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At the outset of my contribution, may I make a point about topical debates? I was a member of the Modernisation Committee, and I am a strong supporter of topical debates. However, they depend on the Leader of the House choosing a topic that the House wants to discuss and considers topical. The Minister should report back to the Leader of the House on today’s feeble attendance. Work and skills was a subject that Labour Members used to debate the whole time, particularly when the economy was doing better and the labour market was stronger. Today, to have literally one Government Member giving a speech, when the Leader of the House herself
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chose the subject, is not good enough, and it will lead to topical debates dying out if things carry on like this. The Minister may like that idea, but I do not.

I have followed the labour market a good deal over the years: I served on the Employment Committee, I was Conservative spokesman on the subject, and so on. Earlier this year, I was concerned that the quarterly survey published by the recruitment industry showed that the industry was robust in finding short-term positions for people, but that permanent positions were proving hard to fill. That is often a precursor of a recession: companies across the country are not prepared to make the commitment to the long-term employment for staff. Recent figures show that the claimant count has increased by 31,800, and the labour force survey showed an increase in unemployment of 164,000. The projections from the think-tanks are alarming. Yesterday, the chief economist of the Social Market Foundation gave evidence to the Select Committee on Work and Pensions and said that his estimate was that long-term unemployment, which is just under 150,000, would quadruple over the next couple of years to 600,000.

Recently, the Ernst &Young ITEM club produced a survey on the overall scale of unemployment, both short and long-term, and suggested that the claimant count would double. Against that background, the Government must review their policies on employability practices. I wrote a pamphlet about trying to audit the new deal in 2004 entitled “Auditing the New Deal: What Figures for the Future?”, in which I made the point—and I think that many people agreed—that providers of the new deal made quite a bit of money on the back of the general improvement in the labour market. The labour market expanded and, yes, people found jobs, but no one who looked at the issue seriously was of the view that many of those jobs were the result of someone having a new deal interview. When the Government hit their target of 250,000 young people going into employment, the National Audit Office produced a report saying that only about 8,000 of that total would not have found work anyway. Of course, 8,000 is something, but it is nothing like what was being claimed.

The Minister should accept as part of his new responsibilities that the new deal was a policy that appeared to work well when the wind was behind it, the labour market was expanding and all was set fair. Now that we are in a situation in which it appears that the opposite is going to happen and that there will be a contraction in the labour market, the Government must look again at their capacity to deal with unemployment and how they will deal with the longer-term unemployed.

It is often said that there are many vacancies in the economy. It is true that there are about 575,000 vacancies in our economy, but in 2004 there were almost 1 million. The last time we had a major recession was in 1990-91 and, in that recession, the number of vacancies halved and unemployment rose sharply. If, as seems to be the case, we are to have a major recession, all sorts of assumptions that the Government have been making about a flexible new deal must be changed.

In my pamphlet, I suggested that we needed to focus the effort on the people who had genuine barriers to employment and tailor the packages to their needs. There should be an early triage to find out what the problems are—the person may be an alcoholic, may be unable to read and write, or may have one of the other
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classic barriers to employment—and to offer them without delay a tailored package probably provided by the private sector or the not-for-profit sector.

I pointed to the evidence in America, which was very promising. Since then, as has been said, there have been reports about the Wisconsin experience, which has been remarkable. By means of tailored packages, the claimant count there has been reduced by 80 per cent. in three years. That is a tremendous achievement. Such focused approaches are the right way forward. Although it does not go as far as I would like—it does not have the triage and there are faults with it—the flexible new deal is a step in the right direction.

However, all the prime contractors who are waiting for the Government’s decision next February have been assuming that the labour market would be roughly what it had been. The Government are producing performance targets that the prime contractors are supposed to aim at. Those targets do not assume that we will have a quadrupling of long-term unemployment. If we do, the prime contractors will have a number of problems. First, do they have the capacity to cope with 600,000 rather than about 150,000 unemployed? That is a massively higher number. Secondly, the flexible new deal is outcome-based, so the payments are back-loaded. That means that the prime contractors are taking on substantial risk while the individuals receive advice, their tailored packages, and so on.

It is one thing to take a risk on 100,000 people; it is quite another to take a risk on 600,000. The capital needed to be able to do that would be substantial. As the Minister is starting afresh in his role, will he have a serious look at whether the model will work in the world of employment that we are entering, or whether it is necessary for the Government to think again about how they underpin the flexible new deal to ensure that the capacity exists?

It is all very well speaking about prime contractors, but others are involved. There are the subcontractors—good-hearted charities, voluntary bodies and not-for-profit providers who desperately want to help people with social and medical problems. There are the individuals themselves. Some of the most vulnerable people in our society are in that category of the long-term unemployed. For the sake of the small subcontractors—the good people who want to do good works—and the individuals and for the sake of the overall financial model, will the Minister examine that model carefully to ensure that it is robust?

The flexible new deal is a much better model than the old new deal, which was about box-ticking and taking credit for the rise in the jobs market. It would be a pity if one looked back at the improvement in what is being done and considered it a failure because the background had changed at a crucial time.

John Penrose: Does my hon. Friend agree that one of the factors that the Minister should consider in dealing with the risk that my hon. Friend is describing is that any contractor should have a substantial capital cushion? Contractors must have a big enough balance sheet to be able to absorb the risks of the economic cycle and to ride out the ups and downs. It may also be necessary for the Government to consider differential payments in the case of those who are hardest to help and furthest from the job market. Success in getting someone like
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that into work would result in a much higher payment than getting someone into work who is well skilled, does not have the sort of barriers that others might have and is easier to get into employment.

Mr. Heald: I am grateful to my hon. Friend. The next point that I had intended to make was about the winner’s curse, and the point beyond that was about the differential—

John Penrose: I am sorry to have pre-empted my hon. Friend.

Mr. Heald: Not at all. It is good that we are thinking along the same lines.

With reference to the winner’s curse, if it is simply a matter of quoting the lowest price, there is the risk that the contractor who gets the job may not be robust enough or have enough capital to provide the service in difficult times. If the figure of 600,000 long-term unemployed is realistic and those people cannot be placed in employment because long-term unemployment is rising and the general background is poor, the financial risk could be significant. My hon. Friend made the point more succinctly.

Some of those with barriers to employment need a great deal of help. They are people with substance abuse problems, people with a history of back trouble, which can be expensive to cure, and people who have mental health problems and a range of other difficulties. It is necessary to make sure that the rewards for getting those people into work are high enough to ensure that that happens.

The evidence from Australia is that the people nearest the labour market were finding work—being pushed across the line—rather than those who were the hardest to help, where the benefit to society would be greatest and the premium should be adequate. There is a case for having a tariff for getting into work the hardest to help, and that tariff should take account of the four or five main conditions that people with barriers to employment have.

Finally, I shall say a word about skills, if I may do so without trespassing on the good will of the House. My first point is about literacy and numeracy, a topic on which I spoke recently during the Committee stage of the Education and Skills Bill. It is true that it is much more difficult to get a job if one cannot read, write and add up properly. It is at least 12 per cent. more difficult for people in that tier to get a job and their earnings are lower. Functional illiteracy is often associated with a household that is deprived, with poor health and with a household where the head of the household is an unskilled worker who is also often unable to read and write. The problem is thus generational, leading to a cycle of deprivation.

Kelvin Hopkins: I am interested in what the hon. Gentleman is saying about children from illiterate households who cannot read. Has he seen the recent television coverage of the use of phonics to get those children reading, and what wonderful results were achieved?

Mr. Heald: That is exactly the point. I have a very good special school in my constituency, Woolgrove, which takes youngsters who one might think would never learn to read, but they do. It is because the school uses methods such as synthetic phonics. If a child with
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such obstacles can be taught to read using synthetic phonics, it is madness not to provide the same service to people who do not have those special barriers. Yes, let us make sure that we use synthetic phonics and teach our young people to read.

Although we welcome the fact that the Minister and his colleagues are trying to rescue those who did not learn to read at school and bring them back, it should never have got to that point. The problem should have been solved when the youngsters were seven or six, not when they are 17, 18, 25 or much older. I applaud the fact that the Government are trying to rescue the situation, but things should never have gone that far.

My second point is about level 2 qualifications. According to all the research, graduates are likely to earn 71 per cent. more than those with no qualifications; the figure is 50 per cent. more for those with two good A-levels or an apprenticeship at level 3. Level 2 qualifications, however, do not give a gain, yet a lot of the Government’s effort is going into level 2.

The Minister has a difficult job at a difficult time, but let us try to get things right. The hon. Member for Luton, North (Kelvin Hopkins) made the point that other countries are rigorous about apprenticeships and professional qualifications of that sort and that people there are taught at level 3. If, as Ministers say, an educational ladder of opportunity has to be climbed—and Leitch did say that beyond 2020 there would be very few jobs for people without qualifications—it is not good enough to teach people something; they have to get to a level that is higher than the one there used to be. The Government accept that, but level 2 is not the answer. Level 3 is what we should aim for. A topical debate on an important subject is the sort of debate that we should be having, but it is a pity that more Members have not been here.

1.31 pm

John Howell (Henley) (Con): I want to pick up on the skills aspect, about which my hon. Friend the Member for North-East Hertfordshire (Mr. Heald) has been talking. I want to consider how the skills agenda is playing out on the ground and in practice. I shall do that from the perspective of my constituency, to the extent that it illustrates a number of broader points.

I want to illustrate what is at stake in getting the skills mix right for my constituency. It is home to a centre of world expertise in nuclear fusion technology at Culham. The centre is a place of not only cutting-edge science, but cutting-edge engineering. In January, the centre will hold an exhibition here, and I hope that Members will take the opportunity to see the skills on display. Those skills are not required only for the current project, which has a finite life; they are also required as a major part of skills export from the UK to the fusion projects throughout the world in the coming years, in which engineering expertise at Culham will play a major part for the foreseeable future.

The centre is not an isolated example; it is part of an arc of technology and engineering that stretches from my constituency into that of my hon. Friend the Member for Wantage (Mr. Vaizey), which includes Harwell, the Rutherford Appleton laboratory and the new Diamond
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Light Source project, from which no self-respecting medical research company will want to be more than spitting distance in future because of the enormous scientific and technological expertise that it offers.

What is at stake in getting the skills mix right is the international competitiveness of that whole arc of science and technology in an area that is genuinely world class and cutting edge. Taking forward the skills agenda on the ground is therefore causing considerable local concern, which is caused principally by the lack of flexibility in delivering the skills agenda on the ground and ensuring that it matches skills training with local requirements. The consistent complaints that I get from organisations across the board, in both the private and public sectors, is that Jobcentre Plus, the Learning and Skills Council and programmes such as Train to Gain are far too driven by top-down national policy and fail to give enough recognition to huge local variations.

Let me give an example of such a variation in the context of Train to Gain. My constituency lies in a county that has very few benefit claimants of working age; the number is half the national average and lower even than that of the rest of the south-east. Claimants for jobseeker allowances account for less than 1 per cent. Some 84 per cent. of employment is at the top end, much of it in the service sector. Some 70 per cent. of adults of working age already have a level 2 qualification, and almost 84 per cent. have a level 1 qualification. That leaves 7 per cent. with no qualification at all, and it is right that skills programmes should address that 7 per cent., who are already a major feature of a considerable amount of co-ordinated local activity from a number of organisations in the public and private sectors.

To pick up on the point made by my hon. Friend the Member for North-East Hertfordshire about children and teaching in schools, I should say that I am seeing innovative work in trying to use children who have been well taught as an influence on parents and grandparents who have had a bad experience of education, so that those parents and grandparents can be brought back to some form of education and skills training.

However, in the round, the distribution of training in my area is clearly skewed to level 1 and 2 qualifications, and not to levels 3, 4 and above, which the area needs if it is to maintain its international competitiveness in scientific and technology establishments, which are intensive in research and development. I receive complaints that the parachuting in of Train to Gain is more about achieving a uniform approach than about recognising the need for that flexibility. Further education colleges have expressed concern that the constraints on training have been too great. Initially, the colleges welcomed the prospect of those constraints being relaxed and of the £350 million announced in the recent ministerial statement. However, as time goes on they are getting more and more suspicious that that is taking their eye off the need for front-line skills, which are suffering in comparison with back-office skills.

John Penrose: Does my hon. Friend agree that the issue is not only about recognising the local skills needs of the employers in a particular area, important though that is? It is also about making sure that people providing training understand the skills shortfalls in the local unemployed population. Those will also vary very significantly, depending on the local community
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and its cultural background. The training has to be tailored to match. If we get one side of the calculation right, we have to make sure that the other side balances as well.

John Howell: I thank my hon. Friend for that valid point, which illustrates again the need for flexibility and for things to be tailored. May I also congratulate him on being the first Member to have intervened on a speech that I have made since I have come to this House? [Hon. Members: “Hear, hear!”]

I return to the point about the focus on back-office skills within the refocusing of Train to Gain. I have to say that that is of no interest to businesses in my constituency, which have taken matters into their own hands, with my encouragement. Businesses in Henley have put together a scheme to draw on the expertise of a considerable number of successful entrepreneurs, chief executives and people who have run successful small and medium-sized businesses. As an act of community participation, those people are prepared to put in time, free of charge, to make sure that businesses in the area are up to scratch and maintain their competitiveness and skills.

Kelvin Hopkins rose—

John Howell: I think that I am going to be intervened on for a second time.

Kelvin Hopkins: The distinction of second intervener is one of which I am very proud.

The hon. Gentleman has been talking about his constituency, which is a fine place with lots of highly educated and skilled people. However, have not the Government a duty to try to compensate in areas without such advantages and where skills have to be driven much harder if there are to be better opportunities in future?

John Howell: I thank the hon. Gentleman for his point. I agree with him, and he has illustrated my point that one size does not fit all and that things need to be much more tailored to the needs of individual areas. I do not doubt that my constituency and the area around it are full of advantages that are not shared elsewhere, but that is precisely the point that I am making in this speech.

Mr. Heald: My hon. Friend now has a hat trick of interventions.

Does my hon. Friend agree that half the vacancies nationally are hard to fill or due to skills shortage? That is a worse problem in an area such as the east or the south-east than in some of the areas that the hon. Member for Luton, North (Kelvin Hopkins) mentioned. It is not true that skills shortages are worse in the most deprived areas.

John Howell: I thank my hon. Friend for making that point. As I said, it is important to ensure that skills programmes address the 7 per cent. who have no qualifications at all, particularly in an area such as the south-east, which has certain advantages and where there is a lot of top-end loading on the skills side.

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