Select Committee on Work and Pensions Third Report

5  Skills and the Leitch Review

110. People with low or no qualifications have an unemployment rate of about double that of the working population as a whole.[126] Organisations working with a variety of disadvantaged groups told the Committee that low skills could be a key barrier to finding or keeping work. Chris Pond of One Parent Families said "a major barrier for lone parents entering sustainable employment is the level of qualifications."[127] Patrick Grattan of TAEN/Help the Aged told us that older workers with low skills could easily become discouraged from trying to find work: "There is a vast difference between people with qualifications and skills who may have some capacity to step out in a new direction and many people who have no qualifications […] and who will just accept that their time has passed."[128]

Figure 2 shows the employment rate of the lowest qualified people in the UK:[129]

Figure 2:

Employment rate, gap with the overall rate
and projections for the lowest qualified

111. The DWP has a PSA target to increase the employment rate of those with the lowest qualifications.[130] However, of the four groups identified as disadvantaged by the PSA target, only the low or no qualifications groups has a declining employment rate. Inclusion commented that this was unlikely to change, as in future there would be a declining demand for low-skilled and unskilled workers.:

"While it would not be true, on current trends, to say there will be no jobs for the lowest qualified in ten years, the chances of getting a job show no sign of stopping falling. It is likely that government can do little to reverse the overall trend of fewer jobs for low qualified people, and highly debateable if one would want to. The best way to minimise the damage of low skills is to progressively reduce the number of people with low qualifications. Presently the UK has too many people with low qualifications competing for a shrinking pool of jobs requiring low qualifications."[131]

112. During the inquiry, representatives of several groups told us that the current system of skills training was not well suited to the needs of disadvantaged groups. It was described as too focused on younger people, for example, as we will note in the section on older workers. Similarly, as we describe in the section on ethnic minorities, the policy of focusing skills training on people aged 16-19 was identified as a problem for women from ethnic minorities, who were more likely to have children at an earlier age. One Parent Families told us that the rate of participation in training for lone parents was declining. [132]

The Leitch Review of Skills

113. In response to concerns about the level of skills in the UK, the Government commissioned Lord Leitch to carry out a review of the UK's skills framework. His report, Prosperity for all in the global economy: world class skills, was published in December 2006, and the Committee took evidence from him the following week.

114. The Leitch report warned that "the UK's skills base remains weak by international standards, holding back productivity, growth and social justice." It added that current targets are not demanding enough - "even if current targets to improve skills are met, the UK's skills base will still lag behind that of many comparator countries in 2020. The UK will run to stand still." Instead, a far more ambitious set of targets is proposed. The aim would be for 95% of adults to have basic numeracy and literacy skills, and for 90% of them to be qualified to Level 2 (equivalent to five GCSEs at grade A-C) or above. Numbers of apprentices would rise to 500,000 a year and the percentage of adults qualified to Level 4 (equivalent to a degree) or above would rise from 29% in 2005 to 40% by 2020.[133]

115. If the targets are met, the Leitch report predicted large economic and social benefits for the UK: "The prize for achieving this new ambition is huge - a more prosperous and productive society, with higher rates of employment, and lower levels of poverty and inequality. The report estimates a potential net benefit of at least £80 billion over 30 years, equivalent to an annual boost of £2.5 billion."[134] It estimates that the employment growth rate would be increased by around 10%.[135]

The Skills Pledge

116. The Leitch report proposes a bargain between employers and government to raise skills levels. Employers would be invited to sign up to a "skills pledge" to provide skills training up to Level 2 to eligible employees, based on an initiative in Wales which has seen over 10% of employers sign up to such a pledge:

"The skills pledge would be a specific promise to the workforce that every eligible employee would be helped to gain basic skills and a level 2 qualification. A major campaign, with public and private employer champions, would encourage employers to make a 'Pledge' that every relevant employee be enabled to gain basic and Level 2 equivalent skills - with tuition costs from the Government and time allowances at work. Government should consider giving small employers wage compensation for these time allowances. With key employers leading the way, the Review sees the potential of mass employer engagement with the 'Pledge' to deliver significant early progress against the world class objectives at Basic Skills and Level 2."[136]

117. If the takeup of the skills pledge proves to be low, then the report proposes that compulsion should be considered. The review recommends: "In 2010, the Government and the Commission [for Employment and Skills, see below] should review progress in the light of take-up and employer delivery on their 'Pledges'. If the improvement rate is insufficient, Government should introduce a statutory entitlement to workplace training at Level 2 […] in consultation with employers and unions."[137]

118. However, Lord Leitch commented that he would prefer to avoid this if possible: "I would rather have incentivisation and encouragement and mechanisms which increase awareness of the benefits of training, because there is a direct correlation between skills [and] productivity, which is good for your bottom line and employment."[138] If compulsion were to become necessary, the report warns that "the UK should only go further if the training can be delivered in an employer-focused way that delivers demonstrable improvements in productivity - a blunt 'one size fits all' form of compulsion is unlikely to be effective."[139]

119. Business leaders responded positively to the Leitch report. Richard Lambert, director-general of the CBI employers' group, said that the Leitch recommendations could "improve the UK's skills profile dramatically over the next two decades", and that "[c]ompanies will endorse Lord Leitch's central tenet that the skills needs of employers - and employees - should be at the heart of adult training,"[140] We recommend that the Government liaise with employers' organisations to promote take-up of the Skills Pledge. It should set out a timetable for assessing delivery on the pledge. We also note with interest Lord Leitch's proposal that the introduction of a statutory entitlement to workplace training at Level 2, in consultation with employers and unions, should be considered following a review in 2010 of progress in employer delivery. We intend to monitor developments and revisit the issue if necessary.

The Government's reaction to the Leitch review

120. The Leitch review explicitly leaves the detailed implementation of the skills framework to the Government to decide:

"This policy framework will deliver world class skills. The UK Government and Devolved Administrations in Northern Ireland, Scotland and Wales must now act to decide detailed next steps. The Government will need to consider value for money, capacity of the system to absorb investment, the balance between private and public investment and the trade off with other priorities when making its investment decisions."[141]

121. The Government has not yet responded officially to the Leitch report, and the Minister for Employment and Welfare Reform, Mr Jim Murphy, told us that "We are going to spend some time now in the Budget and CSR looking at the details of [Lord Leitch's] review." However, Mr Murphy did tell us that the report was "a really substantial piece of work," and that he did not think that "any future conversations on skills in this country can ignore the substantial challenge that [Lord Leitch] has set out for us."[142] Mr Murphy also told us that addressing the Leitch report would entail "enormous challenges but also substantial cost."[143] He told us that the Government would aim to respond to the Leitch report "in detail in advance of the CSR [Comprehensive Spending Review]."[144]

122. The 2006 Pre-Budget Report says that:

The Government accepts the higher skills ambitions for 2020 set out in the Leitch Review. The Government is already investing heavily in skills to deliver the current set of challenging skills targets. […] The Government will consider how best to achieve the Leitch ambitions and implement its recommendations, alongside the level of resources it will allocate to them, as part of the 2007 CSR process.[145]

123. The Leitch report sets out a compelling argument for an overhaul of the UK's skills strategy. Better skills provision is essential if the DWP is to achieve its employment rate aspiration; increasing workplace training, and the relevance of qualifications to the needs of employers, will improve in-work advancement and make an important contribution to job sustainability and retention. We are concerned that, as yet, there has been no commitment to financing the implementation of Lord Leitch's proposals. The Government should be prepared to make a significant early investment in skills provision, in order to reap these rewards.

Work First

124. The Leitch report points out that the current welfare to work system has a strong "work first" approach; it "focuses on interventions to help people into work as quickly as possible and does not assess the help people need to stay in work and progress." It identified a lack of "follow-up support for those who lack basic skills or are at risk of returning to benefits, unless they fail to find work in the short-term."[146]

125. Lisa Harker told us:

"Work-first is the right approach but it is not sufficient […] the work-first approach does not work for everybody and particularly for those who are very disadvantaged, far from the labour market. Taking some time to prepare for work but also finding the right job for the right person is worth it and it pays off in the long run. That would involve some change of practice in Jobcentre Plus across all programmes, a change in orientation - what I called in my report "work-first plus".[147]

126. Pamela Meadows of the National Institute for Social and Economic Research told us:

"Work First seems to work for those who are job ready. It is probably the most appropriate approach for them and the most cost effective approach. For those who are not job ready, Work First seems to lead at least in a substantial minority of cases to people simply cycling [in and out of employment]. If you do not give them the skills and if you do not help with the other problems that enable them to cope with the jobs that they go into, they drop out of the jobs."[148]

127. Jim Murphy, the Minister for Employment and Welfare Reform, acknowledged that there was a link between skills and job retention, which Jobcentre Plus had not dealt with well enough in the past: "we know we are not doing enough because the interventions are not structured enough on the relationship between skills and sustained employment. Exactly where a coherent and a more joined-up adult skills approach would be based is something we are having a conversation on […]"[149]

128. The DWP and the Department for Education and Skills recently produced a joint survey of available evidence on the role of skills in the labour market. It found that "[t]he evidence suggests that the best approach is a combined one where people continue active job search and alongside that they undertake training that they continue if they obtain a job". It also found that "[t]he only skills screening that is currently carried out [by Jobcentre Plus] is for basic skills needs."[150]

129. There are several points on which the likely effect of the Leitch proposals is not yet clear. One is the interaction of the proposed Learner Accounts, which the DWP will pilot from Autumn 2007, with benefits. The Leitch report states that "Learner Accounts provide people with virtual funding to use at an accredited learning provider of their choice. By channelling funding through the learner, individuals have real purchasing power over their learning."[151] We asked Lord Leitch and his team how Learner Account funding was likely to affect benefit entitlement. Mr Stephen Evans of the Leitch Review team told us, "it is for the Government to decide the interaction. What is clear for people on benefits is that some of them need to learn. It is for the Jobcentre to decide which of them need to get skills whilst they are out of work."[152] The DWP should clarify in what ways the benefit entitlements of people out of work who use Learner Accounts will be affected and what particular impact such participation will have on the job search obligations of those who claim Jobseeker's Allowance.

130. Another question which remains unclear is that of whether people on Jobseeker's Allowance who are assessed as having a basic skills need, and who begin training, will still be required to be available to work, and to take up short-term work. The Minister, Jim Murphy, told us that skills training was best provided in work. However, if a jobseeker is forced to interrupt basic skills training with periods of short-term or seasonal work, it may be counterproductive, and make it more difficult for him or her to move off benefit for good. The DWP should consider the interaction between basic skills training and short-term job placements, and set this out clearly in its response to this report.

Migrant workers

131. During the inquiry, we heard evidence from several witnesses that migrant workers could increase competition for low-skilled jobs. Richard Cairns of Glasgow City Council told us that high numbers of migrants "will both drive the employment rate up […] but at the same time to some extent that will make the process of placing indigenous Glaswegians, if you like, into work yet more challenging."[153] Professor Ivan Turok told us that due to high levels of immigration, "there is now more competition for lower paid jobs at the bottom end of the labour market. The risk is our Incapacity Benefit and other jobless clients do not get these jobs because there is a more productive workforce available."[154]

132. Dave Simmonds of Inclusion told us that:

"[T]here is no doubt at all that it does increase the competition at the low end of the labour market, and so for those people who are benefit claimants now, who are seeking to get back into the labour market, many of those migrants are competing for the same sorts of jobs. […] economic migrants are coming and actively seeking work - positively wanting to find work because that is their purpose in coming here."[155]

133. A recent report from HM Treasury stated that "[t]wo recent studies of the effect of immigrants on the UK labour market found no evidence that immigrants have any effect on either the employment chances of domestic workers or local wage rates."[156] Similarly, a DWP working paper found that migration flows from EU accession countries had had "minimal impact on native workers."[157]

134. Paul Gregg told us that migrant workers were not always able to compete at the appropriate skills level within the labour market, because their qualifications were not recognised in the UK:

" […] migrant workers usually come with skills, but they are not always skills that are recognised in the UK. That means that they tend to compete in sections of the labour market below their educational level. One response that would make a lot of sense is trying to get learning and skills councils to be engaged in the process of skill qualification recognition from abroad, which may involve short courses to get recognition here. These groups then in a sense will be competing at the right part of the labour market distribution, and particularly at the top because that is where our skills shortages are most biting. We need to make sure that migrant workers are really getting into the better jobs, which they are often qualified for; but the skill recognition is not often there because it is not a UK qualification.[158]

135. Lord Leitch told us, "all the evidence that we have looked at shows that immigration is good for the economy, it has a positive effect on the economy and does not have an adverse effect on employment rates […]What we are seeing from the research is that immigration takes the domestic jobs which are not being filled." However, he said that there was a "perception at the individual level that it [migration] makes it more competitive." Where this was the case, he said, improving skills levels was the right response: "to upskill people or to give people the skills so they can compete […] the best thing we can do for individuals who are competing, because on a one-to-one basis it might happen that you are competing with somebody who is better skilled from Poland, is to give people the right skills for the jobs." [159]

136. A recent report from the Treasury Select Committee, on the 2006 Pre-Budget Report, found that "the lack of robust statistics on migration means that it is difficult to assess the overall functioning of the labour market", and called for the Government to summarise the results of current ONS research on migration statistics in the 2007 budget.[160]

137. Accepting that the issue of what effect migrant labour may have on the UK labour market is a complex one, we conclude urgent, up-to-date, high quality independent research is required. This research should consider the impact of different groups of migrants, particularly those with high and low skills, in different local employment markets in the UK. Such research should be published.

Co-ordinating skills and employment services

138. The Leitch report identified a lack of co-ordination between skills and employment services in the UK: "Current skills and employment services have different aims which means that delivery can be complex with an array of agencies trying to give help and advice to people. As a result, people do not receive the full support they need and are unsure how and where to access it. The risk is people will be trapped in worklessness or low paid jobs, lacking the support they need to get into and stay in work and progress."[161] The report stated that this problem must be resolved: "an integrated employment and skills service is essential to ensure people get the help they need to find work, stay in employment and get on in their career in the modern labour market."[162]

139. The Leitch report set out various options which the review had considered for addressing this problem, including merging the Learning and Skills Council with Jobcentre Plus, or changing the division of responsibility between the DWP and the Department for Education and Skills. However, it concluded that neither would be a satisfactory solution. Merging the LSC and Jobcentre Plus "would create an immensely large organisation with responsibilities ranging from commissioning training from FE colleges to processing benefit claims. The risk is that such an organisation would be too unwieldy to manage."[163] Changing the remits of the DWP and DfES "would create significant problems of its own. While the divide between work and skills would have been eased, new ones would be created. Recommending national institutional change would not necessarily deliver an integrated service for people."[164]

140. Instead, the Report proposed that the focus should be on improving the performance of the current system: "much can be achieved through changing the objectives that each part of the system faces, altering the policy they deliver and ensuring stretching scrutiny through local institutional rationalisation - making the current system work."[165] This is consistent with one of the broader messages of the Leitch review - that "chopping and changing", re-organising existing systems, is not the best or only way to achieve improvements.

141. The Leitch review is right to focus on improving the way in which the current employment and skills systems work together, instead of recommending a large-scale reorganisation. However, this will be a challenging task. If the services of Jobcentre Plus and the Learning and Skills Council are to be aligned to create a smooth service, the aims and objectives of the two organisations will need to be reviewed. We recommend that the Government include, in its response to the Leitch review, details of how the transition from out-of-work to in-work skills support can be facilitated and how such an approach will be reflected in job entry and learning outcome performance targets.

Commission for Employment and Skills

142. The Leitch Review also proposed the establishment of a new Commission for Employment and Skills [ESC], to replace the existing NEP and SSDA. This new body would have the remit of championing the Government's Skills Strategy.[166] We recommend that if it is established the Government should also give the Commission the role of championing the 80% employment aspiration. As we discussed in Chapter 4, we believe that NEP programmes such as Ambition and Fair Cities form an important part of efforts to improve the employment rate of people from ethnic minorities and other groups at a disadvantage in the labour market. It is important that this focus is not lost in the new ESC. We recommend that the ESC have within its remit a requirement to continue the employer-led work which the NEP has carried out in order to improve the employment chances of people from ethnic minorities and other disadvantaged groups.

126   Department for Work and Pensions, Departmental Report 2005, Cm 6539, June 2005, p 22 Back

127   Q 84 Back

128   Q 113 Back

129   Department for Work and Pensions, Autumn Performance Report 2006, p 32 Back

130   Department for Work and Pensions, Departmental Report 2006, Cm 6829, May 2006, p 52. The group is defined as "the 15% lowest qualified." Back

131   Ev 314 Back

132   Q 84 Back

133   HM Treasury, Prosperity for All in the Global Economy: World Class Skills, pp 3-5. Back

134   "Lord Leitch publishes review of long term skills needs,," DWP press release, 5 December 2006. Back

135   HM Treasury, Prosperity for All in the Global Economy: World Class Skills, p 4. Back

136   HM Treasury, Prosperity for All in the Global Economy: World Class Skills, p 20. Back

137   HM Treasury, Prosperity for All in the Global Economy: World Class Skills, p 20. Back

138   Q 358 Back

139   HM Treasury, Prosperity for All in the Global Economy: World Class Skills, p 95. Back

140   "Businesses back Leitch recommendations on training", Financial Times, 6 December 2006 Back

141   HM Treasury, Prosperity for All in the Global Economy: World Class Skills, p 5. Back

142   Q 493 Back

143   Q 493 Back

144   Q 495 Back

145   HM Treasury, Pre-Budget Report 2006, Cm 6984, December 2006, p 62. Back

146   HM Treasury, Prosperity for All in the Global Economy: World Class Skills, p 124 Back

147   Q 341 Back

148   Q 285 Back

149   Q 493 Back

150   Department for Education and Skills and Department for Work and Pensions: A Shared Evidence Base - the Role of Skills in the Labour Market, January 2007, pp 6,19 Back

151   HM Treasury, Prosperity for All in the Global Economy: World Class Skills, p 111 Back

152   Q 416 Back

153   Q 1 Back

154   Q 63 Back

155   Q 217 Back

156   HM Treasury, Employment opportunity for all: analysing labour market trends in London, March 2006, p 42. Back

157   Department for Work and Pensions, The impact of free movement of workers from central and eastern Europe on the UK labour market: early evidence, DWP Working Paper No 18, 2005, p 1. Back

158   Q 330 Back

159   Q 382 Back

160   Treasury Select Committee, Second Report of Session 2006-07, The 2006 Pre-Budget Report, HC 115, para 19 Back

161   HM Treasury, Prosperity for All in the Global Economy: World Class Skills, p 117 Back

162   HM Treasury, Prosperity for All in the Global Economy: World Class Skills, p 117 Back

163   HM Treasury, Prosperity for All in the Global Economy: World Class Skills, p 122 Back

164   HM Treasury, Prosperity for All in the Global Economy: World Class Skills, p 123 Back

165   HM Treasury, Prosperity for All in the Global Economy: World Class Skills, p 123 Back

166   HM Treasury, Prosperity for All in the Global Economy: World Class Skills, p 77 Back

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