the regional coordination of skills budgets.
These are radical steps forward – which point the way to the next stage of reforms - reforms which we must pursue with renewed commitment and urgency. They pose real delivery challenges. They demand new ways of working and delivering policy. And they rely on a much greater devolution of power and decision-making from the centre to the regional and sub-regional level than we have seen in Britain for a long time. It is this regional and local delivery challenge that I want to speak about today.
Adult skills policy - an emerging consensus
The first term of this government after 1997 was - on economic policy – in its early years characterised first by the setting up of new national frameworks - for stability with the independence of the Bank of England and the fiscal rules, on employment with the New Deal, and on enterprise and productivity with reforms on tax, competition policy and infrastructure.
But to meet our goals of higher growth and full employment in every region we have seen a greater focus in economic and industrial policy promoting strategic decision-making and policy innovation at the regional and local level - a genuine devolution of power, resource and flexibility in economic policymaking to the Regional Development Agencies with the objective of delivering balanced growth across the regions and closing regional divides in productivity and employment
Skills policy is critical to the success of the new regional policy. Because we know that skills gaps in Britain are key to understanding not just our national productivity gap compared to other countries but also the pattern of regional economic divides which characterises our country.
So as we have worked together as a government to build a new consensus in adult skills policy - a consensus which we first set out last year in the joint Treasury-DfES analytic document - Developing Workforce Skills: Piloting a New Approach – and which is fully reflected in the skills white paper – we have recognised the critical regional dimensions to the skills problem and the need for regional and local solutions and greater devolution of decision-making in skills policy.
Let me set out that consensus.
First, there is a growing appreciation that Britain’s poor record on skills is not only a cause of social injustice and denied opportunity but also a important part of explanation for the UK productivity gap:
- although the UK has a large number of workers with high skills, nearly 40% of workers have low skills, compared to some 30% in France, less than 20% in Germany and some 10% in the US, in 2000, 86% of 18 year olds in Germany were enrolled in full-time or part-time education compared with 56% in the UK;
- and there are over 8 million people in the UK with qualifications below level 2, and over 7 million adults in the UK lack the basic skills of literacy and numeracy, again substantially above many other countries.
Second, there is a strong regional and sub-regional dimension to the skills problem with wide variations across and between regions. Just as the large number of people in the UK workforce with low skills plays a significant role in explaining its relative poor productivity performance, so variations in the UK regions’ skills composition are a major factor in explaining regional variations in productivity.
Third, we know that skills are key not just to productivity and fairness but also to the flexibility we need to sustain high levels of growth and employment in what is a more integrated but also a more volatile global economy. Investing in skills advances flexibility and fairness together.
Fourth, we know that we cannot wait for full-time education system to provide skills for the adult workforce – 80% of the working population in 2010 are already in or about to join employment today.
Fifth, there is a growing recognition that in skills policy the old voluntary and ad-hoc approaches to skills policy did not work. Our shared analysis demonstrates that there are clear market failures - externalities such as free rider problems and fear of poaching, information problems, credit market imperfections and low skill equilibria - which reduce investment in skills, particularly basic and level 2 skills, and result in much less investment in basic and level 2 skills than is efficient from the point of view of the whole economy.
Moving to a post-voluntary approach to skills training requires a new relationship between the government, employers and individuals in which everyone plays their part and accepts their responsibilities – government to provide the resources and opportunities, employers to ensure all their employees have opportunities to train, individuals to take up the opportunities on offer.
And finally, we also increasingly understand that policies to engage many thousands of businesses and millions of adults with new opportunities for skills cannot be run from central departments or agencies but must directly engage with regional priorities, local needs and individual businesses and workplaces.
Because regional skills disparities are driven by a complex combination of regional and local issues specific to each area. Peer, intergenerational and neighbourhood pressures make individuals in some regions less likely to acquire skills than people living elsewhere. Certain areas have high concentrations of individuals which face considerable resource and community constraints which make them less likely to acquire skills than others.
But skills gaps and their underlying causes often span wider than a locality. A low demand for high skills in a particular region – often as a result of an inadequate supply of high productivity firms – can also reduce the motivation of individuals to improve their skills levels.
And local employers often look beyond local boundaries when seeking to address their skills shortages. Businesses draw their employees from across the region, so the skills shortages they face a regional. For the small and medium-sized businesses, the national provision of skills often appears too distant, detached and diffuse – too far removed from the reality they face on the ground. But equally, the local level can often come across as too insular and unable to see beyond the very particular challenges facing a very particular locality. For employers, therefore, there is a need to offer a more strategic steer across each region.
Some regions do appear to suffer from a low performance equilibrium – with an inadequate supply of high productivity firms discouraging individuals from gaining skills and a shortage of highly skilled individuals discouraging firms from setting up in the region in the first place. This, in particular, points to the need for a strategic, long-term, regional approach to the skills challenge.
So there is a need for regional strategic leadership to make the right connections between the skills needs and the wider productivity agenda within each region – both through a strategic vision and through individual projects and programmes. Strategic regional leadership – drawing on local expertise and resources – can help to integrate the approach to skills with the enterprise, innovation and employment agendas.
Skills and the new regional policy
So how can we strengthen the regional and sub-regional co-orientation of skills policy? I believe that the Skills White paper sets out some important ways forward.
We know that improving skills in the workplace is central to both raising productivity and tackling regional divides. And just as the Higher Education White paper in January stressed the responsibilities that universities have to contribute to the regional economic agenda, so workplace skills policy – through the further education sector and the network of the 47 local learning and skills councils – must be at the centre of regional and sub-regional economic strategies.
Starting in 2001, the Frameworks for Regional Employment and Skills Action have provided an important institutional mechanism in each region to:
- Identify the employment skills needs of the regional economy;
- Developing regionally-tailored solutions to – drawing on regional strengths; and
- Coordinate the input of key local agencies and actors in implementing these solutions.
In drawing up FRESAs, the RDAs have worked in partnership with local agencies – including local LSCs, Jobcentre Plus, Local Authorities, Government Offices, the TUC and representatives of employers. These are action plans specifically designed to address the skills and employment needs of employers and individuals in the region within an economic, demographic and social context. FRESAs draw on regional labour market and skills information to pinpoint skills gaps, and help ensure that the learning provision delivered through local LSCs is focused on tackling these skills gaps.
The RDAs are uniquely placed to lead this process, with the local Learning and Skills councils, of deciding what skills their region needs. So from the outset, it was decided that every local Learning and Skills Council would include an RDA board member. And RDAs are well placed to make the right connections between the skills needs across their regions and the wider productivity agenda. Through their Regional Economic Strategies and through specific projects, the RDAs are able to integrate their approach to skills with their enterprise, innovation and employment agendas. Moreover, RDAs are appropriately situated to cater for the training and skills needs of both regional businesses and individuals within their regions.
But in the early years, I think it is fair to say that both the RDAs and the local LSCs were frustrated by the obstacles they faced in trying to work more effectively together. While RDAs now benefit from the flexibility of the Single Pot much of the local LSC budgets were still decided centrally and with only one year budgets and no freedom to transfer under spends from one year to the next.
So over the past year, we have been able to make real strides to improve the ability of the local LSCs to be effective partners in the new regional agenda.
By granting to local LSCs three year budgets from April, with full End Year Flexibility, we are - for the first time - giving them the power and flexibility they need to make long-term decision, take risks, innovate and build long-term partnerships with employers and providers at the regional and sub-regional level.
The government has also recognised that there is a case for going further in strengthening regional co-ordination of skills policy as part of the wider regional economic strategy. Because it is the regional and sub-regional tiers that are properly placed to understand the skills needs particular to each region and how to address these needs with a bottom-up rather than top-down approach
As the DfES Skills Strategy pointed out, the integrating mechanisms for tackling skills needs are not yet strong enough at the national, regional and local level. Institutional barriers to skills provision need to broken down. Ivan spoke about the work of the Skills Alliance this morning. And the new Regional Skills Partnerships are key to ensuring closer collaboration between the key regional and local agents. The RDAs are presently developing proposals with local LSCs, the SBS, Jobcentre Plus and the Sector Skills Development Agency for these new Regional Skills Partnerships.
Tackling these regional/local barriers demands a pro-active, coordinated regional approach. RDAs should be enabled to better ensure that the learning opportunities in their region match their particular skills needs. The RDAs and LSCs need to work closely together to break down the institutional barriers impeding the appropriate supply side reform in their region – and, in particular, to work much more closely and effectively than in the past with both local government and the Employment Service.
But there is a case for going further. The reshaping by the LSC with the introduction of the nine regional directors, strengthening the LSC's presence at the regional level is a welcome step forward. It is important that the LSC continues to improve its flexibility and capacity to work in partnership at the regional and sub-regional level.
And from April, Ivan Lewis has begun piloting devolved pooled budgets for adult learning between RDAs and local Learning and Skills Councils in four areas of the country – the North East, the East, the South East and the North West. In each of the pilot regions, with full commitment from all parties, the resources available for regional decision-making should rise from less than ten per cent today to nearly 50 per cent next year.
The Sector Skills Councils also have an important role to play to work with RDAs and local LSCs in tailoring courses to their particular needs, sharing best practice and promote the business case for skills investment. The University for Industry – Learn Direct – has already provided courses for over 700,000 people. And the Union Learning Fund has helped to establish and train a national network of 4500 Union Learning Representatives, now on a statutory basis, with increasing learning opportunities for excluded groups of employees such as part-time workers, shift workers, freelance workers and those with basic skills needs.
There is a critical role here too for the Small Business service to work closely in partnership with the RDA and local LSCS to ensure business is aware of the opportunities that the local LSCs and their skill brokers can offer and encourage businesses to take up these opportunities.
Here again we are acting to strengthen regional and sub-regional co-ordination. The government is piloting RDA-led management and co-ordination of business support in three areas from April. The pilots will be launched on April 1 in the East Midlands, West Midlands and the North West with the intention of better aligning local services to regional needs.
And importantly - to further test how we can strengthen co-ordination between RDAs, business support and individual skills training - the North West RDA is in the very early stages of managing a joint regional management pilot with business links and the local LSCs to improve the co-ordination of business support services and skills policies in the North-West. Similar approaches are also being tested in the North-East and Yorkshire and the Humber as a result of regional initiatives.
Employer training pilots
These institutional changes can have powerful effect. But the new policy direction which I believe has most to teach us about the modern route to adults skills policy in the regions is the Employer Training Pilots. It was our commitment - at the DfES and the Treasury - to local flexibility in delivery which encouraged us in the first place to begin piloting a new way of engaging employers at the sub-regional level through the new Employer Training Pilots which have been operating in six LLSC areas since September of last year. We allocated a further £130m in the last Pre Budget Report to extend these pilots for a second year and add a further six areas, raising the coverage so far to 12 local LSC areas covering a quarter of the country – Birmingham and Solihull, Derbyshire, Essex, Greater Manchester, Tyne and Wear, Wiltshire and Swindon, Berkshire, East London, Kent, Leicestershire, Shropshire and South Yorkshire.
Employers who participate in these pilots are expected to allow low-skilled employees paid time off work - either 35 or 70 hours - to train for a qualification in basic skills or at NVQ level 2. In return, the Government meets the cost of training provision; offers compensation for time taken off work; and provides free information, advice and guidance to employers and learners. With compensation weighted in favour of small firms, the pilots are allowing local Learning and Skills Councils to reach employers who had never engaged in workforce development before. Many employers who have only offered training to employees at management level have begun training low-skilled employees through the pilots – and we encourage participating employers to offer ETP training to all eligible employees.
All pilots work on the principle of engaging regional and local employers, learners and providers to assess the particular skills needs of local business and learners and ensure that training is flexibly provided and delivered to meet this need. When I visited the Manchester pilot recently, I was particularly impressed by how closely the regional TUC and the local Chamber of Commerce are engaged in making the pilot a success and promoting take-up.
And as well as being strongly regionally based, the pilot model also reflects our view that voluntarism has failed and that all sides must play their part in the skills agenda.
-
Government is accepting its responsibility to provide the finance for courses and compensation for time off for training for employers who provide training opportunities for their staff;
-
Providers are taking on board their responsibility to deliver flexible training at the workplace rather than expect companies to come to them with brokers offering a wider choice of provider to employers;
-
Employers are delivering training opportunities for all their staff without either basic or level 2 qualifications; and
-
Employees are taking up new training choices and opportunities with greater success rates than in the past.
The first full year of ETPs ended in August 2003. It is too early to draw hard conclusions about the pilots but the emerging results are positive. In their first year around 3000 employers and 14,000 learners were signed up by the pilots. Since the end of the first year evaluation – which we will publish in full shortly - the number of learners has risen to nearly 20,000.
The typical ETP learner is female, between the ages of 26 and 45, in full time low skilled employment. And 3 out of 4 learners left school at the age of 16, the majority without qualifications – showing these pilots are providing an important second chance for many. The early signs are that success rates are above average and deadweight low relative to past attempts to bridge the skills gap.
Nearly all employers were very or fairly satisfied with their experience of the pilots and particularly with the initial contact and arrangement for the training. Learners are attracted to the pilots by the opportunity to obtain the skills to do their job better and to gain a qualification. Most learners felt they had learnt something new and that the training would significantly help them to do their job better. Overall learners are very satisfied with their experience.
And with 70% of employers involved with ETPs employing fewer than 50 employees and over 40% of employers having had no previous involvement with Government agencies, the ETPs are succeeding in reaching new groups of employers.
Public funding for ETPs is also helping the LSC to drive a change of culture in the FE sector, by giving LSC areas scope to address local priorities and encouraging local colleges to adopt new methods in response to employers' needs. Demand-driven funding is already encouraging providers within ETP pilot areas to work on employer premises, fitting in with the patterns of their business, and tailoring training to fit the skills needs of individual employees – as well as exposing the lack of qualified instructors in key areas.
And in ETP pilot areas this new approach is helping LLSCs to diversify the LSC-funded provider market, encouraging colleges to offer more training in the workplace and attracting in new entrants – from the private and non-profit sectors – driving up quality and improving choice for employers.
And many colleges and providers are responding to this challenge by providing a strong and responsive service for local employers and learners. Changes to the funding and qualifications structure set out in the Skills Strategy will remove some of the barriers to customised training for employers. Colleges are being encouraged to strengthen their business development functions and specialist units to serve regional and sub-regional markets. It is our shared task to ensure that providers of vocational training – both in college and in the workplace – are delivering the highest quality service in return for public funding.
The pilots are confounding the myth that the problem is simply on the demand-side - that neither employees or employers want to train. The pilots are showing that the demand is there if we can ensure that the supply side of skills provision is geared up to meet the skills needs of individuals and employers, with training available at the right time, price and standards.
So as we continue to expand the coverage of the pilots we are demonstrating the reality of the new localism – devolving assessment of needs to those best placed to deliver tailored solutions with greater choice and diversity of provision, promoting economic strength and social justice. This is public sector reform in action – decentralisation, diversity and greater choice with equity.
The Employer Training Pilots are showing how we can deliver better policy by moving away from central direction to greater regional and sub-regional co-ordination and delivery in skills policy putting power and decision-making in the hands of local businesses, employees and training providers.
They are encouraging more flexibility and diversity in provision breaking old local monopolies and encouraging new training providers to engage with employers using public funding.
And they are also showing that a new and reformed approach to free up local skills providers can deliver more local choice for employers and low skilled employees denied opportunities in the past – showing that with reform more choice and greater fairness can go hand in hand.
Conclusion
In conclusion, I believe that the new regional policy is paving the way for a real improvement in the delivery and co-ordination of economic policy and particularly skills policy.
Change is already happening. While there is further to go in making better co-ordinated policy in the region – in skills as in planning, support for enterprise, inward investment, R&D and in expanding employment and economic opportunities – there has been a marked change over the past three years across the English regions in both the understanding of the policy challenges ahead and the willingness of people to work together in new regional partnerships with local learning and skills councils and RDAs leading the way forward.
In shaping these new partnerships I believe that we are - together – seeing a new long-term model for British economic policy based on clear and long-term objectives, devolution of power and transparent mechanisms for accountability.
And the Treasury is fully committed to working in partnership - with the DfES, DTI and other departments and with the RDAs, the local Learning and Skills Councils, Business Links and local government - to make this happen. Because it is only by national, regional and local government working together - matching devolution and accountability - that we can hope to meet our shared long-term goals, creating a more enterprising economy and a fairer society.
Thank you.
ends