Tackling the Adult Skills Deficit – the Delivery Challenge, 26th March 2003

I am delighted to be here at the opening session of what looks set to be a fascinating and important conference.

And I want to start by thanking the Secretary of State, Charles Clarke, and the Minister for Adult Skills, Ivan Lewis, for inviting me – a Treasury representative – to speak this morning.

The close collaboration that we have seen between the Treasury and the Department for Education and Skills in preparing today’s conference, and the strategy progress report that Charles has launched, is indicative of a deeper co-operation that has been built in recent years between the two departments. And it is a recognition of 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.

That co-operation has so far delivered:

– 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 5.6% 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

– 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. 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 center to the regional and sub-regional level than we have seen in Britain for a very long time. It is this delivery challenge that Charles has asked me to speak about today.


This common agenda reflects not just shared policies and a new emphasis on devolution in delivery but also a shared analysis of the nature and causes of the UK skills deficit – an analysis we first set out last year in the joint Treasury-DfES analytic document – Developing Workforce Skills: Piloting a New Approach – and which we are now taking forward in today’s document.

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;

– of the 16-18 year old cohort, currently 25% are not in any form of education or training with UK participation way below European and OECD averages;

– 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.

We all know that step-change is required  -and that this requires government, employers, trade unions and employees to work much more closely together to tackle this problem. As CBI Director-General Digby Jones has said, “Some seven million adults in England – that’s one in five – can’t find the page reference for plumbers in the Yellow Pages alphabetical index. That is a national disgrace. We need to tackle this as a matter of priority.”

Second, 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.

As the Chancellor said in a speech on Flexibility a few weeks ago: “Without firms prepared to innovate and adjust, economies become sclerotic. Without the capacity to develop the new skills needed, countries will simply be left behind.” Ands he stressed that the flexibility of the economy and the labour market would become even more important in a single currency area where  – with the old flexibilities to adjust exchange rates and interest rates are no longer available at a national level – the economy and workforce would need to respond dynamically to shocks and changing circumstances.

Third, there is a strong regional dimension to the skills problem. 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.

Across the UK’s countries and regions the skills composition of the workforce varies significantly. London’s working age population, for example, contains almost three times as many graduates as that of the North East. In Northern Ireland, over one-quarter of the workforce is without any academic qualifications, compared to barely one in ten in the South East.

Improving human capital in lagging regions is a key factor to enable those regions to catch up. But these disparities between regions risk being exacerbated if training is too narrowly focused on skills for a particular job or sector. At low skills levels in particular, the returns on generic skills (literacy and numeracy) are a necessary first step before vocational qualifications. So enabling people to gain these transferable skills will be crucial to meeting our long-term goal of reducing the persistent gap in growth rates between the regions.

Fourth, we know that we cannot wait for full-time education system to provide skills for the adult workforce – and 80 per cent of the working population in 2010 are already in or about to join employment today.

So adult and workplace skills policies are critical. And that is why the government is now determined to reform and expand Modern Apprenticeships for young people already entering the workforce. For too long, the vocational options open to young people were poor quality and difficult to navigate. But we know that young people benefit from the experience of structured learning within a work environment, and employers benefit from the increasing skills profile of their new entrants. So to ensure that the Modern Apprenticeships framework fits the needs of both employers and young people, the new National Modern Apprenticeship task force is engaging employers from across a range of sectors to offer new placements to young people, and to provide critical oversight of the framework.

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.

This is why today’s progress report is right to highlight the importance of basic and level 2 qualifications. Not because level 2 qualifications are an end in themselves but because there is clear evidence that once individuals have acquired level 2 qualifications, they or their employer are much more likely to support them in acquiring further qualifications.

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.

We need to work closely with businesses and trade unions to develop this new approach which can help employers and individuals to meet their responsibilities – and this has been an important theme of the joint work that the CBI and TUC have been doing with government over the past two years on tackling the productivity gap.

This approach is reflected in the policy approach we are now testing in the Employer Training Pilots, where participating employers are expected to offer their low-skilled employees paid time off to train in return for which they receive, in return, free training provision, compensation for the time taken off by employees, and information, advice and guidance on appropriate courses.

Finally – and this is my theme today – we also increasingly recognise 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.

And with such a wide range of expertise here today from across the public sector – Learning and Skills Councils, the RDAs, Government Offices, the Small Business Service, the Sector Skills Councils, the Neighbourhood Renewal Unit as well employers, trade unions and local government – I know that – for you – getting the strategic direction and regional and sub-regional co-ordination of policy right is critical to your ability to deliver the goals we share.


This government – and the Treasury as part of it – has  – since 1997 – a strong track record on devolution and decentralisation – with more power handed over to departments, agencies, regions and devolved administrations that at any time in the post-war period.

– in monetary policy, Bank of England independence;
– in public spending, not one year but firm three year budgets with full End Year Flexibility for departments to move their budgets from one year to the next in return for well-defined output targets;
– in regional policy – a genuine devolution of power in economic policymaking to the Regional Development;
– in local government, Local Public Service Agreements and new freedoms and flexibilities for all authorities and more for high-performing councils.

This reflects, in part, the wider ambitions of this government, the Prime Minister, the Chancellor and the Cabinet, to meet long-term economic and social goals – higher productivity, full employment in every region, the abolition of child poverty, and world-class public services – and the need to work in partnership to deliver them.

But it reflects too, I believe, a proper understanding of the failures of the past and the new challenges of making policy in today’s world. Because today it is simply not possible either to run economic policy or deliver strong public services that meet public expectations using top-down one-size-fits all solutions of the past. New information technologies, greater competition, a premium on skills and innovation, a wide-ranging media, increasingly demanding consumers, and varying local needs all work to expose the contradictions of old-style centralization in the delivery or economic and public services.

In government there is always a temptation to use command and control techniques. For those charged with delivering vital services, rigid direction and guidance from the centre can seem the quickest way to get things done, flexibility a distraction.

But, in today’s complex world, it is does not work. Excessive centralisation destroys innovation and experimentation. It fails to allow different policy areas that must in fact be interconnected to be co-ordinated at the local level. It frustrates regional and local strategies and initiative.

And it saps morale. Recent work from the Audit Commission on the public service ethic demonstrates that it is not pay or pensions that public service workers value most but rather their ability to make a difference, and it showed that too many public workers felt frustrated in their ability to make a difference because of over-zealous central bureaucracy.

That is why the government has increasingly recognised that we need to go further and genuinely set local public service deliverers free, in return for clear and accountable targets and strategies – what we have called a “new localism”.

There are – I believe – four principles that must guide this new model of modern policymaking:

· clear long-term goals set by the elected government – national regional or local – to deliver agreed  standards and  – consistent with that – to allow regional or local choices about priorities;
· A clear division of responsibility and accountability for achieving those goals;
· Maximum local flexibility and discretion at the regional and local level to innovate, respond to local conditions and meet differing consumer demands and the desire for more flexibility;
· And, alongside this devolution of power, maximum transparency about both goals and progress in achieving them with proper scrutiny and accountability.

This approach means devolving power to those best placed to make decisions to deliver agreed goals and standards. Of course, in each area of policy we have to be careful to strike a balance, most particularly in public services such as health and education, between encouraging local flexibility and rewarding success on the one hand and our firm commitment to tackling inequalities in provision and preventing post-code lotteries and two-tierism in public service delivery.

But I do believe, following last year’s Spending Review, that Departments are making progress in putting these principles into practice, delivering more local discretion without putting equity at risk:

· devolving health budgets to primary care trusts;

· direct payments to headteachers, for them to spend on their own school’s priorities;

· new regional housing bodies to direct strategy and funding for each region, to name just three.

I know that any speech from the Treasury extolling the virtues of devolution will be met with a sceptical ear. And rightly so. Because the localist approach is hard to put into practice. Change takes time. In some areas we have not gone far enough fast enough. The easy option is always to resort to the old ways on difficult issues. And there is sometimes a tension between the desire to devolve flexibility and encourage local innovation with the fact that, often, it is ministers at the centre who remain accountable to parliament and the public for fiscal stability, tax, value for money and performance.
Some have interpreted the introduction of Public Service Agreements and output targets as an increase in Treasury interference and control. I disagree. We have rightly moved away from the old days when the Treasury signed the cheques or had to approve each and every spending project.
Far from being a way of pulling power into the centre, PSAs are the key to allowing effective and accountable devolution and discretion for departments. Making a reality of this devolution requires government to cascade these targets and financial flexibilities down from departments to front-line mangers instead of the old input controls of the past – and here progress has not been always as fast as it could have been.
The reason why there has been, at times, scepticism and frustration among public service deliverers is that all government departments  – including sometimes the Treasury – have been slow to cascade this commitment to long-termism and devolution to the frontline.
Too often in the past there has been a failure to consult properly on targets at the regional and local level. Too often three-year budgets or End Year Flexibility has been slow to cascade to the regional and local level. Too often there has been a failure to get rid of the old and rigid input controls – delegation limits, reams of guidance, administrative controls – with the risk that the need to agree PSA targets with regional and local service delivers might be used as a way of re-introducing controls through the backdoor.


We have seen these problems at first hand as we have tried – with ODPM, the DTI, the DfES and the RDAs  – to shape and deliver the new devolved approach to regional policy for Britain with a greater role for strategic economic policy-making and policy innovation at the regional and local level.

I have no doubt that there is common agreement on the vision. No-one wants to go back to the bad old days – the first generation of regional policy, before the war, essentially ambulance work getting help to high unemployment areas; or the second generation in the 1960s and 1970s, based on large capital and tax incentives delivered by the then Department of Industry, almost certainly opposed by the Treasury – an approach that was inflexible, top-down and did not work.

The new approach to regional economic policy, wholeheartedly promoted across government,  is based on two principles – it aims to strengthen the long-term building blocks of growth – innovation, skills, the development of enterprise – by exploiting the indigenous strengths in each region and city. And it is bottom-up not top-down, with national government enabling powerful regional and local initiatives to work by providing the necessary flexibility and resources.

We have been able to match this vision with new resources and new powers.

The Spending Review committed the extra resources to allow RDAs to deliver their regional economic strategies with the Single Pot set to increase by an average of 4.5 per cent a year in real terms over the next three years. This is an increase of £375 million in 2005-06 compared to 2002-03 and an increase of £910 million in the effective single pot that factors in the reduction of Single Regeneration Budget commitments.

The Spending Review also announced that the RDAs  – as the strategic leaders in economic policy-making at the regional level  – will also have a strengthened regional role in co-ordinating and delivering business support, transport, tourism, housing and childcare as well as skills.

But implementing this vision in practice is a huge challenge.

The “single pot” is a radical departure for central government. It demands a huge culture change. Flexibility must be real not illusory. It means central government departments’ role is long-term and strategic rather than short-term and micro-managing.

The significance of this change cannot be overestimated. Because for a central government used to controlling and delivering from the centre, there is a temptation to give greater flexibility with one hand and effectively take it back with the other by putting in new controls for managing the new flexibilities on the basis that this is the only way to protect the taxpayers’ interests. Sometimes, the new controls have borne more than a passing resemblance to the ones which were meant to have been removed, proving no less onerous to those in the regions who have to work with them. And sometimes, the time taken to implement these changes has been a cause of considerable frustration to those waiting to make use of the new opportunities they are intended to create.

The reality of devolution and decentralisation  – the new localism – is that once we have cascaded freedom and flexibility to front line deliverers we then recognise that the responsibility for delivery, and accountability, has passed from us to them.

Of course it is right that central government ensures proper procedures are followed so that taxpayers interests are protected.  And it is right that in regional policy, in return for devolution of power and discretion in decision-making, that we demand greater transparency and accountability.

That is why each RDA has been required to agree stretching and long-term output targets with national government for the years ahead. But these targets are not, as we all must repeatedly remind ourselves in Whitehall, a backdoor way to regain control but the route to ensuring that each RDA, in making their own decisions about their resources to meet their priorities, is held properly to account by parliament and the national taxpayer but also within the region and by local government.

This new regional policy is also requiring a big culture change in the regions themselves. To make devolved economic decision-making work, we need to build wider public support in each region and a genuine cross-regional commitment to delivery. And we need regional and local economic players – the Learning and Skills Councils and the Small Business Service as well as local government – to work in a much more integrated way as part of the regional strategy.


We are  – in my view – making real strides in integrating skills into this new regional policy. 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.

The need to co-ordinate policies for employment and skills policies was recognised in 2001 when the government agreed that every region would draw up a Framework for Regional Employment and Skills Action to identify and then develops the skills needed for their regional economy. The RDAs are uniquely placed to lead this process, with the local Learning and Skills councils, of deciding what skills their region needs. And from the outset, it was decided that every local Learning and Skills Council would include an RDA board member.

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 – with so much of the local LSC budgets decided centrally and with only one year budgets and no freedom to transfer underspends from one year to the next.

And 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 this 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

So from this April, Ivan Lewis is 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 the resources available for regional decision-making will rise from less than ten per cent today to nearly 50 per cent next year.

This commitment to local flexibility in delivery is also why we are 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, and we have  allocated a further  £125m for the coming financial year to extend these pilots for a second year and add a further six areas, so raising the coverage to a quarter of the country.

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.

The pilots are 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 colleges within 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.

It is too early to draw firm conclusions. But initial findings 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.

But we know we need to do much more to engage local businesses, trade unions and employees. And that requires that local LSCs develop a number of routes by which skills and training can be accessed.

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.

As John Monks, General Secretary of the TUC, has said: “Learning reps in many ways symbolise modern trade unionism. They are clearly benefiting union members, and acting collectively on their behalf with employers. But at the same time they are advancing an agenda that is clearly the benefit of employers.”

The University for Industry – Learn Direct – has already provided courses for over 700,000 people.

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.

And there is a critical role here 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 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 to further test how we can strengthen co-ordination between RDAs, business support and individual skills training, the North West RDA will be 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.

One area where there is scope for greater regional and local engagement is in the provision of skills for young people and school, leavers.  We need to think about how RDAs can work together with local authorities, LSCs, the new sector skills councils, universities, FE colleges and schools to understand how best to address the skills needs of school leavers in each region. And that demands that we think hard about how the expansion of modern apprenticeships can contribute to meeting regions’ differing skill needs. With over 220,000 young people a year undertake Modern Apprenticeships, and the National Modern Apprenticeship Taskforce now looking at how to increase the opportunities for young people to participate in Modern Apprenticeships and how to engage employers more fully in the programme, we must ensure that the regional and local dimension is fully integrated.


Tackling Britain’s skills deficit is a huge challenge. It means reaching out not just to young people going through the educational system, but also millions of people in the wider workforce who currently have little or no contact with the national education system.

But, 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 – building a new long-term model for British economic policy based on clear and long-term objectives, devolution of power and transparent mechanisms for accountability.

This new model requires – as the Prime Minister has said –  “a genuine partnership between government and the people in the front line.” 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.

Posted November 26th, 2015 by admin