Select Committee on Innovation, Universities, Science and Skills Minutes of Evidence

Examination of Witnesses (Questions 1-19)


28 APRIL 2008

  Q1 Mr Marsden: Good afternoon. Can I welcome everybody here to this one-off session with Lord Leitch and Louise Tilbury to discuss the Leitch Review of Skills. This is a one-off session, but it may be of interest to those not already aware of it that the Innovation, University, Science and Skills Committee is intending shortly to begin hearings post-Leitch, where we are going to be looking particularly at some of the issues to do with regional skills implementation. It is a great pleasure to have you here this afternoon, Lord Leitch, and also Louise Tilbury, who is the former leader of the Leitch Review team. We have a good cross-section of our colleagues here. Mr Willis has asked me to take the chair for this afternoon, so I hope I get a good skills mark! If I could just kick off, Sandy, your report fell into two sections; there was an interim report and then the final report which came out in December 2006, and like all reports there was an enormous amount of comment on it and also a lot of subsequent government activity, just looking down the list at various papers and what-have-you. What would you say distinguished your review from previous attempts to analysis and improve the United Kingdom skills workforce in the United Kingdom, and what are the specific reasons why you think your review will make a difference when previous reviews in the past perhaps have not?

  Lord Leitch: Thank you, Chairman. I am very pleased to be here this afternoon. I am very sorry I could not attend the Committee on the last meeting because of a family bereavement, and I am sorry if that caused you any inconvenience. I welcome the fact you are looking at this "after Leitch" and very happy that you are focusing on such a critical area. In the past there have been very many useful studies into skills, but there are certain features which did distinguish us. One was the width and the depth of the study; second was the duration of the study and, third, the emphasis on the study. We had a very wide remit; we were to look at the optimum mix of skills to maximise economic prosperity, productivity and social welfare through to the year 2020, and that was right across the United Kingdom, covering the four nations. There was also a very deep analysis looking at comparator countries, and we spent quite a lot of time in the interim analysis looking elsewhere, raising our head above the parapet and seeing what was being done. We visited the United States, Canada, Scandinavia, India and China and did a lot of desk research. On duration, we looked at the burning issues of today like globalisation, and then took a look forward 15 years to 2020, to the medium term, and I think the other point was emphasis. This time there was a strong focus on the needs of the economy, and there I think my experience as a businessman helped. My background is from financial services. When I retired three years ago I was running 20,000 people in 17 countries across the world, and I think that brought a dimension of practical experience looking at economic requirement for skills. In answer to your question "What difference did we make?" I think the difference was that we did make a difference. We spent a lot of time influencing and consulting; we had great input from a whole series of contributors, gaining agreement right across the United Kingdom. Gaining agreement was critically important, and we tried to make the study as apolitical as we possibly could. We raised and defined the agenda and then in the summer of 2007 that agenda and those recommendations became government policy, and that was the difference we made. If I may say so, the message from our report was very stark, very clear, and was really a wake-up call for the United Kingdom to say that our productivity here is mediocre; the lack of skills is a major factor in that mediocre productivity; we have some serious social issues to confront such as social mobility, child poverty, employment rates with ethnic minorities, and skills affect all of those. The global economy, we illustrated, was changing rapidly and that was impacting United Kingdom competitiveness, making it harder for the United Kingdom to compete. Saying that, the visits were very interesting; I remember one particular visit to the United States where we met very eminent strategists and thinkers, and they saw what was happening today as a simmering crisis for the developed world, and I think we brought that to the fore. Basically we were saying that to be a world leader in prosperity you need to be a world leader in skills, and that affects both the economic prosperity of a nation and also the social issues that face any nation. That is really why we feel we made a difference.

  Q2  Mr Marsden: I am going to ask in a moment Louise to give me briefly her perspective on the difference, but could I just press you on a couple of points? You talked about deprivation and child poverty, and also that this was, if you like, an apolitical, very much analysis-driven report. What evidence were you able to assemble that skills were the key to solving problems such as deprivation and child poverty? Also, being devil's advocate here, one of the other issues that has come up increasingly since your report was published and which was implicit in it is the whole issue of re-skilling as well as up-skilling, and one of the criticisms that was made of the report at the time, and I quote from previous Select Committee reports of the Education and Skills Committee on page 16 skills, where Professor Ewart Keep said: "The thing that is missing completely from Leitch is anything to do with economic development and tying up skilling and economic development together". Do you feel that was a fair comment, or not?

  Lord Leitch: I was going to make a qualification giving evidence here today. It has been 18 months since I published, so in a sense I am a bit apprehensive because I am rusty in some of the detail, and I apologise for that. 18 months is a long time to be away. It is like doing an exam—you are right up to the minute with all your facts for the exam but after 18 months you have forgotten a lot. In terms of how it affects social issues, we know there is a direct correlation between skills and income. We know that it is harder to get a job if you do not have skills, it is harder to get a job and to keep a job, and there is a direct correlation between having a job and your income, and that flows through directly to child poverty. We know social mobility is a real issue for the United Kingdom and has not changed much since the Second World War, and we know that the key to getting out of that poverty trap is having the skills to get a job, and I think we have found that conclusively. If you look at the interim report, there are many references when we refer back to these social issues and the impact on skills, and there are many examples. I remember on social mobility it talked about the chances of someone from a poorer family going to university and it is a fact that if you are a child from a wealthier family you have six times the chance of going to university than a child with the same ability from a poorer family, and that is the sort of social mobility issue we face. Also, we can look at health. People with low incomes have more health problems than those with higher incomes, whether they be obesity or depression. Having a job is a great force for improving your health and your awareness. Take crime. People on low income are more often the victims of crime and more often the perpetrators of crime, so there is a direct correlation between all those issues and skills. But the main focus of review was on the economic value of skills, and that is why I rather dispute what you say. We focused very strongly on the economic value of skills, and we spent a huge amount of time looking at what the economic value to the individual and the economic value to the employer. Economically valuable skills became our mantra throughout this whole study, and is also something that distinguished this study. What were you doing on skills that made a difference to the wage premium of an individual, and what did that do for the productivity of an employer? For example, you talk about economic skills and the correlation, and Scotland has a tremendous record on skills, it is Quartile 1 in the world but if you look at economic performance it is Quartile 3, so there is a disjoin between the skills and what it is producing, and we pushed very hard to get solutions to this. For example, there are 22,000 vocational qualifications in the United Kingdom, and many of those add very little or no value to the individual or to the employer, so we focused very hard on this. In terms of economic development what we said was that we have to give employers a more leading role in driving this agenda through, and that was part of our recommendation.

  Q3  Mr Marsden: Louise, can I ask you specifically on what Professor Ewart Keep has said, because he talks about tying economic development and skilling together, and he also mentioned that the RDAs did not seem to get a great mention in the original report, the implication being that the regional dimensions of the skills agenda were perhaps not addressed. Have you any overall comments or thoughts on that?

  Ms Tilbury: Our perspective was very much as Sandy said, that skills do drive economic performance, both through the number of people in employment and also their productivity, and the way that we defined skills was very much not skills for their own sake or just driving qualifications but economically valuable skills, skills that will see a benefit to the employer and to the individual. So the economic purpose of skills and their role in economic development was really at the heart of our recommendations. Coming back to your question earlier about why this report really made a difference, it is because it came from the perspective of business and the employer, and looked at how skills can really drive forward that change from the business level and not from the perspective of the government, which many previous reports had done.

  Lord Leitch: May I add to that? I think skills are delivered at three levels—at the national level, like the Commission for Employment and Skills; at a functional, sectoral level, which is where you get the Sector Skills Councils coming in; and a local level, and our recommendations, if you recall, were about Employment and Skills Boards doing that at a local level. Simultaneously, if I remember, there was a sub-national review going on as to whether you should have Employment and Skills Boards and what sort of relationship should there be between those and the RDAs, and I remember we looked specifically at Sheffield, for example, which was doing a fantastic job of bringing employment and skills together at the city level, and that seemed to us to be at the correct approach. So we recommended the Employment and Skills Boards but, arguably, that could have been, and I think we said this in the report, done at a city level or a regional level.

  Q4  Mr Marsden: So you were flexible on that?

  Lord Leitch: Yes, and I think that is the right approach. It depends. If you look at London that has sector skills within the community but it has an eight million population, so there is a scale point in this too.

  Q5  Mr Willis: Very briefly, I want to challenge you on this basic premise in your report which says that skills equals productivity equals economic growth on the basis that if you look at the United States, Germany, France, which arguably have significantly greater levels of productivity per man hour than the United Kingdom has, without question, the analysis of that appears to me to show greater levels of investment in terms of all those three countries, greater levels of use of technology, greater use of research and development, greater and easier access to capital, particularly to growth capital at times when businesses are emerging, and that skills is just one of a plethora of factors which make productivity sing and dance. Yet there is this belief that the Leitch Report has pointed us in this direction and said that, provided we up-skill the nation, suddenly we will be economically hugely advantaged. I do not share that optimism. Am I wrong?

  Lord Leitch: I think I agreed with what you are saying, and I think we said skills are not the only factor.

  Q6  Mr Willis: Where is it in that balance then?

  Lord Leitch: There are many studies and factual evidence that have a direct impact on skills, on employment, on income, on productivity, on economic performance and, as I said earlier, there are many social factors too but let us concentrate on the economic ones, and there are many references again in the interim report to where that factual evidence comes from. If you look at economic performance, economic performance is a function of the number of people in work and how productive they are—do you agree?

  Q7  Mr Willis: Yes.

  Lord Leitch: So if you look at employment there is a very clear correlation between skills and employment. Increased skills means increased income; lack of skills means difficulty in getting a job, difficulty in keeping a job. Employment rates, for example, on ethnic minorities are fourteen points lower. Key reason? Lack of skills, so there is a direct correlation. If you look at globalisation and technological change it means more and more jobs are done by other cheaper geographies in the world. There are less jobs needing basic skills, for example; we are seeing a shift to the service economy, we are seeing a shift to more skilled jobs, so there is a direct correlation between skills and employment. On productivity, skills is one of the key drivers; it is probably the most important driver within our control, and I think that is the case—one of the most important levers within our control. There are other factors. Capital investment is clearly an enormous factor in driving productivity, but access to capital is not always that easy. Within our own control it is easier to drive the development of skills. Skills are an incredibly powerful lever. We know that workers with higher skills are more productive; we know that countries with higher skills have higher productivity, and there are many examples which illustrate this. There was a study done three years ago by McKinsey and the London School of Economics looking at manufacturing in the United Kingdom—as we all know, manufacturing has reduced in size over the years, dramatically; if I remember it was something like 14% of GDP—and it was looking at why is manufacturing in the United Kingdom not as productive as manufacturing in the United States. Do you know the study?

  Q8  Mr Willis: We do know the study, but I wanted to challenge you. If you look at Sheffield, which you mentioned earlier, the steel industry there now produces more steel now than it did in its so-called heyday, and it does that not because people have greater skills but because they have new technology.

  Lord Leitch: But I am also making the point that that study said the reason why United Kingdom manufacturing was less productive was because of a particular skill which is management skill, and that study was conclusive in that, so my point is absolutely right, I think.

  Q9  Mr Wilson: One thing is absolutely certain, that every decade or two we will get a panic over a crisis in skills. What is different about the panic you are creating compared to all the other panics we have had in the past?

  Lord Leitch: I cannot really comment on the panics in the past; I can talk about the crisis that is going on today and I think we see it. Globalisation, technology and demographic change is incredibly strong, and I believe passionately that skills have to be addressed today. As I said earlier, more and more jobs are going overseas; anything that can be digitised can be done overseas. If you look at China and India, China the factory of the world, India is the IT department of the world, they are fantastic threats to our competitiveness; one hundred years ago we had the industrial revolution, times have changed very significantly, and these competitive threats across the world mean that we have to change how we up-skill, otherwise we are going to disadvantage those people with basic skills. There are less jobs around for people with basic skills. We have moved to a service economy, and we have to have more people at the top end, the entrepreneurs, the technologies, the managers, the leaders, the scientists, to drive that high value. We are a high value economy and maybe panic is not the right word, but we have to do something. The United Kingdom at the moment is mediocre on productivity, it is mediocre on skills in the world, and if you do not have the natural resources, which the United Kingdom does not have, you have to do something about the only natural resource which is our people.

  Q10  Mr Wilson: Yes, but growth over the past 15 or 16 years has been pretty good by European averages, so I return to the point—what is the problem? If we are growing at 2-3% a year and doing alright, where is the big problem with skills? Those jobs are obviously being filled?

  Lord Leitch: I think you are right, we are coming from a position of strength. United Kingdom has high employment but it has mediocre productivity. We have key risk areas and people without basic skills; we have social issues, we have seen child poverty not improve as fast as we would like; we have seen social mobility not change; we have seen employment opportunities for the most disadvantaged in our society improve but not as much as we would like, so there are sectors of our communities which are falling behind. Industries which traditionally have been strong for us have grown, but we have to compete with the accelerating economies of the world, with China and India producing three million graduates a year where we produce only a quarter of a million a year.

  Q11  Mr Wilson: What evidence do you have that skill shortages have held back United Kingdom economic growth in the past?

  Lord Leitch: We have a whole variety of pieces of evidence. We have seen many employer surveys which say they could have done better but for the skills shortages that they have. For example, Ben Verwaayen, who has just retired as chief executive of British Telecom, was telling me that British Telecom is high value, driving technological business forward, and that what he needs to drive his business forward is more people at level 5 and level 6. It is harder to get those in the United Kingdom than in Spain, and there are many examples like this where employers are saying they need more skills of the right type to drive their businesses forward.

  Q12  Mr Wilson: But employers always say they need more skills. Even if you gave them more skills they would want even more, so that is not really a comprehensive answer, is it?

  Lord Leitch: I do not think they do, actually, especially over time. Part of the problem is that employers have not realised that skills mean higher productivity.

  Q13  Mr Wilson: You talked earlier about the international comparisons and the desk research you have done. Tell us which countries are a good model for the United Kingdom to emulate, and why?

  Lord Leitch: You are testing my memory here.

  Q14 Mr Wilson: That is what I am trying to do!

  Lord Leitch: Firstly, there is no single panacea. We did not come across one country where we said: "Do what that country does and we will be alright going forward", but there are some examples. If I remember, community colleges in the United States were very impressive. This is their equivalent of further education colleges, and we saw some brilliant examples there where they say: "Come in, do this course and we will help you find work". I remember one near Washington linked to Ford which had new cars and you worked on the cars and then you got jobs in the motor industry, and they were very impressive and focused. This is training to get you a job. If I remember I was also very impressed in Sweden with the evaluation of mature skills. If you were a worker in your 40s and 50s in Sweden and you wanted an evaluation of your skills, how they stood up and what you could do about it, you could go in in a very non-threatening way to have this assessment, and one of our recommendations was to bring a national careers service into Jobcentre Plus, and that is happening. Other examples would be in Finland where continuity is very important. In Finland skills and education is not aligned to a government so you get great continuity of delivery, and I have to tell you, Rob, when I first started this, I thought the best thing we could do was to deliver what we started on skills; we are very good at ideas but less good at delivery. In Finland, when a government changes, they do not have the chop and change of a new skills policy. They deliver. Those are three points which come to mind but coming back to your earlier point, Adam Smith in 17-whatever it was—

  Q15  Mr Wilson: 1799.

  Lord Leitch: Yes—talked about the fact that the skills we teach are not good enough for employers, so in a sense you are right, we have had that common theme all the time. At the same time, it must not stop you from driving to improve skills productivity, social problems in this small competitive environment today. That is the difference.

  Q16  Mr Wilson: You mentioned community colleges. Would you suggest that we adopt a similar structure to the United States in putting more investment into community colleges?

  Lord Leitch: Firstly, I would say there are some excellent community colleges here. I remember we visited one in Fife, in Scotland, it was the Lauder Technical College, absolutely brilliant, getting 60% of its funding from local employers doing rather similar things. We recommended that qualifications should be driven by employers, so it would be economically valuable skills, and then FE colleges should compete to get funding based on those qualifications. So I would not follow automatically the American model; I think I would follow the recommendations we made in our report.

  Mr Marsden: We are now going to move on and look at the whole issue of the definition of skills, particularly the knotty relationship between skills and qualifications.

  Q17  Ian Stewart: In your report there was quite an interesting criticism, almost, that the emphasis was on qualifications, and that that appeared to be skewing policy away from skills which were needed to help the future development of individuals, companies, and the economy in general. Some of the questions I have revolve around that distinction between qualifications and skills. Do you regard skills and qualifications as one and the same?

  Lord Leitch: Sometimes. That is a difficult question. I started off the review being very unhappy about using qualifications, because it seemed to me it did not incorporate wider skills, and a good example is on-the-job training which is one of the best ways to develop your skills but it does not flow through to a qualification. Skills in my definition means the capability to do a task, and it can be specific or generic; I do not think there is a perfect measure. Qualifications, though, are a proxy for a level of capability. It is imperfect—as I said, you have areas like on-the-job training—but it is the only comparable measure that is widely available, available right across the piece, available internationally. There is a correlation between qualifications and capability but it is not perfect, so I think it is the best we have. But you also have to use other measures as well, and we used other measures. For example, on basic skills such as literacy and numeracy, we used extensively survey data, so you have to use a combination of both and yes, I was critical of qualifications. I mentioned earlier 22,000 vocational qualifications, many of which were of no economic value despite extensive input, so we are spending all this money on vocational qualifications which are neither delivering value to the individual nor to the employer. So one of the things we said we needed to do was to rationalise those qualifications and make them economically valuable.

  Q18  Ian Stewart: You have mentioned the use of surveys. Are there any other mechanisms or methods of assessing the skills of an individual or even the economy?

  Lord Leitch: Yes, there is testing, obviously; there are some national testing schemes and international testing schemes. You have to look at all the measures within our grasp to assess where we are, and that is exactly what we did.

  Q19  Ian Stewart: How will your targets, then, assist in the development of what we now term as soft skills, such as skills relating to innovation, team building, which may be of more value to the economy than formal qualifications?

  Lord Leitch: Soft skills are very important, from attitude to communication to time-keeping—very important, but very difficult to measure.

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