The Skills Funding Agency and further education funding - Business, Innovation and Skills Committee Contents

Examination of Witnesses (Questions 1-96)

ASSOCIATION OF COLLEGES, LGA, SEEDA AND UKCES

2 FEBRUARY 2010

  Q1  Chairman: Welcome to this first of two evidence sessions into the Committee's inquiry essentially into further education funding in a new world but also into the delivery role for local government and Regional Development Agencies. You are quite an unwieldy panel, and I apologise for that, but we thought it best, as there will be moments when you have some differences of emphasis, that you were able to explore ideas together in a group. That may mean you each get slightly less time, but I hope we will actually gain more from the overall process. This is a short inquiry perforce because of the timing of the General Election, which is imminent, and I am very conscious of the fact that we are not inviting in the employers and the employees in the shape of the various Sector Skills Councils, we are not asking Work-based Learning Providers either. There are a number of people we would like to have had in, but we have had a lot of written evidence, which we are very grateful for. It would have been quite nice to have had some from the Commission. I know you offered some last week, but it would have been helpful. All the rest of you, thank you for your written submissions, the three of you, which we appreciate, and we will take full account of the written submissions in addition to the oral evidence. This is to test some of the ideas in public and get a flavour. Can I ask the usual question I ask on these occasions, which is to introduce yourselves briefly, starting from my left, your right, and as you describe who you are can you just say, briefly, what your role is going to be in skills delivery in the new world from April?

  Ms Muirhead: My name is Oona Muirhead. I am from the South East England Development Agency. I am the Executive Director for Strategy and Resources. My role is presently to lead on behalf of the Regional Development Agencies in our lead role for skills—we co-ordinate across the regions—and, in the future, my role will be to bring together the regional Skills Strategy and the priorities out of that for skills providers.

  Ms Alexander: Pam Alexander; I am Chief Executive of SEEDA, so I represent all of the nine RDAs on skills and innovation as well as, of course, managing SEEDA in my own region.

  Mr Davis: I am Michael Davis; I am the Director of Strategy and Performance from the UK Commission for Employment and Skills. We are a strategic advisory body. Our remit is to advise the UK Government on progress towards becoming a world-class nation in employment and skills and to review and advise on policies where remitted to do so.

  Mr Doel: Martin Doel, Chief Executive of the Association of Colleges. The Association exists in order to represent the interests of colleges, those colleges being sixth-form colleges, general further education colleges and specialist colleges, which between them represent the majority provider of skills provision within England, Wales and Northern Ireland.

  Mr Morgan: I am Ioan Morgan; I am Principal and Chief Executive of Warwickshire College, which straddles Warwickshire and part of Worcestershire, and we deliver a range of activity across all levels, including further education, higher education and we work very closely with major companies like Jaguar, Land Rover and Rolls-Royce, Aerospace.

  Councillor Sparks: I am David Sparks; I chair the Regeneration and Transport Board at the Local Government Association. Our role in this particular area is that we look upon skills as being a key component of regeneration and we involve what is now 423 local authorities in England and Wales, and I am a Dudley councillor.

  Q2  Chairman: Councillor Sparks, I know you are speaking for the whole LGA today, but just out of interest, where do you actually come from?

  Councillor Sparks: Dudley.

  Q3  Chairman: Excellent. We are very pleased to hear that.

  Councillor Sparks: I am actually from Warrington originally.

  Chairman: Thank you very much. That helps. Ian Stewart.

  Ian Stewart: Good morning. The Government argues that the new structures will streamline the skills delivery process. Do you agree?

  Q4  Chairman: I think we will have each of you on that one.

  Ms Alexander: Could I start then, because I think the representation of the Regional Development Agencies here is as the business voice in relation to skills demand. Driving up the skills element of economic development is central to competitiveness and productivity and, therefore, we see it as very helpful that we are able to work with the Skills Funding Agency as it is coming into being to look at demand driving skills provision in the future from an employer's perspective, and clearly that has to be balanced with the individual demand for skills and the providers' ability to meet those skills. We do see that the new system has real opportunities to drive that bottom up from local needs and, in terms of long-term needs, looking at the strategic skills needs of the sectors which will drive up growth. We believe there is a real opportunity for streamlining and for making much clearer to businesses—who find the system extremely complex—how they can access the skills that they need for the future.

  Mr Doel: I think individual elements of the system may be streamlined, and processes within it, but it is very hard to see how the totality of the system will be more streamlined. From a provider perspective, money will be arriving from a range of different agencies which colleges will have relationships with, from business through to the RDAs, through to local authorities, to the Skills Funding Agency, to the Young People's Learning Agency. In terms of interpreting and mediating all of those various inputs, it does not look very streamlined from the bottom up.

  Mr Morgan: Certainly, from a provider point of view, we are a large, general, complex FE college. We have got a huge cohort of 14-19 year olds which will be funded differently from our other large cohort, which are adults, and we do not see this as streamlining, we see it as, potentially, muddying the waters, I am afraid, and from our perspective we think there are huge risks to learners in this and in the ability to take a strategic view for certain sectors.

  Councillor Sparks: There are three points that we would like to make in response to the question. The first one is that it is too soon for us to be absolutely certain; secondly however the indicators are not good in terms of the feedback that we are having from individual local authorities and groups of local authorities, that there is a poor level of communication with the Skills Funding Agency, in particular; and the third point is that there is now a complexity of bodies and, if you have got a complexity of different bodies, that does not indicate a streamlining.

  Mr Davis: If I may add to that, the Commission published in October (and I would be more than happy to send you a copy of it) some advice that we published to ministers, entitled Skills, Jobs, Growth, which specifically looked at simplification in England. We did conclude that there were aspects of it that are too complicated, but we did also note that in the Skills Strategy many of those recommendations and thoughts were taken on, so I think it is about pressing on with the programme of simplification, seeing that there were some clear signals given in the Skills Strategy and that they need to be built on and implemented over the coming months.

  Q5  Ian Stewart: Can I go back to Ioan and Martin, please. With the funding constraints, can Leitch be achieved? Anybody else can come in afterwards, but would you two start?

  Mr Doel: I think I would make two points in this regard. We have had many years of increasing expenditure within schools, albeit not the same levels of increase in other sectors of education. We are now entering a period of more constrained finances. It seems somewhat anomalous to actually throw the whole organisational structure up into the air as you enter that period and people have to deal with a degree of organisational change which will have its own costs extracted from the system. At the same time, within reducing budgets, particularly (as just announced) adult learning responsive budgets, colleges are going to have to make efficiencies in order to continue to deliver to the learners in the communities that they support and businesses that they support. Their ability to do that, I think, will be constrained by the lack of freedom they have to operate between various budget streams, which, actually, potentially becomes more constrained in the future by the very many different agencies the money will be coming to them through. Their ability to manage within that headroom is actually being potentially more constrained as we go forward by their ability (using the in-word) not being able to vire between various streams within a financial year in order to deliver efficiencies. Just at the time when you want colleges to make efficiencies and to continue to deliver more for less, they are being constrained in their ability to do that because of some of the complications around the funding arrangements that they suffer.

  Mr Morgan: From a college point of view, I think my first response to you is that I think there is a complexity which is not helpful now, but what I would say is one good feature is that colleges are firmly in the Department for Business Innovation and Skills (BIS). I think that is a good move, because it links colleges to where they should be in terms of their ability to respond to economic development needs and to supply skills for industry, but I think there are dangers that we might not achieve Leitch unless colleges are liberated and are trusted enough to actually move money between various pots. If we are forced to have money in boxes, principals of trusted colleges have got to be allowed to open those boxes and share that money around to local and regional priorities.

  Q6  Ian Stewart: So you are an advocate for the trusted status?

  Mr Morgan: Absolutely.

  Q7  Ian Stewart: Could you tell us what type of courses will be affected at Warwick by the constraints?

  Mr Morgan: There are two parts to that. Firstly, I think that the structural changes might make decision-making in terms of 14-19 year olds quite difficult in terms of strategy because if that funding is in the hands of local authorities there may be other decisions, competing interests, schools and others, that might detract from the ability of a college to be funded adequately. I also think in terms of taking a strategic view for something like land-based industries it is going to be quite difficult if it is a focused regional local funding, because there are strategic industries that need strategic decision-making. There are some concerns that I have about that, but my main issue is that if we are allowed to look at the boxes of money that come to us and use them more flexibly, there is a much greater chance of achieving the Leitch targets.

  Ms Muirhead: I was going to draw attention to the element of Leitch which was about moving from a system based on qualifications to one which is looking at skills and the implications for the real world. I think that there are some clear signals and, indeed, plans in the Skills Strategy which are about setting out a basket of measures which would identify the real world outcomes for individuals in terms of, for example, wage gain and for productivity. I think if we move in that direction, in the medium-term we will be more able to deliver on what was underlying some of what was in Leitch, notwithstanding the issues about meeting the targets.

  Q8  Ian Stewart: Before you go on to that and while we are on targets, Leitch has basically said we need 40% more skills training in this country. Will colleges and providers have the capacity to do that in these circumstances of financial restraints?

  Ms Muirhead: The issue of financial restraints, which is one I was going to come on to, is really important, obviously, and very concerning for everybody. The one element that we fail perhaps sufficiently to acknowledge is the amount of money that businesses do currently invest in skills themselves and where that could be more encouraged. One of the reasons why we see the economic development aspects in the new skills system being important and relevant is in raising all businesses' awareness of the need to not just utilise their existing skills but also to invest in skills in their workforce. That is, obviously, not a panacea to the problems that we face in terms of public funding, but it is a really significant element that we need to take into account.

  Q9  Mr Binley: Can I follow that up just a little? I apologise for butting in; I was concerned to hear this myth being perpetuated, or it seems to me being perpetuated, that businesses do not invest in skills. They invest in many more skills that lie outside the formal processes, and I think it would do us well to recognise that and work with that. What are you doing in that respect?

  Ms Muirhead: I apologise if I gave the impression that they were not. I was saying that they absolutely are and, indeed, we think that there is more that can be done. For example, one of the things that we currently do and that we will be able to do more when the skills function transfers to us formally on 1 April is that the Business Link advisers and brokers, when they are dealing with a business about the needs of that business—whether it be about do they have a good business plan/are they looking at the right kind of market place, et cetera, their products and services,—are talking to them also about skills in their workforce and whether they are sufficiently using and utilising the existing skills of the workforce and what upskilling might be needed to raise productivity, and that might be through publicly-funded and qualifications-led or it might, indeed, be a different form of upskilling.

  Q10  Ian Stewart: Can I stop it there, because we are strapped for time now and I want to move on to the LGA. David, your organisation, the LGA, is on record as having said that the new system is too complicated, has too many bodies, et cetera. Which bodies would you remove, which bodies would you merge?

  Councillor Sparks: I really cannot answer that question, because our view is that the way forward, based on the city regions in Leeds, in particular, and experience elsewhere, is very much based on which organisations work best in partnership locally. Our concern is that the Skills Funding Agency do not seem to be as on board as the other agencies and, because they are such a major and dominant player, this could make it very difficult to deliver locally. Our whole theme is that you need to have far more of a locally determined system based on the demands of local employers, the needs of the local economy and taking into account what the local provision is and what it needs to be.

  Q11  Ian Stewart: Martin, you said the system is confusing. Will this confusion mainly be created by the splitting of responsibilities between the SFA and the YPLA, or is it actually more fundamental than that?

  Mr Doel: If I start from the first point, the system will always, I think, have an inherent complexity in it because of the range of things that colleges and providers do and the breadth of the skills agenda. You cannot make something that is so broad in its provision ultimately simple. To do that would be almost to brutalise it in order to bring it down to very simplistic blocks. There is always going to be an inherent complexity within this; nonetheless, I think we need to sensibly portray it in a way in which people can understand it and access it more effectively. The distinction between a skills agenda for 16-19 year olds and one for 19 year olds and older is a false one, I think—there is a continuum from 16 forward—and, therefore, achieving some proper co-ordination between the work of the YPLA and the SFA in the future will be particularly important for the skills agenda generally. From a provider perspective as well, when you have differing streams of funding coming to the institution, you can be destabilised by a decision on one side or the other in your ability to deliver the overall outcome. You do not, when you are in a college, manage a little building over here that is for the SFA and a little building that is over there for the YPLA, a little bit of the estate for 16-19 year olds, one bit for apprenticeships and one bit for adults. It does not work like that. The colleges are almost becoming the integrators for the various streams of funding and then trying to be able to respond to many customers. I think what they are asking for within constrained funding, which will have consequences, is to be able to integrate that most effectively and to respond. I think they are also asking, critically, for our RDA and Local Government Association colleagues to be seen as strategic partners who know a good deal about the labour market, a good deal about what younger and older people want and need in their lives and can have a conversation about informing the plan rather than just being presented with a plan to deliver against. Getting that debate going on and that integration, I think, is very important in the future. It is not going to be easy.

  Ian Stewart: Can I say to all of you, I am supposed to ask you about your experience so far about the establishment of the SFA and the YPLA. You have just answered something on that, Martin, in your answer. Could the rest of you, when you are answering other questions, because we are really pressed for time this morning, also address your experience of that, please?

  Chairman: The opportunity will come now.

  Lembit Opik: One specific question to Martin. I used to run the training programme for Proctor and Gamble and we had to have a very wide range of skills, some of them involving improving pure research and other people learning about people skills and we did it in one cohesive whole. Why could we not apply the model that Brian would no doubt agree works in industry to the academic world?

  Q12  Chairman: I am going to leave you to ask the Minister that question next week.

  Mr Doel: My very sharp answer to that would be that colleges would like the opportunity to provide that integrated service, to have that one conversation with an employer.

  Chairman: That is a helpful answer. Lindsay Hoyle.

  Q13  Mr Hoyle: The department states that it has worked with employers and other partners in the FE sector to ensure that they could influence the design of the Skills Funding Agency. It is now 12 months on. What involvement has each of you had in the design of the Skills Funding Agency?

  Ms Alexander: We have been working with them on the extent to which the strategies that they are going to be working to can be built bottom up from the work that we do with local authorities in the Regional Partnership Boards and the Economic Development and Skills Boards and how that can be aligned with the advice that they will be getting from the UK Commission for Employment and Skills and the Sector Skills Councils to drive the investment strategies that are being produced. Clearly, this year it is slightly the wrong way round, the investment strategy is being produced before that advice has been given, but we are building a system where we will be taking six people each into the Regional Development Agencies to create those regional skills strategies and we have been working with them on how that will link to the rest of the system. Oona is very much involved with the programme board setting that up.

  Mr Davis: I would add, the relationship between the Commission and the Skills Funding Agency will be via, as Pam has said, the Investment Framework that the Skills Funding Agency will oversee from the department. Our role is currently working on a set of strategic advice around medium and long-term skills priorities, which then, along with the work that Regional Development Agencies and others do, becomes the basis of the investment strategy. At a practical level, some of the research functions from the former Learning and Skills Council have been transferred into the Commission.

  Mr Doel: Despite the recommendations of people like Sir Andrew Foster about colleges and principals being treated more like Vice Chancellors and being partners to policy development, the colleges have suffered, if you like, under a period of paternalistic direction from the Learning and Skills Council for a number of years.. There has, I think, been a determined effort to involve us more in the emerging design of the SFA than has previously been the case, but I would not underestimate the degree of cultural change that is required in some of the people involved in the process. They are formerly the LSC people, they have a way of doing business and it has been very difficult for us at the various levels that apply. There is a determined effort at the top of the organisation to be more transparent and open in these issues, but reaching right through to the organisation is more difficult to achieve. Going back to my earlier answers, there is a lot of conversation about developing the hypothesis, but if you think the hypothesis is wrong in the first place about having two agencies, you are talking about some of the detail rather than the underlying important issues.

  Mr Morgan: Certainly from an individual college point of view, and I would share the view that latterly there has been an improvement, up until now I think colleges have been done-to in this process and have not been participants. My college, for example, has a £55 million budget, six campuses, 25,000 students and by no means the largest college. There are some big players there who wanted to have a professional engagement in this process and have not been able to do. Coming to the point, very briefly, that Martin made about Foster extolling us to behave like Vice Chancellors, I think, thank God we do not really, because there is a lot of bleating at the moment from the university sector about cuts and what you are finding is the college sector, which for politicians is one of the biggest tools that they have available to deliver social change, are not bleating. We are wanting to work with government and make this happen, but there is a big resource in colleges that needs to be consulted and put as part of this process.

  Q14  Mr Hoyle: So you feel frustrated or angry.

  Mr Morgan: I have been continually frustrated in FE for over 25 years now, so the thing is improving.

  Q15  Mr Hoyle: So that frustration continues. Does it make you angry now, if you have suffered such frustration?

  Mr Morgan: I think I feel angry because I feel that here we have a sector with so much potential, that I am emotionally so attached to, because where I come from in South Wales further education was the way out of the pit, and that has not changed, it is about liberating and freeing some of the most disadvantaged people in our society, and colleges, quite frankly, are still being done-to in a pretty ineffective way and we are fed up with being political footballs.

  Councillor Sparks: We have specifically asked our local authorities this question, and I can report back that councils are reporting that the SFA has not been in touch, in marked contrast to other agencies in relation to this. One further point on this in terms of personal experience, I worked until recently for 35 years as a careers adviser and I can tell you that one of the things that really is in my gut about this whole thing is that training has been distorted by bureaucracy over the years, and I think that what we will probably get here is another load of bureaucracy, quite frankly. It might be a different flavour, it might be in a different bottle, but it is the same building and virtually the same people. What has changed?

  Chairman: Shall we end the session there!

  Q16  Mr Hoyle: I think it is game over, Chairman! Where do we pick it up after that? Did you feel, for those who were involved, that your views were taken up?

  Ms Alexander: Certainly it is still work in progress. That is absolutely clear. There is a lot of work still to do. We do think that we are making progress on creating the structure which will enable some of that bottom up expertise to be drawn into what happens to the instructions that are then given and the funding allocations that are made. For example, working with local authorities, all of our Economic and Development Skills Boards in each region will certainly involve the providers as absolutely central to the discussion. The Association of Colleges, for example, sits on our Economic Development Skills Board in the south-east and, if we can get traction for that provision of bottom up priorities, then I think that will be the way through this.

  Mr Doel: I think colleges will do their very best in order to make this work, as they always have. I think the engagement we are now having with a number of the RDAs is wholly helpful. We have just done a study into what we consider best practice in the North-West Development Agency, the London Skills and Employment Board, to draw out characteristics of where that is working to apply more widely, and we are grateful for that opportunity to contribute. I think the papers are with the committee for consideration together with the impacts.

  Mr Davis: What I would perhaps do is draw the distinction between the practical setting up of the Skills Funding Agency and the strategy that government is seeking to set out, and the three things in that strategy that the commissioners report and encourage others to build on is the reference to real world outcomes—that is very up there in the start of the Government strategy that we want a system that is measuring success in terms of real world outcomes; I think that should be built upon—it talks a lot about how you empower customers through things like Skills Accounts, and so on, and, finally, as we have heard, about how we build greater trust in providers, and that is how you then build up the flexibility and the responsiveness to work with the greater investment that employers and individuals make in learning.

  Q17  Mr Hoyle: At least we know nobody has pulled the drawbridge up, everybody has tried to make this work. It is twelve months on. Are there any real changes between now and 12 months ago? Could you give us any views of where you feel there has been a change or a significant difference, or not?

  Mr Doel: It is always hard to discriminate the changes that were intended by policy and those that have occurred.

  Q18  Chairman: Just to focus the question, as a result of the discussion you have had about the Skills Funding Agency, has it changed? Is it better?

  Mr Doel: What I am saying is through those things the Learning and Skills Council has changed as a precursor body to the Skills Funding Agency. They have become more transparent as a consequence of those events.

  Q19  Mr Hoyle: The change is for the better.

  Mr Doel: The change is for the better, and we would hope to carry that through into the Skills Funding Agency and actually to build some benefit out of some very difficult circumstances through changed relationships. That is at the level of personal relationships almost beyond organisational structures. Organisations work through personalities quite often as well as the structures.

  Q20  Chairman: What you are saying is you have got the Learning and Skills Council working effectively with you. It is now being broken. You hope the personal relationships will transfer to the new organisation.

  Mr Doel: Absolutely.

  Q21  Mr Hoyle: Does anybody want to add on that?

  Ms Alexander: Yes, could I add on that? I do think that the policy frameworks that we have had, Partnerships for Growth and Skills for Growth, have really begun to put economic development at the centre of skills provision in a way that Leitch was suggesting it needed to be put and, therefore, the framework is there to build on. We have talked about some of the ways in which we drive that bottom up demand and that the business voice is heard clearly, and not just in relation to public subsidised funding but also to enable businesses to see how they can access and create critical mass to drive some of the innovations that we are working with them on, for example, in higher education. I do think there has been a very big shift in purpose. What we are all working on is whether we can deliver that purpose effectively.

  Q22  Mr Hoyle: What you are saying is there is real linkage now.

  Ms Alexander: Yes.

  Q23  Mr Hoyle: Previously you felt there was not.

  Ms Alexander: Previously it was very hard to grasp, particularly with a system that was driven wholly by qualifications which are not necessarily what businesses are looking for.

  Q24  Mr Hoyle: I will leave it at that. Thank you

  Councillor Sparks: One thing I would like to report—it is more on the context and it refers to previous meetings of this committee in relation to our experience in terms of RDAs, et cetera—is that there has been an incredible amount of development on Regional Leaders' Boards in the last 12 months. Also the city region in Leeds and Manchester, as far as we are concerned, is extremely significant and we are expecting that that will be repeated elsewhere in other parts of the country.

  Q25  Chairman: We should get a chance to explore that in more detail later when we go into the regional questions more explicitly.

  Mr Morgan: Can I make one point? The emanation of this on the ground for providers, what has really happened in this first year of a change in budget is that we are getting funded for 14-19 year olds from a separate pot, and some colleges may do less well, some may do better out of that pot depending on the college structure. The other pot that comes in from the SFA is for our adults, and we are just going through that allocation process, and some colleges, a large number of colleges, all colleges are in cuts ranging from 10-25% and many of them up are up in that 25% area for adult learning. That is fine and efficiencies can be made, but there are serious courses—things like infection control for care homes—that are going to be affected by this. Whatever anybody says about "that is non-priority learning", that is rubbish: there are significant social impact courses that are going to be lost, but that is aside, because we face that with professionalism. The issue is that nobody takes the overview of what keeps a college stable. Because you have got the separate funding pots, one is affected, one is positive, one is minus, in years that will change, but who has the overview that looks after the stability of the college as a business and keeps it there for the public?

  Q26  Mr Hoyle: So the first question must be you are either in or you are out, but without having the ability to put the case.

  Councillor Sparks: Indeed, and nobody is looking out for that strategic presence of public sector colleges.

  Mr Doel: Colleges are being prevented almost from doing that for themselves because the funding comes in separate pots and they must accept one or the other, and colleges are being integrators and having the responsibility for the whole health of their business if they have the ability to manage the tools but they are not having the related freedom.

  Mr Hoyle: It is the lack of an individual voice of being able to put the case that is the real frustration.

  Chairman: We are moving on. Some colleagues are going to leave, by the way, because there is a Cadbury/Kraft rally going on—there are a number of competing attractions of a political nature today, for which I apologise—so do not take it as personal slight if that happens.

  Q27  Miss Kirkbride: Just a quick question, and you may not want to answer it, but do any of you want to speculate as to why the Government have changed the arrangements in the way that they have, given your criticisms of them?

  Mr Doel: I only joined the sector just as Raising Expectations was published and would observe there has been a good deal of consultation about how the design would have been raised and expectations might be delivered, but having asked my staff and my team what consultation went on before Raising Expectations was published, there seems to be precious little logic or demonstrated requirement for the overall design to split the funding groups up. If one were just to take a dispassionate view looking backwards on that, one might go back to the division of the Department for Education and Skills into two departments. It almost all follows, as an ineluctable logic, that you will have two different funding agencies corresponding with two government departments. I do not know if that is the rationale that operated in ministers' minds, but it is very difficult to actually find a trail back to the original decision.

  Councillor Sparks: The Government, quite clearly, have recognised the work that you have done and others have done in relation to the regional competitiveness, or lack of regional competitiveness, within the UK, of which skills is a major component, and have, therefore, concluded that something needed to be done, that the system was not working. My own view, having studied this for years and been at the receiving end, is that you have an incredible bureaucratic inertia within Whitehall in relation to this particular area that goes right back to the beginning of the twentieth century with the Ministry of Labour and that, no matter what changes are advocated by whichever central government, the Whitehall machine then ensures that the bureaucratic result is what satisfies the bureaucracy more than what satisfies the Government, and I think that is essentially what you have got, but that might be just a jaundiced view.

  Chairman: I think we had better not go down too many avenues because we have got some specific questions to ask that will allow for some interesting answers. I think we will move on to Mick Clapham.

  Q28  Mr Clapham: Can I look at the transition, because obviously it has been very complex. You have all been involved. I wonder if each of you could say a little about your role in the transition process and, at the same time, say whether you feel that the handover next month is going to be smooth?

  Ms Muirhead: We have only been involved in the transition since last summer when, as a result partly of the economic conditions but also bringing together into BIS of all of the levers of productivity, we started to get involved in the skills issues from the perspective of how do we use it to drive economic development. From our perspective, the transition of that demand side articulating the business voice will transfer smoothly from the LSC/SFA to ourselves. We have got arrangements well in hand for the staff to transfer across and things are going pretty smoothly. We are working very closely with SFA, as we have said, along with other colleagues represented here. I think there will still be lots more to do, but in terms of the next month everything is in hand.

  Mr Davis: From the Commission's perspective, our operational role in the Skills Funding Agency is quite limited. We are taking on from the former Learning and Skills Council, as I said, a number of their research functions and ours is about defining the relationship going forward in respect of the Strategic Skills Audit.

  Q29  Mr Clapham: Do you feel it is going to be a smooth handover?

  Mr Davis: Yes, and the work that we have done so far is smooth.

  Mr Doel: The key here is the association is representing, clearly, the view from the provider, and key in that element is identifying for the Government, I hope, unintended consequences of what they would have been doing and to mitigate some of those unintended consequences, and I think we have been listened to in that regard. I do actually think on 1 April it will be a relatively smooth event, but it would be: the proving year is the year after when the funding arrives from the Skills Funding Agency. The money will arrive from the Learning and Skills Council this year, much as it has done in previous years—this is a shadow year. The real proving year will be this time next year.

  Q30  Mr Clapham: So the real test is going to be 12 months hence?

  Mr Doel: Yes; that is right. It will appear smooth, whether or not it turns out to have been smooth. The test will be in 12 months' time.

  Mr Morgan: One of my governors has recently had a major concern about who is actually going to sign the cheque on 1 April and was there a mechanism for us to be paid for our 16-19 year old students. That has been a fairly late consideration, but I think were reassured now that that is likely to happen and it is going to be something like £19 million, so it is significant for us.

  Q31  Chairman: Two months out, you are just getting anything like comfort you are actually going to get paid.

  Mr Morgan: The governors of Warwickshire College represent some of the major companies. We have people from Aston Martin Lagonda, serious business people, looking after a serious business and they have been at times quite appalled by the way in which the timescale has not adjusted to the efficiencies needed, but we are getting there. One of their early concerns about this process is the expectation that a college can deal with its one local authority. We deal with something like 86 local authorities as a college; we have students from 86 authorities. This has been a potential high-risk nightmare for us, so there have been huge anxieties, but certainly I think we were proactive and we put a deputy principal into both of the authorities that serve us, Coventry and Warwickshire, to help with the transition process, so that has helped us a great deal. We are largely dealing with the same people, and we are comforted by that, but you need to know they are the same people moving to a different job.

  Councillor Sparks: The specific involvement of the Local Government Association has been quite significant in relation to 16-19 in that we have had a dedicated team of people funded by the DCSF to help local authorities with that transition, and the report-backs from that have been satisfactory.

  Q32  Mr Clapham: Presumably, Mr Sparks, the feelings of the local authorities is going to be that, if there are going to be any cuts, then they will be perhaps in 12 months' time when one sees the funding really coming from the SFA rather than from the Learning and Skills Council.

  Councillor Sparks: Yes, the feeling of local authorities in this is twofold. Number one, exactly as you have described, but, number two, the structure of local government and the involvement of local government in this area has radically changed. It not just involves local government but the establishment of sub-regional partnerships of one kind or another, city region set-ups, et cetera, means that we have got something that is moving on and we are concerned that the structure that we are going to have has not moved on in the same way.

  Q33  Mr Clapham: Could I turn to the feeling of the department and the LSC? The LSC is saying the connectivity between employers, colleges and providers is not going to be disrupted at all and has not been disrupted. Is that your experience, that there has been no disruption there?

  Mr Morgan: I think it has been the providers' duty in the public sector to hide the wiring, because we are dealing with companies that expect to form a return-on-investment type of contract with us—we are going to train and you are going to get a return—and everything we can do to stop the complications there and to hide the complexities of finances is our job, and I think we have tried to do that as a set of colleges quite professionally and well.

  Q34  Mr Clapham: Would that be the general view, that that is the way that things have worked?

  Ms Alexander: I think that businesses are, as my colleague says, not the slightest bit interested in how the system works, they want to know whether they can get what they need out of, it and I think that will be the test as we go forward: whether the new system has the flexibility to deal with in-year needs as well as dealing with the overall picture, and hiding the wiring is critical; some degree of stability going forward with the wiring is also critical. I think businesses would say once you have a structure stick with it.

  Q35  Mr Clapham: One of the things that you were saying a little earlier is that the bureaucracy tends to actually neutralise what change may be intended, and because you are going to have the same people from the LSC in positions under the SFA that the culture may not change in the way that which we want to see it change. Would that be correct?

  Ms Alexander: I know others will want to come in on this, but the culture will be dependent on the targets which are set, and that is one of the reasons why it is so critical to create a basket of objectives which are no longer just about qualifications but also about real world outcomes. Of course, there are always barriers to culture shifting, but the directing of the funding, the traction that the different objectives have on the funding and the targets about the outcomes sought, will be what, at the end of the day, drives culture to change.

  Mr Davis: That emphasis on real world outcomes, I think, is something that you want to explore and take further because, without a doubt, there is a huge bearing of qualifications in terms of what both the system currently delivers, its ability to respond to, and meet, the needs of employers and of individuals, and you can change the structure, you can even change the individuals, but if the overriding measure of success is the qualification, then it will be very difficult to change the behaviour and practice of the individuals within it. That is not to then down play the qualifications, they are an important measure of success and, in terms of international comparisons, are one of the best measures that we have, but it is when they become the predominant behaviour that they risk becoming unhelpful.

  Q36  Mr Clapham: In terms of the colleges, you feel that under the new arrangements that the service that you are able to provide is going to be a service that is likely to improve.

  Mr Morgan: But there is a fundamental there, and that is the survival of the colleges. The cuts that we are going to take on board, we know we have got to deal with those cuts. We are in the public sector, we know what place we are in in terms of government finances, we are expecting that, but at the level at which they are being imposed it is not just boxing and coxing and minor adjustments, it is surgery, and there is going to be a reduction in the provision if we are not very careful. I have got industrial clients who we have dealt with who are very nervous about the stability of their providers, and I think that is an issue that we have got to be careful about.

  Mr Doel: To connect that point with the cultural issue, the former culture of doing things to colleges applied to what we are about to go into will result in suboptimal outcomes, even within a reduced budget. If colleges are seen to be partners in this process and have some ability to affect how things are done, then they will be able to mitigate the worst consequence of any funding cuts. Rather than actually just having them imposed upon them and dealing with those consequence, I think a real involvement in the culture change is important in order to get the best out of the board, and it is a self-evident almost kind of cliché that structures are easier to change than cultures

  Q37  Ian Stewart: On the RDA stuff, Michael, to you, please. The Pre-Budget Report announced that Manchester and Leeds city regions would gain additional powers for adult skills. What exactly will they do, how will the rural city regions link with the new skills responsibilities for RDAs and, with the SFA involved too, is there not a danger that too many agencies will be involved?

  Mr Davis: I think that is a legitimate risk, that we set too many expectations about what can be done in a very short period of time. What I would say is that, in terms of determining skills priorities, there is a need for a sectoral dimension. An electrician who works in Manchester requires a similar skills set to an electrician who works in Reading or anywhere else, but the place in which they will be able to access learning, the extent to which there is a demand and other employers for work with will have a strong geographic dimension, and so I think that what government is seeking to do is to strengthen the role of that geographic aspect, but I accept that there is a legitimate risk that Manchester, with the RDA, will have to work out where those priorities between themselves sit.

  Ian Stewart: What if we have a system of RDAs in city regions? How do we maintain standards?

  Q38  Chairman: That is quite a big question. I think later on we will be asking questions on regional structure. Can I go back to the funding question before I hand on to Brian Binley. It seems to me what you have said today is that there are no savings in the bureaucracy that is being recreated as a result of the abolition of the Learning and Skills Council and the same people are doing the same jobs, wearing different hats, in different buildings probably more expensively and that employers (I took what Pam Alexander said here very interestingly), if anything, face a more complicated environment to understand the skills structure in. You meanwhile, Ioan Morgan, are faced with huge uncertainties about your funding streams. I am finding it quite difficult to comprehend what the game has been in this process at present, and that is what I am going to be asking myself during the rest of this evidence session.

  Mr Doel: We raised very early in the process of Raising Expectations (and this may be a question that you might wish to pose to ministers)—it was not what I would expect to see in a normal business—a benefits realisation plan which baselined the number of people that were actually working to oversee the skills system. Its success could be judged against in two or three years' time and there was a working hypothesis that there would be no reductions in the number of people involved in this process. It seems to me that the Government was embarking upon a process of change with no means of actually determining whether or not it was successful or being able to judge the direction of travel.

  Mr Morgan: It is very clear to colleges that the machinery of government changes right from the very start have not been cost neutral, they have been expensive and have taken away from the frontline. Am I the first today to mention the word "learner", because it is the learners who have directly suffered due to that process because they have had frontline money taken from them for this process.

  Ms Alexander: Could I respond to the point about employers? I hope I did not say that employers saw this as more or less complex; I think they view the whole skills structure as extremely complex and difficult to understand. One of the things we need to do is identify, through the brokerage that we do with them, the quick routes through. For example, we have a protocol with the National Apprenticeship Service through which we make sure that small companies come through Business Link for their support, larger companies are directed straight to the NAS, and I think it is that sort of thing which will get them to the right place.

  Q39  Chairman: To use Ioan Morgan's phrase, "hiding the wiring".

  Ms Alexander: Yes.

  Q40  Mr Binley: Back to funding. I believe the statements made by the department are, in fact, very confusing, but I am a simple businessman. On the one hand, we talk about a new single account management system, we then go on to say that there will be simpler funding and monitoring arrangements, and then we say the level of financial autonomy given to those colleges and organisations will depend upon their track record and performance. What is it? Have you got more freedom or are you going to have more interference? How is the monitoring going to work, because government knows an awful lot about creating packages that will solve problems; they do not understand you have to manage those packages to make them work.

  Mr Doel: There is a single account manager within the SFA, there is also a single account manager within the local authority, there is a single account manager within HEFCE and there is a single account manager when you are dealing with individual businesses that you deal with. That adds up to four, at least, as we begin.

  Q41  Mr Binley: The UCU says they did not believe there was sufficient clarity about the role of account managers—that is about management. Do you believe there is? That is what I want to get to. This is supposed to be a simpler system, giving you greater understanding of the money you are going to have, but the monitoring to respond to performance, because it is also going to be based on performance, does not seem to be clear at all. Are you happy about that?

  Mr Doel: I think it still should be fully developed. The only conversations that colleges have had regarding the single account manager within the SFA have been positive. Going back to my first point today, in that part of the forest it has got a bit clearer, but the forest as a whole looks a bit impenetrable, so actually that conversation becomes sensible. In terms of the monitoring in performance management of colleges, there is still much to be thought about in terms of how they are performance managed across a number of agencies that are looking to the whole of the institution and the way it is performing. Ofsted has a role in this regard, the SFA will have a role in this regard, the Framework for Excellence, which is the model by which colleges may be judged, and the UKCES have a very interesting suggestion about course labelling as to how colleges might be assessed by the consumers: the businesses and the individuals that might go to the college. This is replete with initiatives which are almost being stitched together at the level of the college currently.

  Mr Morgan: On the ground what is happening at the moment, where an account manager is identified colleges are putting in a huge amount of effort in trying to explain what they do and how they operate to try and engage those people for the future. We are doing a lot of that work, but I would say certainly as a sector we value trusted colleges being given more autonomy, and it is only in that way, I think, that we are going to deliver on the agendas that you have heard about.

  Mr Doel: May I also say something about the trusted colleges' earned autonomy. I find the term used "skills for growth" slightly anomalous in so far as colleges were granted autonomy in 1993, and so to earn that which you have also been granted seems a bit, as I say, anomalous. In terms of the presumption that a group of outstanding colleges may be granted freedom to manage within an overall budget, it seems to me the opposite way around. There should be a presumption that all colleges are trusted. I think they have earned that trust over time and only those that are proven not to be able to deal with that additional freedom ought to have it held back or constrained. The direction of this seems to be a deficit model rather than one that is actually promoting trust and allowing colleges to deliver.

  Q42  Mr Binley: But you made the point that you are having to do a lot of work to educate the account managers?

  Mr Morgan: Of course, the business is so complex. I cannot think of an individual who can actually come in and really understand the extent of my business very, very quickly for this turnaround, because there is a potential disaster. They have got to understand the business in some depth.

  Q43  Mr Binley: I understand that. That is one of the concerns I have, but if the people making the decisions about the quality of your performance are not conversant with the problems that you face, how can we properly manage this process?

  Mr Morgan: Personally, I think that if you are going forward and you are looking at monitoring quality, we have got a wonderful organisation in place to do that, and that is Ofsted, formerly Her Majesty's Inspectorate, and that is an external view on the quality of an institution, and if you just add to that some comment on the financial acumen of that organisation, what more do you want to liberate that college into a situation of facing up to the local skills and social agendas that it faces? For heavens sake, give us the freedom, give us the tools to get on and deliver for industry and for the social agendas that we can deliver. No organisation I know, other than FE (and of course I am biased, and you would expect me to say it, but I have really thought about this) can actually get in there quick and dirty and change and effect social agendas. We need the tools and freedom to do that.

  Mr Davis: Notwithstanding the challenges that the colleges face in the immediate term, the Commission's view is that the sustainable approach on this is that we want individuals and employers to, in effect, be performance managing the system. We have this continual discussion about who manages providers; actually customers should manage providers. The reference to course labelling was simply an illustration of how, if we empower customers, put money with those customers, put all the performance management information with those customers, the sustainable route is that individuals and employers manage the system and providers provide greater transparency and accountability to their customers, and that is also how you simplify much of the process that exists mostly to manage things on behalf of customers rather than empowering customers to do it themselves.

  Mr Morgan: You are only as good as your last contract. That is all you need to know.

  Q44  Mr Binley: Can I move on to ask about the fact that the AoC pointed out that the largest scale funding for colleges will come from local authorities through the YPLA and not from the FSA. Can you tell me more about how these two revenue streams can be managed, because there seems to be a problem there? We have already talked about this to a certain extent, but I do not think we have found the answers to good management in this respect.

  Mr Doel: The significant issue, I think, is we have talked about the ability to wire and use the budgets flexibly, and the Government have made some proposals in this regard, but, interestingly and absolutely there is no ability to wire money from 16-19—to adult provision. Everything we have talked about so far is just working in the 19-plus. The ability to move money around between those two, effectively, departmental stovepipes is missing. The ability, therefore, to deliver real efficiencies and to deal with knotty sort of things, like the fact many A-level students do not complete their studies aged 18; they carry on to 19; so they move from one funding agency to another to complete the same course at different rates and different sources of funding.

  Q45  Ian Stewart: Taking up places for the new adult learners, which is compounding the problem.

  Mr Doel: Yes, so this becomes quite difficult to manage at the local level, albeit colleges, being of a relatively large size compared to schools, have a relatively strong capacity in terms of managerial ability, manage to hide the wiring to manage these and actually give an appearance of a single institution to the world attending to a range of learners and needs of businesses and communities. As I say, I think they are managing this on behalf of the agencies effectively. Notwithstanding that, to be fair, I have made this point in a couple of letters to the Secretaries of State and they have acknowledged the concern that the SFA and YPLA must work closely together to understand the impact of their own funding decisions upon the institution as a whole. You force that into them, you say they are going to do it, the SFA Board and the YPLA Board will work closely together, but I think you are working in some ways to make the best of a difficult situation rather than actually configuring a way which makes its easier to deliver.

  Q46  Mr Binley: They sound to me like fine political words; they do not sound to me like good management sense, quite frankly, and we need to ask the Minister perhaps next week.

  Mr Doel: He might say anything that took that long to explain cannot be right.

  Mr Morgan: Can I take up one point very quickly there and just say one in ten undergraduates are studying in further education colleges. We are going to get a double whammy if we are not careful in colleges, because universities are also getting funding constraints. They pass their money to us in many colleges, some colleges are provided individually but many are passed on, and bear in mind that the significance of that is that the vast majority of undergraduates in colleges are closely aligned to businesses because we are delivering the foundation degrees aligned to skills needs, and so we have got to be very cautious that that area is not adversely hit.

  Q47  Mr Binley: Just two very quick ones. First of all, it seems to me that the suggestion has been that we should use Ofsted more for monitoring and that is where the central thrust of monitoring should lie. I would have my doubts, because I think Ofsted is a very patchy instrument and I think it has lost a lot of credibility; but that is by the bye.

  Mr Doel: May I just add something? It is not to cut across Ioan's experience, which is much greater than mine in this sector, but I think it would be worth considering whether or not there is value in having a contextualised FE inspection service, which actually is more expert in looking at the sector, rather than Ofsted which is looking from early years through to age 99 effectively, what the college is delivering. An external inspection service gives confidence to the public, looks at the whole of the institution's output and therefore is valuable. Whether or not it needs to be Ofsted is another debate.

  Q48  Mr Binley: We will note that and pursue that further. The final question is whether SFA decision-making on funding will be influenced by the annual skills audit compiled by the UK Commission for Education and Skills. Can I ask what role does the Commission expect to have in funding decisions? What role do you think they expect to have?

  Mr Davis: From the Commission's perspective what we are working on, literally right now, is a strategic skills audit. We were asked to do that last autumn by BIS. It is intended to provide insight and foresight about emerging skills needs for the medium term and it has been informed by the work of Regional Development Agencies, their labour market and informed by Sectors. We have commissioned some horizon-scanning work as well. It is to provide BIS the information and then BIS will take with information from the regional skills priorities; then BIS will determine its overall skills investment plan, which it then provides to the Skills Funding Agency. What I would add to that is that we see that our strategic skills audit is information not just for Government but also for providers, employers and individuals. The point was asked earlier whether Government can achieve the Leitch ambitions? The Leitch ambitions are not just for public funding; they are for everyone. They are an aspiration that we all aspire to and everyone has a really important role in achieving that. We will have a role in disseminating that information, therefore, not just to Government but also to providers, to regional entities, as they develop their plans as well.

  Chairman: I will ask you some more questions about that process a little later on. Can we turn to a subject that Mr Morgan and I have had personal experience of, capital programmes?

  Q49  Mr Wright: In terms of a capital programme, I have just visited my college of further education in Great Yarmouth and visited the new Alchemy Centre, which is a fantastic centre, funded through the Government, and clearly it has moved forward. The difficulty was that they wanted to complete phase two. Of course, with last year's development with the LSC, the funding prevented that from happening. Even worse, my sixth-form college had plans to get rid of a number of their portacabins that they have because of the increase in number of students and they could not even get past the planning stage. I think this is a mirror image of what we saw throughout the whole of the country last year, when there were huge amounts of representations to the Minister. Now the Government says that they are confident that the new financial structures within the SFA will mean that there will be no repeat of this. Are you confident, as the Government is, that we will not have a repeat of what we had last year?

  Mr Doel: Structures are not the same as processes. We need to understand the processes and risk management processes that are in place. Structures will not actually protect against that inherently; so the changes we are making will not actually ensure that there is not a repeat of the capital fiasco—if you want to call it that—last year. What we have insisted—again, it goes back to the point about the SFA and the YPLA beginning to get joined up—is that we do not have a building that has a YPLA part of the building and an SFA part of the building separately funded. You will need to have a combined capital strategy applying to the college sector, because you will need to combine those funds in order to come together to build a single building. In terms of going forward, therefore, you need a combined capital strategy. You also need effective risk management processes between those two agencies and between the local authorities who are involved in this mix as well, which theoretically is more complicated than the task the Learning and Skills Council had in the past as a single overseer of what was going on, in terms of capital spend. Potentially it is worse, therefore, but we are insisting on a single capital strategy. I should also say at this point that we are continuing to press the case for colleges to access funds identified in the last budget for further capital expenditure within this CSR period. From our calculations and confirmation of conversations with the LSC, we believe there is to be £200 million still to be committed within this CSR period for capital builds within colleges, and there seems to be some delay in making the decision how that money will be allocated. Our suggestion to Government has been that, given that £200 million will not cover the capital needs of all colleges—like your own, or that in your constituency—it might be more sensible to break that up into smaller lots of funding, to allow colleges to leverage in more money through borrowing and matched funding from elsewhere, and effectively to mend the roof for the next three or four years—when capital funding in all sectors will clearly be very difficult—to allow them to stabilise their estate, to continue to deliver against the needs of their learners and their communities. However, we do need some early decisions on this. The capital crisis came to light in December the year before last, and we have been sitting here now from April, when money was allocated by Government, and there is still a remaining sum that has not been allocated. This cannot go on forever before Government decides what it is going to do with that money, which was allocated for a budget last April.

  Q50  Mr Wright: Even the question of that allocation last April was brought into question because it became a competition between regions, in terms of how that was being allocated. The eastern region, for instance, did not get one penny piece, although there were cases throughout the region for colleges to receive that funding. Forgetting the £200 million that apparently is still within that pot—and I would certainly share your concerns that it has not been allocated at the moment—that said, you mentioned the YPLA and the SFA coming together in terms of two single bids. Would you expect there to be two separate bids? Would there be a single bid or would there be a joint bid? How do you see it?

  Mr Doel: First of all, to go back to the first point, to take Ioan's earlier point, I think colleges have been extraordinarily patient and mature about this situation. They could be, amongst that £200 million, just fighting for another ten projects to go through and fighting on an institutional basis for £20 million each, and the wider sector then suffers; but, as a group, they have decided—or they have indicated to us—that they would be prepared to divide it into smaller pots so that all of the regions and the great majority of colleges on a need basis do receive some benefit from the remaining funds. I think that is extraordinarily mature as an approach. I do not know whether the vice chancellors might agree between the Russell Group and others in that way. However, in terms of the application process, we need to close on this; and I cannot see any alternative but to have a single pot and a single application process, managed on behalf of colleges by the SFA. Interesting to see the new sixth-form colleges sector. Where will their capital funding be addressed? Will that be through DCSF and the YPLA? How will we ensure parity of treatment, in terms of the money going where the need is greatest? These things are still to be tested and it may be worth asking ministers what their thoughts are in this regard.

  Mr Wright: I think that in the last round it was more to do with those colleges, some of which as I understand it had started the demolition process before they had been given the green light in terms of the allocation.

  Q51  Chairman: Mr Morgan has had personal experience of that.

  Mr Morgan: I would say there is some question about whether they had the green light or not. I think it would be churlish not to say that the sector has benefited greatly from the capital investment that the sector has received. When it was working well it was terrific. We have world-class buildings; we certainly as a college have benefited from some world-class buildings. But the nervousness is forward and related to the structural question that you are addressing. My governors are very concerned indeed that they now have a much more complicated capital picture. Let us not forget that we are independent corporations, with an independent governing body, who want to make strategic decisions about the future of their colleges. That can now be overruled by a local authority that does not support a particular development linked to 14 to 19 developments. There is a huge anomaly there that we need to look at in terms of structure; because you will get other people who can intervene and veto.

  Q52  Mr Wright: On that particular point, the 14 to 19 year-olds and the local authorities, I could not imagine a local authority objecting to that. What circumstance would you think they would have for objecting?

  Mr Morgan: It is not the experience in my area, but there is still suspicion amongst the college community. We are now in a much more heavily populated pond, if you like. We have schools in there vying for capital and so on. We are latecomers, since 1993, back to local authority control. There is still nervousness amongst governing bodies about an equitable handling of the allocation of resource; so there are decisions in there that we are still nervous about.

  Q53  Chairman: Maybe we ought to ask Councillor Sparks this question. Will you also be making judgments about the capital for sixth-formers in schools as well as local authorities? That could lead to potential conflicts of interest arguably.

  Councillor Sparks: I think it is incumbent on anybody who is making allegations about local authorities to provide evidence, not just suspicions. Secondly, I think it is important that it illustrates the point. The best practice as far as we are concerned is everybody getting round the table in a local partnership to ensure that everybody is agreed on what the objectives are. That is why we are so enthusiastic about the Leeds and Manchester city regions but, scaled down, why we have pioneered multi-area agreements and other mechanisms whereby people get together.

  Mr Doel: Perhaps I could provide a straightforward example of a single local authority. In relation to sixth-form colleges, local authorities will have a performance management role, an oversight role for sixth-form colleges rather than the SFA, who will have that role in relation to general further education colleges. We have had an indication from a single council that they do not believe the college's borrowing is that which they would want the college to carry out. They believe that the college, although it is an independent incorporated body, has taken on a level of borrowing that they have felt uncomfortable with as the supervising agency for that sixth-form college. That is a particular issue and we are working that one through, but there is another body now involved in overseeing the sixth-form colleges, particularly approving their borrowing and offering a view in that regard.

  Mr Morgan: Can I also pick up on one practical issue very quickly and say that it is capital-related. For those colleges that are fortunate enough to get their capital projects through—and mine was one of those—let us not forget that those capital projects are predicated on a business plan based on growth; so that borrowing has taken place on the basis that numbers will grow and that the bills can be paid, in terms of the capital, the interest on the borrowing and so on. There is therefore a nervousness forward that there may be a much longer-term impact on learners as we move into an environment of constraint; because we have gone from one place to another, where we could confidently predict growth to a position now where the opposite is true—and many of the business plans of colleges for multimillion-pound borrowing is predicated on student growth.

  Q54  Mr Wright: Again, what my sixth-form college will tell me continuously is that they are not being paid for the growth in numbers of students going through to the college. How can you go forward in terms of the future when you know that the numbers will grow but the finances to pay for those numbers of students is not growing in itself? It lends itself to another problem.

  Mr Morgan: Exactly.

  Q55  Miss Kirkbride: I probably ought to know this but are these PFI projects?

  Mr Morgan: No.

  Q56  Miss Kirkbride: So you, as a college, will liquidate if you cannot pay your—

  Mr Morgan: The college will pay for a project through some of its own reserves, through some bank borrowings and a combination of support from the LSC in the past.

  Mr Doel: Whilst there was a grant process in a way, the necessity or benefit of pursuing a PFI route was not there in the form of methodology that the LSC was applying. There was no absolute need for a college—if it was going to have a grant, together with its own borrowings, that it could manage—why would you mortgage yourself to a PFI for 25 years? We have emerged into a different landscape and different circumstances, where we will be looking for more, if you like, innovative and private sector collaborations in order to fund the needs of capital in colleges. However, we do need to understand what the prospects are about the £200 million; what seed corn we might have; what money we may be able to leverage in by different means; so I think that elements of PFI are back on the table, because needs must now. I think that we just want the opportunity to have that conversation and to take a strategic view to boards, to form that view.

  Q57  Miss Kirkbride: So your collateral is your assets?

  Mr Doel: Yes.

  Q58  Miss Kirkbride: In the end, if you cannot pay the bank?

  Mr Doel: That is right. It is the limit on the borrowing and the limit on whatever liability you can take on.

  Mr Morgan: That is why we are anxious.

  Q59  Chairman: I want to move on now briefly to the UK Commission on Employment and Skills, narrowing in on the questions on the Skills Audit and looking at the regional agenda, which will bring in SEEDA again. You have talked a bit already about the National Skills Audit in answer to an earlier question. When will the report be published?

  Mr Davis: Its aim is to publish it in early March.

  Q60  Chairman: I do not want to invite a long answer to this question, but what sort of thing will it contain? How will it be structured?

  Mr Davis: It will give what we would describe as the long-term view about where we see future skills opportunities for the labour market and about where there may be mismatches in skills currently. The important thing is to see it as a document that helps inform the setting of priorities and to underline that it informs the setting of priorities for Government, but also helps inform the regional priorities that are set within regions; and also is a source of intelligence for providers in their own interactions with their customers and helps them shape their offer to business and individuals as well.

  Q61  Chairman: You indicated in answer to a question earlier that you talk to the Regional Development Agencies as part of the process for preparing the audit. I appreciate your commissioners give you a certain breadth of expertise. Who else have you consulted?

  Mr Davis: It is quite an extensive labour market study. It has five components in it. It has the regional labour market assessments; it has input from the Sector Skills Councils and their sectoral dimensions; and then we have commissioned a number of horizon-scanning pieces, looking at different types of future scenarios in relation to employment and skills. It is quite a comprehensive piece of work, therefore, but it is intended to be so and then it is intended to be an annual production thereafter.

  Q62  Chairman: You then hand the report over to BIS and they decide what to do with it, basically.

  Mr Davis: Yes.

  Q63  Chairman: You have no role in actually advising on the funding decisions that flow from that.

  Mr Davis: BIS will respond, as I understand the process, to the submission that we make and will produce a national framework of priorities. That also then takes the input from Regional Development Agencies and that then becomes the basis of its investment plans with the Skills Funding Agency.

  Q64  Chairman: You publish the report and that is your job done; you start on the next one. You do not have a continuing role of engagement with the Department at that stage.

  Mr Davis: We publish the report but, alongside submitting that to the government department, we also have an active programme in place about how we disseminate that information within regions and with individual providers as well. An important aspect to a demand-led system is that we try to make it as informed a demand as we possibly can. What we are trying to do, therefore, is to fill the totality of workforce development, the market for workforce development, with informed information. It is not just a document for BIS, therefore; it is a document that we would hope that providers, regional bodies, a whole host of organisations, would want to look at and then start to reflect their own priorities.

  Q65  Chairman: So you will play a part in promoting the findings of that report widely across the country.

  Mr Davis: Yes.

  Q66  Chairman: What obligation has the Skills Funding Agency or BIS to take any notice of what you conclude? Could they just say "It is very interesting but we will not do it that way"?

  Mr Davis: That is more than possible, but we would hope that—

  Q67  Chairman: More than possible?

  Mr Davis: No, I am sorry. Let me rephrase that. We put forward advice to them but they have to interpret it into their funding strategy.

  Q68  Chairman: Why do you exist? Should this not be incorporated within the Skills Funding Agency—the "not invented here" thing is always a risk—or actually in the Department? You are setting national skills policy and it has been subcontracted to you. Is there a risk that it is more than possible that it will be ignored because it does not suit these two organisations that you are not part of?

  Mr Davis: The first thing to stress is that the Commission's remit is a UK remit. Our accountability is to seven co-sponsor ministers: four in England, and one each in the devolveds.

  Q69  Chairman: That must make your life easy!

  Mr Davis: Interesting. It also has a remit that extends across both employment and skills. We see that as a strength because it is about looking at the connectivity between employment policy and skills policy, and particularly the role of skills in helping people progress in work. Our role, if you would wish me briefly to outline what it is, is an advisory role to the UK Government around employment and skills and holding a very firm, I would describe it as an honest mirror, towards our ambitions of being world-class in both employment and skills.

  Q70  Chairman: You exist to discipline the departments and keep them on the track, and make sure they are doing the right things, from your objective work.

  Mr Davis: Yes, and we are also given specific remits to review parts of that delivery. For example, in terms of that accountability we are currently reviewing the extent to which employment and skills services are intergrated.

  Q71  Chairman: I will let you into a secret. We do quite a lot of scrutiny of Government and we make suggestions to Government. They do not always listen to us. Sometimes they do. I just have this concern that, because you are outside the machinery of government, your views can be marginalised. Are you concerned about that?

  Mr Davis: I would say no. We feel very confident that, in terms of the work that we have done so far, we have had a positive impact.

  Q72  Chairman: I would say the same thing, answering that question myself.

  Mr Davis: Then perhaps I would ask you to look at the document we have published called Skills, Jobs, Growth and to see the extent to which aspects of that have been taken forward into the Government's skills strategy.

  Q73  Chairman: That is a bigger question. You are confident that your audit will be taken notice of by the departments?

  Mr Davis: Yes.

  Chairman: We will move more regionally now. Mick Clapham.

  Q74  Mr Clapham: What we are going to see is partnership working between the RDAs, the leader boards, local authorities in a particular area, Sector Skills Councils, et cetera. At the end of the day we are going to see various reports draw up. There will be a report on the economic strategy for a particular area and, within that, the skills strategy will be drawn up. How will you go about working together to draw up that report on skills, within the context of the economic outlook?

  Ms Alexander: I should probably distinguish between London, where the situation is slightly different in terms of governance with the London Skills and Employment Board, but the nine Regional Development Agencies are all producing the skills plans. In the short term, the Regional Priority Statements for 2010-11 have just been produced by the eight of us outside London—very much based on the work that we have been doing with the regional partnership boards, the boards with the local leaders, based on our regional economic strategies and, in some areas where they are further ahead, the regional integrated strategies that are coming together. They are based on input from a number of different areas. For example, looking at replacement demand, we take information from the Job Centres and from BusinessLink; looking at high growth, we are working with our Science and Industry Councils and making sure that we are identifying the sectors as well as the places in each region which need priority action, where the skills gaps are, and where the long-term as well as the immediate needs are. Those will all be built into the skills strategies, which will be a crucial part of the work of the Economic Development and Skills Boards, not just with local authorities, who are obviously crucial partners in this, but also the providers and the businesses and indeed the universities that are represented on those boards. Those will all feed in, giving a longer-term view, and we will be looking to the Department, in making its guidance to the Skills Funding Agency, to be reflecting the needs of sectors and places for that funding.

  Q75  Chairman: An employer engagement with that process? You talk a lot about public sector bodies there and their engagement. It is supposed to be a demand-led system we are in now. What is the employer engagement?

  Ms Alexander: Our sub-regional partnerships, which are very much our on-the-ground engagement with employers, have certainly played a big part in that—as well, of course, as the Sector Skills Councils and their views from the larger employers.

  Q76  Mr Clapham: Mr Sparks, could I ask you—because obviously the leader boards will be very much a part of this partnership—do you see that being a creative partnership?

  Councillor Sparks: Yes, I think that the establishment of leader boards has brought added value to the whole regional regeneration scene. There is no doubt about that. It is both applying real power and also streamlining the process. Our feedback and my direct observation on this is that it has been taken very seriously throughout the country. It varies considerably from region to region. I have had direct involvement recently for the LGA in the West Midlands and the North West. They both organise totally differently, but they are quite clear that they need to go beyond an individual local authority in order to have meaningful partnerships with the RDA and other bodies, and that this is vitally important to the future of their individual communities. Because the most important point as far as we are concerned is that we are genuinely concerned about the future, for example in the West Midlands—which is obviously an area I know well. Two points. Even if there is an upturn in the economy and the West Midlands revives, there is an open question as to whether that would limit it to one part of the region, say Bromsgrove, Worcester, going up to Solihull, as opposed to the Black Country area, which I represent in terms of Dudley. That is mirrored in other regions. Equally, it is important that the skills needs in particular areas vary considerably; so that the skills needs in Birmingham, for example, are radically different from those in Bromsgrove. Equally, in the North West you will find that there are big differences between Liverpool and maybe part of Cheshire. We are answerable, as local politicians, as you are, to the individuals who make up our individual communities. If those people are not able to compete to get a job, they will stay unemployed. Equally, if we have lots of people who are not able to get jobs in a modern, international, global economy, we will not then be able to revitalise our communities. The leaders of councils are therefore taking it really seriously. One final point. In terms of putting pressure on councils, there is nothing better than for there to be peer pressure. You are only as strong as your weakest link. If you have a local authority that is not performing in a sub-regional partnership, there is more chance of getting them to perform in that partnership than if they are dealt with in isolation. A final point, and this goes back to the original bit. National programmes leading to hitting national targets and outputs, or whatever jargon you want to incorporate, are meaningless in this particular exercise, because ultimately it is what is needed at a local level. There is no point in us losing our existing employers because we cannot provide them with the skills to compete in new markets if we are hitting some national target. The national target is irrelevant in relation to a local context.

  Mr Morgan: I would support that. From a provider's point of view, what we want to do is make sure that we do not have an independently operating skills strategy in the absence of an economic development strategy. Hopefully, the new structure will bring that together. What we need to see from a practical point of view are economic development officers stepping inside colleges and working with curriculum teams, giving them heads up and radar on the skills needed. What are the inward-investing companies that we want to attract into Warwickshire and what is Warwickshire College doing in response in the curriculum? That is the link and, where we can get to that, I think it brings huge optimism.

  Q77  Mr Clapham: Mr Sparks, I agree totally with what you say about the difference between the regions, et cetera. You will be aware that, some considerable time ago when we had the large nationalised industries, what used to happen is that we moved towards full employment, because many people who did not have the skills that were marketable were still provided with a job. In many areas we have high levels of unemployment and, again, it is a grouping who do not have the skills and, unless we can create the jobs, we will still have high levels of unemployment. Do you feel that there is a role at the present time perhaps for Government to consider creating funding for local authorities to be able to take on and create the jobs that, in many areas, will not be created by new industries coming in? I am thinking in terms of those areas that are regenerating. Do you see a role there for local authorities?

  Councillor Sparks: Number one, we do, and we have put our money where our mouth is on this, in that the LGA has encouraged local authorities, for example, to take on young people as apprentices, as a contribution. The second point is a really valid point and I can illustrate it by a perfect example in Dudley. First of all, there are a lot of people, when the nationalised industries were being run down, who were able to get training packages that have never been surpassed and, as a consequence, really did acquire skills that made them a lot more employable and gave them alternative careers; not just short-term jobs but alternative careers. It worked well; it provided a long-term perspective and it fitted in with the needs of an individual as opposed to a statistician. The second point, and the Dudley case illustrates it perfectly well, is Round Oak steelworks closed and on its site we now have a major shopping development. It is not an out-of-town shopping development but it is a major one, providing 10,000 jobs or whatever. Equally, on the same site, we have offices that also provide employment in financial services and the usual office employment. Some of that employment that came in to provide jobs for people being made redundant from the steelworks, for example, has now gone; because it is far more mobile than what it was in the past. We think, as a local authority, that we solve the problem. You get people to come in and invest and you solve the problem. Not any more, because they can just up sticks and go; so you have to give them a package, as has been pointed out—a total package, going from the region right down to the local—as to what they require in terms of training. One final point. Also, Dudley—you ought to have a look at this at some time in general—has targeted young people and the creation of businesses for young people, because it was a much-neglected area. You do not know, and there is nobody in this room who knows, what will be a successful business. Some people might have a good idea and it might be successful, it might not. What you need to do, however, is if you have a successful business in the area you have to nurture it and support it, so that it then develops. Too often, people look at the past and they do not try to pick on the winners in the local community. That is why we have argued very strongly for this whole thing to be broken down to whatever is the appropriate partnership to make it work.

  Q78  Mr Clapham: Do you both, the RDAs and the local authorities, feel that you can manage the tension that there may be between what are the demands at a local level and the demands at a regional level for different skills?

  Ms Alexander: I think that if they are not aligned we are not doing our jobs properly, because it is not about the tension between local and regional; it is about exactly what Councillor Sparks has just said: which is the right level to make different provisions? For example, we may draw together an aggregate demand for certain areas of training which we know is coming, which cannot be met locally because there is not the critical mass to provide it. That can add to and complement what can be done locally. I do not think it is right to draw that tension as something which cannot be made complementary. I think the big strength going forward is that we are actually articulating it; as a central part of economic development we are articulating the different levels of skills needs—short term, long term, sector, spatial, local and greater critical mass.

  Councillor Sparks: We do agree with that and we stated that on 7 October 2008, when we were giving evidence here on RDAs.

  Q79  Mr Wright: I think this question has been answered. It is whether or not the Alliance of Sector Skills Councils believes that regional plans should be developed on a sectoral basis. That is their view. In my particular area in the eastern region, you have to look at particular sectors because it is such a big area for people to go to. My concern is this. On a visit down to Bristol, for instance, we looked at the Airbus and the aerospace industry there. By doing it on a sectoral basis, on a regional basis, you take away the ability for my youngsters in my area to go, if they wanted to have a career in that particular area. I come from an engineering background. Obviously engineering covers a whole spectrum, and I was given that opportunity. What is your view in terms of whether it should be sectoral, or whether it should be done on a regional basis?

  Mr Davis: It is both. You need a sector perspective in order to define the specific skill requirements of specific occupations, and that is a role that the Sector Skills Councils have in terms of setting the standards that become the basis of qualifications; but, as you said earlier, individuals and businesses trade within specific labour markets and that therefore requires you to understand the infrastructure that is available, the providers that you can work with and the employers that you can work with. It is not intended to make it look complicated; it is just a reality that there is both a sectoral dimension and a geographic dimension, and you do need both.

  Ms Alexander: That must be right. One of the areas where we have been developing work with Sector Skills Councils is the new focus on those industries which will drive us out of recession. We have to have sectoral strategies; for example, what a low-carbon future will require in terms of new skills that we do not have at the moment. Then we need to identify where the opportunities are for those to be created; then we need to drive that right down to the local labour markets and what particular skills individuals will need to play a full part, whether it is in offshore wind or new nuclear skills that need to be developed and maintained. We need to identify where the strengths are now and where the opportunities are for the future, and that is very much place-based as well as sectoral.

  Mr Doel: If that is achieved—and that is not a non-trivial task—then it will be wholly welcome. Perhaps I might point out that presently the funding cuts, just applied to adult learner responsive, will have an effect on aeronautical engineering at a college in the Bristol area, as we speak. The national priorities will drive funding out for that particular area. It emphasises the importance to get this more sophisticated assessment of the skills needs in order to drive the funding machine, to allow colleges to deliver and, in the particular case we find now, an area where typically you see there is high technology that has not been funded or is at risk of not being funded in the forthcoming year.

  Mr Morgan: Perhaps I can support that and say that, where it works well—for example, we are opening a new college at Rugby in the summer and there has been a £7 million additional investment from the RDA to put in a power academy, aimed at creating technicians for the new power industries. That is a fantastic working-together, but it has been a struggle getting there because of bureaucracy. If we can smooth that over and make it faster and more responsive, that is what we need. However, do not underestimate the ability of colleges to respond, having to face the new cuts that Martin describes. It will make it difficult to be fast-responding to industry needs.

  Q80  Roger Berry: Even without cuts, bringing this all together is pretty challenging. The response to Tony's question on these lines tends to be, "We have to do it. It has to be at every level. We have to look at every sector and we have to pull it all together". I am curious as to how in practice this can best be done, because there are presumably good ways of doing that and less good. At the moment the plan is RDAs and local authorities will produce their regional plans; the Commission produces a national audit. How do those two things fit together?

  Ms Alexander: We are working together on the information we are both providing, but I would also say that it goes way beyond that. We, for example, are doing some very serious work on the individual sectors that have been identified as priorities for the country, driving down through a number of different task and finish groups exactly what business is telling us the needs might be and trying to identify where they need to be met into the future. We will undoubtedly feed that into the work that the UKCES and the Sector Skills Councils are trying to do, as well as using it to drive our own regional skills strategies. We do need to make sure that we are putting together all the information that we are collecting and trying to make sense of it together. There is no doubt that that alignment is essential.

  Q81  Roger Berry: Are you saying that it is essentially an iteration process and the issue is how long it takes to arrive at a consensus? The Commission will be listening to what RDAs are saying, for example; RDAs will be asking the Commission "What is your national view on this?"—presumably also to get an idea about the implications for the region. How does that work? When do you stop iterating and say "Right, we now have a regional strategy that is consistent with what the Commission is saying should be happening nationally, and we hope and pray that we can get the government departments to agree"?

  Ms Alexander: We are clear that there are some key moments in this system where you have to produce exactly that. Last week, therefore, we produced Regional Priority Statements. They are based on the best information we have now. By next year we will have got a lot more and by next year we hope we might have some indicative regional funding allocations that we would then be relating the priorities to. So, yes, it is iterative in the sense that it never stops, but I think there are key points in the process where the process has to deliver. We would expect to see how those Regional Priority Statements influence allocations and we would hope that they are very useful to providers in seeing the analysis that they develop of the sectoral needs and opportunities, and the business voices in each region and at each locality.

  Ms Muirhead: Just to add to that, I would really want to stress that we are all intent on using the same data and evidence and sharing it. This is not about us each producing a strategy based on different evidence from employers, et cetera. We are absolutely working, as Michael has said, with our data inputted to their work and vice versa. We are pooling all of this. We need to do more of that as we go forward, so that we are basing that regional as well as national and local perspective on the same set of evidence and data.

  Q82  Roger Berry: How does that feed into the SFA? Do you have a joint, collective view about the implications for the SFA or are different views put forward?

  Ms Alexander: It is the Department's view that will be fed into the SFA; so we are all feeding into the Department the different roles that we have. Our role is to produce an analysis of the sectoral and spatial needs of each of our regions, as built up from our consultations regionally. The UKCES has a different perspective on that and the Sector Skills Councils have another perspective; but all of us are trying to pool the data so that we are aligning those perspectives. It is then up to the Department to drive the decisions through the tensions that are inevitable, given the constraints on funding even now, let alone as we go forward.

  Q83  Roger Berry: What happens if the Government and the SFA decide on a skills investment strategy and that conflicts significantly with the regional views or with the National Skills Audit? What happens next?

  Mr Davis: I do not think that is the biggest challenge. The biggest challenge is how we currently measure success and the extent to which we empower and trust providers to adequately respond to that intelligence. We will bring forward our intelligence. I would stress again that it is important to see that that is intelligence for everyone, because the public purse is a part of our total training and skills landscape, and a very important part; but employers and individuals do more. So you are trying to put more information into the totality of workforce development so that everyone is more informed in the decisions that they make. I think that we will converge around some common themes around what is important, both from a regional perspective and a national perspective. The challenge will be working through how that is implemented and the information signalled then to providers, for them to be able to respond; and then this cross-cutting thing, if you will, is the current impact on the qualifications.

  Mr Morgan: From a provider's point of view intelligence is fabulous and planning is fabulous, but the biggest challenges that providers face is when, despite the best efforts of economic development officers, a company, from its own volition, decides to land next door to you in your region. When that happens, you need a fleet-footed response to skills supply. Coming back to the theme of this Select Committee, I am not sure that the structures we have in place will allow me to be fleet-footed enough in response, because I have more people to convince. A company lands next door. It will have a 14 to 19 impact; it will have a 19-plus impact; it will have a five-year impact on what I do in terms of curriculum overall. It is a huge new strategy for my governing body, as an independent corporation and I think that we could be stuffed by this structure.

  Q84  Roger Berry: I apologise. I arrived late and maybe you have given a very clear and simple answer to this already but, just in case my colleagues need reminding, what would solve that problem precisely?

  Mr Morgan: I think what would solve that problem is for trusted colleges to be able to move their money around, to make the appropriate the response that governors feel is right for the company and for us to in-source into that company.

  Chairman: Foundation status for colleges, effectively.

  Q85  Roger Berry: Whatever determines the flows that come in, at the end of the day it is the flexibility of the college.

  Mr Doel: To misquote a military analogy, "No plan survives contact with reality". Actually, no matter how well the plan is articulated and how carefully it is built through intelligence, the real world will be different to the one we had planned for. The only way in which we will be able to deal with that reality will be the point of delivery. The colleges working within broad intentions and having the ability to respond quickly and well; and then being held to account for what they have done—which might not be precisely what the plan required them to do, but they are able to manage within the year to deliver best benefit and have a grown-up conversation at the end of that year about what they have achieved, why they have achieved it, and how they have used the money to best effect, which may not be precisely what was planned.

  Ms Alexander: We fully agree with that. We think flexibility is an absolutely crucial part of it.

  Q86  Chairman: Is there flexibility? I agree with you, that is a wonderful word, but where is the flexibility in this incredibly complex system?

  Mr Morgan: Flexibility will only come if that company says to me "We are going to pay for this. Here is your money. Get on with it. In-source. Become our training division".

  Q87  Chairman: You do not just have it for a system. It is an outlook. We all look after learners in this process. That is the objective of all this, to drive up the skills. Please, no one defend the system; just say "How do we make it work?" I agree with you that flexibility must be crucial. How do we do it?

  Ms Muirhead: The issue is not necessarily simply about the system; it is about the extent to which there is ability within-year financially to respond to the kinds of things that happen: whether they be a planned inward investment or one that is a pleasant surprise on your doorstep, or indeed crisis, as we have had over the last 12 to 18 months, where we have had to talk to the LSC to shift funding about in-year. When we as RDAs say that we would like to see that flexibility going forward, it is that flexibility in-year, notwithstanding the planning and priorities where we try to look ahead, and none the less to be able to shift some money around in-year.

  Q88  Chairman: All the evidence is that they are not allowed to do it. A college in my constituency has two different pots for adult learning. It could not via money between those two pots and so it had to sack teachers and have money in the bank account. There is no flexibility at present and this system, it seems to me, will make it much less flexible. I am listening today and I just hear inflexibility piled on inflexibility—unless I have missed something.

  Mr Morgan: Just to support you, sir, can I say that a survey of 21 colleges belonging to the 157 group indicates that the current cuts we have just heard of will yield 1,200 staff redundancies and will take £40 million out of the system. That is fine, and you can always trim a business. There is lean activity to take place. However, that will impair a flexible response to industry, without any question.

  Mr Doel: To take your point further, analysis from the whole of the sector is about 7,000 redundancies. That need not be 7,000 redundancies if you had more freedom to manage within a headroom budget and actually deliver this more effectively. You are absolutely right about having the ability to be efficient and having that freedom of flexibility. Government has made some proposals in these areas; we just need to see them through and make sense of them. People speak about this, but do they go and do something about it, and trust the institution to deliver? It is a leap of faith but that leap of faith is much more important now, when we have constrained budgets, than it was when budgets were growing.

  Mr Davis: This is why, from the Commission's perspective, it is intelligence for everyone. Absolutely the Commission's line is how do you trust providers, how do you give them that opportunity to vire, so that they are informed in the decisions that they make? I would not want you to think that the Commission was trying to reinforce a system of planning and controlling.

  Ms Alexander: There is another element to it, which is that I think we are working much better together to make sure that we do not suddenly land a demand on a college without having seen it coming; so we need to be working together with the businesses.

  Q89  Chairman: There are so many more of you to work together. There is the Department, the UK Commission of Employment and Skills, Sector Skills Councils, the RDAs, the Skills Funding Agency, the Young Persons Learning Agency, local authorities, National Apprenticeship Service, LSIS—I forget, that is the Improvement Service—Ofqual; then there are the colleges, employers and the learners at the end of all this.

  Mr Doel: Could I add one that we have not spoken about? The Department of Work and Pensions and then there is Jobcentre Plus.

  Q90  Chairman: Yes, another one. Making that system flexible it seems to me would defy a genius.

  Mr Morgan: I have governors from companies who are considering whether they can be involved any more because they are just so fed up with in-year budget adjustments, cuts, changes in policy. It is becoming quite farcical.

  Chairman: We are trying to make the plan engage with reality, as you said earlier, Mr Morgan. Brian Binley has some questions.

  Mr Binley: It is about the voice of employers. I have heard so little of that that I am horrified, quite frankly. I have never heard such a bureaucratic mess in all my life, in a world that is moving quicker and quicker. I do not believe that you will get the intelligence in time to make sense of it, because it will be out of date by the time you have collated it. This is why we have to shove decision-making right down the line, in the way that David Sparks talked about and in the way that Mr Morgan and Mr Doel talked about. We have to cut out masses of layers and masses of organisations to get down to them, because our job growth will come from the SME sector and our creativity will come from that sector too. They do not operate at regional level; they do not operate at national level; they operate at the very local level.

  Chairman: Sub-local level, actually.

  Q91  Mr Binley: Very much so. I want to ask you, on behalf of employers all over the place who are just as frustrated as me, what role will they play in these plans and is there any statutory requirement for you to consult with them?

  Ms Alexander: We are here to represent the business voice and we work with businesses all the time. They are the key players in determining what we see as the business needs that will drive economic development. We work with the business member organisations, absolutely at the heart of what we are articulating as regional needs, local needs and sub-regional needs. That is the way in which we would hope to articulate what businesses are telling us but what we would also hope to do is join up some of the bureaucracy for business, so that we could hide the wiring and get them where they need to be to get the skills provision that they are looking for.

  Mr Binley: But they do not want you to consult with them; they want to get on with the job and they are fed up with consulting body after body after body.

  Q92  Chairman: Can I come in on this, because there is a question I wanted to ask. One of the issues we have not discussed much is workplace learning. It is hugely important for SMEs. What comfort can I take away that these new arrangements will support workplace learning, which is really important for those micro businesses? Not just for them but particularly for them.

  Ms Muirhead: We absolutely agree with you and we would absolutely make that one of the priorities in the way in which we would wish to see provision being delivered in future, whether that be colleges working in the workplace or whatever. As Pam has said, the business representatives, both individual businesses at the local level and also their representative organisations, say these sorts of things: that they want work-based learning; that they want other skills training; that they want flexibility at the local level. We see it as our role to be very strongly championing that and shouting loudly on their behalf.

  Q93  Chairman: Does not the LGA see its role as that as well? What is your role in this? We are talking about very local businesses, which often have no contact with the regional organisations at all.

  Councillor Sparks: First of all, to answer the question whether we have a statutory requirement to contact businesses, we only have a statutory requirement to contact businesses in relation to making the budget; but as a result of that you will find that in local authorities in general best practice will have built on that and will have combinations of things, as we have in Dudley, in terms of breakfast meetings, et cetera. This goes back to one of your earlier inquiries in relation to Regional Development Agencies. Certainly it is a problem we have had in terms of the accountability of local authority members of Regional Development Agency boards, as to how far they are accountable. The Government has set up various agencies. You name it. You will get people representing employers who are on there who are meant to answer this particular problem, but it does not always work. That is we have come to the conclusion that the only way you can crack this, and indeed make it smoother and more efficient, is if you do get down to very local partnerships that are determined locally. If people do not think they are on it, they need to shout their mouth off to ensure that they do get on it and their voice is heard. We have not cracked it and we are not perfect, but at least we need to focus on that. The problem about all of this is that it is in danger of looking at the world through the wrong end of a telescope. It is looking away from the problem, not at the problem.

  Mr Doel: I think the ultimate partnership is between a college and the business that it is supporting. The great benefit of Train to Gain, for all the failings and difficulties that might be identified by the Public Accounts Committee, is that it has brought colleges closer to employers and they have become more familiar with meeting the needs of employers for a variety of means, and are ready—whether it is work-based or it is an apprenticeship offer or if it is actually in situ in a college—to give the personalised or tailored solution to business that business asks for. What we do not want are any new procedures, processes or funding agencies to interrupt that direction of travel—which is one that was endorsed by the CBI in its survey last year about colleges having travelled a long way in terms of being more demand-led and more responsive to business. We want to see that continue as a direction of travel.

  Councillor Sparks: Can I add one other point which has not been raised but you have looked at it in previous inquiries. Certainly this is something in the local government sector that we are really keen on now. That is, the scope for innovation and new initiatives. I think that has to be inbuilt as well. That is the point in terms of the needs that might not be catered by the normal college course, for want of a better expression, because of, say, distance learning and small employers. You need to have the flexibility to be able to deliver that.

  Mr Davis: I would like to answer your initial question. First, the Commission itself is an employer-led organisation. Its chairman is Sir Mike Rake, who is the chairman of BT.

  Q94  Mr Binley: Hang on. These are the organisations that lost or are in the process of losing 1.5 million jobs while the SME sector was in the process of making two million jobs. This is my concern. Where are the SME leaders on your organisation?

  Mr Davis: We also have commissioners who are from small businesses. Julie Kenny runs a security business in south Yorkshire. We therefore have a full spread of employer representation in terms of size and even sectors. The commissioners, as you have expressed, were also frustrated with the complexity of the skills landscape and in our advice we did bring forward suggestions on how some of that complexity could be reduced, and that has been taken up in the Skills Strategy. However, what I would say is that, to drive the transformation that you are asking for, for me it comes back to our needing some really clear principles. What we have consistently said as an employer-led Commission, therefore, is the importance of empowering customers so that they run the system and about focusing on the outcomes—so the qualifications are important but not the sole measure—and trusting providers. If we could keep those messages going forward, then you have a framework by which you start to simplify specific roles, responsibilities and processes.

  Q95  Mr Binley: One final question to the colleges. More and more, we need to be working with business on site with business. How do you deal with outreach? How do you get out to them? How do you provide tailor-made training? Sectors are moving so quickly. I am talking about technological manufacturing and those sectors. How do you do that?

  Mr Morgan: We have a bespoke business engagement arm in the college that is out there all the time, visiting and talking. Sometimes you are invited, sometimes you are not; sometimes you cold call. But when we go there what we do not do is talk about qualifications. We have a discussion about where the business is going over the next five years, what the problems are and how we can suit them. Sometimes qualifications are a solution but not always. Some of the work is part-qualifications, part-bespoke, but we always try to demonstrate to them a return on investment—a formalised return on investment for our engagement with them. That is how we do it. Then we say to them at various stages, "These are the parameters of success and, if we agree them at the end, you become our advocate for other companies".

  Mr Binley: I am encouraged.

  Q96  Chairman: I am going to wrap up here, but I will give Mr Morgan the last word, because I think it is publicly known that he will have a successor fairly soon at the institute in Warwick. Having sat through today's session and having had a career in further education, what message would you send your successor at Warwick about the world he is about to inherit?

  Mr Morgan: Be passionate. Politicians and systems come and go but the colleges are such a good idea that they will survive and keep changing lives on a daily basis.

  Chairman: I think that is a good note on which to end, because it is ultimately about those lives we are trying to change. Thank you very much indeed.

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Prepared 6 April 2010