Memorandum 40
Submission from the Centre for Enterprise
(CFE)
INTRODUCTION AND
EXECUTIVE SUMMARY
OF EVIDENCE
1. CFE is pleased to make this submission
to the Innovation, Universities, Science and Skills Committee
Submission and welcomes the scrutiny it is giving to the implementation
of the Leitch Review of Skills.
2. Since the publication of Skills in
Context 1.0 in October 2005, CFE has aimed to stimulate a
conversation around public policy in the area of skills, enterprise
and economic development. At the request of Future Skills Scotland
we further developed the argument in Skills in Context 2.0
(March 2007) to suggest that:
— Productivity performance is not determined
by skills level alone
— Skills are often a derived concern
in company decision-making linked to product marketing and the
organisational processes
— A purely demand-led approach might
not lead a highly skilled workforce, employers often choosing
a more profitable, low-skill route
3. In short, do employers share the same
level of ambition that is reflected in Lord Leitch's report?
Is the demand out there demanding enough?
4. Much of our work, as a research and development
not for profit company, has been at a sub-national level looking
at the implementation of policy at local, sub-regional and regional
tiers of government and its agencies.
5. Part of this work has included market
research in the field of higher education and employer engagement,
and Employment and Skills Boards (ESBs). See sections 3 and 4
for an abstract of evidence from our reports on these areas of
the post Leitch landscape.
6. These reports highlight issues with both
supply-side and demand-side reforms initiated by the Leitch review.
In particular, we draw attention to:
— The need for a more sophisticated
understanding of the extent and nature of the demand for higher
level skills at a regional level
— The fact that businesses that do
invest in higher level skills really do invest, but the
majority do not invest at all and within that cohort over half
regard themselves as what our research characterises as "hard"
nos to training (ie, the principal reason not to train is a result
of a conscious business case)
— Employers do not recognise administrative
boundaries and are exasperated by multiple approaches by local
agencies and brokers without any seeming sense of coordination
— Demand-led employment and skills
partnerships offer real advantages to the successful integration
of the employment and skills agenda, meeting local employers'
recruitment and training needs and upskilling the local population
— The lack of a single governmental
voice on whether ESBs are supported or not, creating confusion
across Regional Development Agencies (RDAs) and their regions
and hesitation in moving forward with any changes to their current
landscape in response to Leitch
7. Looking at the implementation of the
Leitch aspirations at a sub-national level points to the central
question raised in number of government reports: what is the right
geographical level of intervention for skills development and
economic planning?
8. Our concern is that these two aspects
to the UK's success in the global market place have become disconnected
since Leitch—or at least less connected. No one can disagree
with the ambitious skills targets in Leitch, so long as in the
process we do not lose sight of the fact that the issue of skills
is only a proportion of the current productivity gap.
9. An overly ambitious skills agenda runs
the risk of devaluing our longer term skills goals if divorced
from the wider economic context.
THE REGIONAL
CONTEXT
10. Since 1997, regional policy has been
pursued through a three part regional structure of regional assemblies,
Regional Development Agencies (RDAs) and government offices. These
organisations have had delegated, rather than devolved authority.
The purpose of this approach was to:
— Reflect the differences in regions'
economic performance and the need for different approaches to
enable regions to fulfil their economic potential
— Capture the strategic perspective
that regional bodies bring to policy development and spatial decision
making, bringing together a range of interests to better align
plans and funding
— Pragmatically address issues which
cross local authority boundaries and ensure resources are invested
effectively across wider areas
11. This tripartite regional governance
structure resulted in a complex environment in which to develop
regional strategies, including those for skills. It also led to
a confusing picture of formal and informal partnerships, forums
and networks, some of which have been successful and influential,
others less so.
12. The move in 2001 to "Single Pot"
funding required RDAs to develop Frameworks for Regional Employment
and Skills Action (FRESAs) to provide a strategic context for
the investment of regional funds for skills and employment and
to identify regional priorities with other partners.
13. After the skills strategies of 2003
and 2005[105],
there was increased emphasis at a regional level on pooling budgets
and strengthening integrating mechanisms. Where budget pooling
was piloted, it was restricted to pots of development funding
(rather than recurrent budgets) combined with the so-called "dual-key"
(LSC and RDA) commissioning process.
14. More recently Government Offices, which
initially led innovative approaches to learning and skills like
the Testbed Learning Communities work, have become increasingly
focused on the children and young people's agenda. This has limited
the opportunities Government Offices have to influence RDAs' agendas
for adult skills, and the ability to support local authorities
to include adult skills in the design of local area agreements
and local community strategies which will, looking forward, become
the basis for the new regional integrated strategies.
15. In August 2005, the LSC's Agenda for
Change programme led to the creation of a regional infrastructure
for the organisation but at the same time created a degree of
organisational turbulence that meant the LSC increasingly focussed
on meeting targets rather than on the planned strategic development
with regional partners. The LSC has not been consistent as to
whether its role is in the regional implementation of national
policy, or as a part of a more sophisticated model of regional
policy development within a national framework.
16. Since Leitch, there have been more explicit
tensions between national and regional policies around skills.
While national skills policy, implemented by the LSC, has been
increasingly focused on the delivery and achievement of full qualifications
at or below level 2, RDAs have been calling for investment in
higher level skills, in "soft" skills, and for more
flexible provision that is more responsive to the needs of employers.
Examples exist of some regional mediation of the demand-led approach
based on qualifications.
17. In addition to a tension around the
right skills levels required, there has been a further one that
is most simply expressed in terms of regions focusing on a wider
range of drivers for productivity than the Leitch skills agenda.
Analyses of these were well developed before Leitch, but the primacy
of the skills has been to the detriment of more sophisticated
thinking around the drivers of sustainable economic development.
How to measure success was less well developed.
18. In terms of the role of Sector Skills
Councils, there has been a focus on priority sectors within Regional
Economic Strategies and Regional Skills Partnerships' plans which
have in turn influenced LSC adult skills priorities. There are
potential tensions between sectoral and regional approaches to
skills policy which risk further confusion for both employers
and learners. It is recognised that some sectors might require
a more regional approach than others that are better planned for
nationally (for example, creative and media).
19. Leitch advocated a "network of
employer-led Employment and Skills Boards". He recommended
that ESBs would inform how "training [can] be more relevant
to the needs of the local labour market" and should "scrutinise
the functioning of local careers and employment information to
ensure that it better reflects employer needs"[106].
Such boards would bring together the skills and employment agendas
within an area and "strengthen the employer voice" in
influencing and informing this agenda.
20. Government felt that a structured network
of boards responsible for reporting to the new Employment and
Skills Commission was overly prescriptive in meeting local economic
development needs. However, there was support indicated for the
concept of ESBs to function at a sub-regional level—promoting
economic prosperity, bringing together the employment and skills
agendas and strengthening the employer voice in identifying priorities[107].
21. The Sub-National Review (July 2007)[108]
supported ESBs and stated "it is at this [sub-national] level
that local employer-led Employment and Skills boards should operate".
There is recognition that these boards need to work flexibly to
meet different needs in different areas. The Leitch Implementation
Plan (July 2007[109])
states ESBs "will rationalise and build on successful city,
employer coalitions and other regional models". It also calls
for the development of ESBs to be based on the sharing of "good
practice" rather than prescribing specific models and processes.
The report also recognises that ESBs may not be an appropriate
mechanism within some areas and leaves it to "local partners
to decide" if they are appropriate within their area. The
Lyons Inquiry (March 2007)[110]
also supported the concept of ESBs and called for "local
authorities to play an appropriate role".
REGIONAL DELIVERY
STRUCTURES: EMPLOYMENT
AND SKILLS
BOARDS
22. Our evidence draws on CFE's recent national
review of demand-led employment and skills partnerships, conducted
through desk based research and consultation and case study development,
with representatives across all regions. From our research, evidence
shows that many stakeholders welcomed the progress made nationally
on the employment and skills agenda particularly in publications
such as the Leitch Review of Skills and the following implementation
plan and the Sub-National Review. However, it was clear that progress
in terms of establishing ESBs has been tentative as regions await
guidance from the national level signalling support (or otherwise)
for ESBs and providing a steer on the role they should play. Many
also called for the Commission to take on the role of a national
champion, supported by government departments providing a single
voice and driving quality in partnership arrangements.
23. RDAs have responded to Leitch agenda
in a range of ways with approaches varying widely both within
and between regions. In terms of development of ESBs, or demand-led
employment and skills partnerships, most arrangements can be categorised
into one of five "types". These include: Employment
and Skills Boards, Employer Coalitions and Fair Cities Boards,
City Growth, Skills and Productivity Alliances, and Local Strategic
Partnership employment and skills sub-groups established to feed
directly into Local Area Agreements.
24. Those partnerships formally calling
themselves ESBs exist to some extent within all regions. Some
have been established for one or two years, however most are more
recent developments, often established in response to the publication
of the Leitch Review and are therefore still in the early stages
of development. The map below shows where ESBs and similar demand-led
employment and skills partnerships are in operation.
Note: For a more detailed rendition of the following map, please see the PDF version and use the zoom facility on your browser.
25. In establishing ESBs, RDAs have tended
to follow one of three approaches:
— A "coordinating" role,
proactively supporting the development of ESBs across their region
— Liaising with local partnerships
to gain a sense of developments within their region, taking a
"monitoring" approach
— "Waiting" for further guidance
before taking any action.
26. There is evidence that where established
and operating effectively with support from the RDA and strong
membership from both the public and private sector ESBs offer
the following advantages:
— Creating local and sub-regional links
to the regional agenda and planning
— Linking up programmes on the ground
like Train to Gain, the Skills Pledge, Local Employment Partnerships
and Work Trials, Local Area Agreements (LAA), the development
of Multi-Area Agreements (MAA) and City Strategies.
— Streamlining the landscape by linking
into existing arrangements such as Employer Coalitions, Local
Strategic Partnerships and other existing economic partnerships.
27. To some extent differential approaches
have provided the opportunity for areas to develop arrangements
appropriate for their area. However, evidence shows that these
benefits are often outweighed by the drawbacks of having no guidance
or national steer on development of demand-led employment and
skills arrangements. The lack of guidance and national steer has
had the following impact:
— Confusion and hesitation within regions
in making progress on this agenda
— Risk of duplication and overlap of
employment and skills partnership arrangements
— Risk of poor quality and lack of
accountability
— Lack of buy-in to achieve a demand-led
approach
HIGHER EDUCATION
DELIVERING A
REGION-BASED
AGENDA FOR
LEITCH?
28. The Leitch recommendation that 40% of
the population aged 19 to State Pension Age should be qualified
to Level 4 or above by 2020 represents a significant challenge
to the HE sector—in 2005 the figure was around 28%. The
Review gave a clear indication of where this growth should come
from: "workforce development and increased employer engagement."[111]
29. The focus on employer engagement is
understandable; we know that 70% of the 2020 workforce has already
left compulsory education[112].
At both a national and regional level, public policy tends to
focus on the need to reform the supply of higher level skills.
We agree that this is a necessary process; HEIs will increasingly
need to develop high quality provision that is relevant to the
needs of business and can be delivered in a flexible way.
30. At the same time, this process must
be informed by a more sophisticated understanding of the extent
and nature of the demand for higher level skills. It was this
central proposition that led us to undertake a programme of research
activity in the East Midlands[113].
31. The report identified that 39% of businesses
surveyed had undertaken higher level skills training and 61% had
not[114].
We characterise businesses that do not invest in higher level
skills as "soft" nos or "hard" nos. The "soft"
nos represent businesses that have not undertaken higher level
skills in the preceding 12 months but indicated that they would
"definitely" or "maybe" do so in the next
12 months. The "hard" nos represent businesses that
have not undertaken higher level skills in the past 12 months
and reported that they were "unlikely" or "definitely
not" inclined to do so in the next 12 months.
32. Our research tells us that businesses
that do invest in higher level skills really invest. On balance
they pay for qualifications and they know the reasons for buying
and the anticipated returns. These do not fit the caricature of
businesses not interested in qualifications—in a mature
market each agent knows the rules and by reason of their trade
has chosen to accept them. There is little evidence of market
failure here.
33. We must accept that for many of those
that do not invest, this is the result of a similarly mature decision
making process. The majority of these businesses reported that
they had not undertaken higher level skills training because they
saw no benefit to their business in doing so. We are not necessarily
talking about owners of dark, satanic mills here; all these businesses
had undertaken some training during the preceding 12 months. The
training "habit" was therefore well developed, but this
did not translate to investing in skills at higher levels.
34. The reality is that these businesses
will only start to undertake higher level skills training if there
is a change to the market context in which they think about their
business strategies. In other words, the "hard" nos
can only be tackled as part of a wider economic development strategy,
in which HEIs play a role alongside a much wider cast of characters.
35. Regions have a potential role to play
here, but only if they develop a more sophisticated understanding
of the nature of demand. Historically, policy makers have assumed
that all businesses would invest more in their workforce, if only
higher level skills were easier to find (eg, through the extension
of Train to Gain) or could be made more financially attractive.
Our research does not support this view: financial costs and lack
of awareness were only cited as reasons for not undertaking higher
level skills training by a small minority of businesses.
36. Viewing all businesses through the same
lens runs the risk of making deadweight interventions, offering
inducements to those businesses that already invest, or ineffective
ones to those businesses where it just doesn't make sense to do
so.
37. As relatively autonomous institutions,
it is also worth remembering that not all HEIs need or want to
engage with employers to deliver workforce training. Furthermore,
the sort of levers and incentives that can be deployed to effect
change in the Further Education sector do not have the same impact
in Higher Education.
38. HEIs are less likely than FE colleges
to see their market in regional terms. Non-regional HEIs account
for 14% of the higher level skills market in the East Midlands;
regional HEIs are likely to have a similar market share in other
regions. On this basis, a purely regional assessment of market
share is always likely to underplay the success of HEIs with a
predominantly national or international (rather than regional)
customer base.
LOOKING FORWARD
39. There are a number of areas that lack
current evidence-bases and therefore remain largely uncontested:
— Differences in the relationship between
skills levels, productivity and skills utilisation
— The nature of employer demand for
skills and the different levels of demand in those enterprises
that will have most impact on economic development in current
global capital investment markets
40. This committee has concerned itself
with the structure and roles of public institutions delivering
the Leitch agenda, which again is built on the presumption that
demand from employers will automatically increase as the volume
and quality of skills increases. Can we equally reassure ourselves
that business is changing its strategies to fully utilise any
expansion in skills created by the Leitch agenda?
April 2008
105 21st Century Skills: Realising our Potential-Individuals,
Employers, Nation, (July 2003) Getting on in business,
getting on at work, (March 2005) Back
106
Leitch Review of Skills (December 2006) p. 24 Back
107
Strong and Prosperous Communities: Local Government White Paper
(October 2006) Department for Communities and Local Government,
London also supports this and "encourage Employment and Skills
Boards to be formed in core cities" to support economic development
Back
108
Review of Sub-National Economic Development and Regeneration
(July 2007) HM Treasury: London Back
109
World Class Skills: Implementing the Leitch Review of Skills in
England (July 2007), HM-Treasury: London Back
110
Lyons Inquiry into Local Government-Place-Shaping: A shared
ambition for the future of local government (March 2007) HM
Treasury: London Back
111
Leitch Review of Skills (2006), op cit Back
112
Leitch Review of Skills (2006), op cit Back
113
Known unknowns-the demand for higher level skills from businesses. Back
114
The survey focused on businesses based in the East Midlands that
employ more than 25 staff. This group accounts for 74% of the
region's private sector workforce. All the businesses surveyed
has undertaken some general training during the preceding 12 months. Back
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