A national scandal

If training the workforce is purely about economic gain, then we should target the young and write o

On the face of it, we should be the most highly skilled nation in the world. Just look at the task forces, institutions and initiatives dedicated to skills. Skills have their very own alliance, passport, minister, new deal and strategy. Britain is blessed with a Skills for Business network, Sector Skills Councils (which have made Sector Skills Agreements), FRESAs (Frameworks for Regional Employment and Skills Action), Learndirect and the Learning and Skills Council, to name but a few.

The multiplication of agencies and schemes indicates, in fact, that the UK is failing - and has long been failing - to equip large swathes of the population with the skills necessary to thrive in the labour market. While 28 per cent of the UK workforce is qualified to an intermediate skill level (in other words, apprenticeship, skilled craft and technician level), the equivalent proportions in France and Germany are 51 per cent and 65 per cent.

This is not an area of policy, however, that excites much interest. The Houses of Parliament have steamed over the funding of higher education. Who can remember the last debate about skills? Or the last front-page headline containing the word? Perhaps this is because the problems are so long-standing or so apparently intractable. Maybe it is because the children of journalists are not generally struggling with their NVQ level 2 in plumbing. For whatever reason, in political terms, skills are not sexy. It is a sad truth that members of the parliamentary lobby are more likely to write about the minister for bird sanctuaries than the minister for skills.

Anybody who has been in the skills field for more than a few years must feel like they are trapped in the film Groundhog Day. The problem of a large minority of the UK's workforce being without adequate skills has been diagnosed repeatedly over the past few decades, and the number of reports on the skills gap could fill the library of a further education college. But the repetition should not dull the reality. It is a national scandal that so many adults begin their careers utterly unprepared and unskilled, and are thereby consigned to a low-income, insecure and unsatisfying working life. And while there have been some important steps in the right direction during the first two Labour terms - Gordon Brown has dubbed the skills deficit "Britain's Achilles heel" - the government has yet to rise fully to the skills challenge.

Nick Isles, an expert on skills at the Work Foundation, says: "The UK is finally seeing a coherent system of lifelong learning emerge." But he cautions that unless employers, including high-performance businesses, sign up to the skills agenda, much of the government's efforts will be in vain.

To make progress, some hard truths need to be accepted. The first is that the private sector is not underinvesting in training; our national spend compares favourably to our competitors. And, by and large, employers know what they are doing - workers receiving employer-funded training see a 12 per cent increase in wages. As Vidhya Alakeson, the author of a new report from the Social Market Foundation (Too Much, Too Late: life chances and spending on education and training), points out: "The returns from privately provided training tend to be high because firms select the most able workers to be trained."

The term "market failure" is bandied about far too loosely. The market is generally doing what markets are supposed to do - allocating capital in a manner likely to derive the greatest economic returns. A company is unlikely to invest lots of money training somebody in IT skills if that person has no basic numeracy or literacy - it will train the better-educated worker instead. This is not to say that employers could not do a better job; there is some evidence that if firms spent more on intermediate skills, they would reap productivity rewards. It is important, however, to be clear about where responsibility properly lies. That the unskilled are neglected by their employers is a huge issue, in terms of social justice and the life chances of those individuals. But in terms of a straight cost-benefit equation, businesses are making the right choices.

A second truth to face up to is the sharp policy divide between unskilled adults already in the labour market and young people who are preparing for working life. The "stock" of unskilled adults is the result of the failures of the past; the "flow" of unskilled adults into work is a failure of the present. The government is currently focused on reducing the flow; Gordon Brown, in his recent Budget, allocated funds to support young people to stay in full-time education or training, and for a pilot of work-based training for 16- and 17- year-olds in eight areas. In his statement to the Commons, the Chancellor explicitly linked his investment in skills to the global economic challenge: "With China and India producing four million graduates a year, I am convinced that Britain cannot afford to waste the ability of any young person, discard the future of any teenager, or leave untapped the talents of any adult."

Stirring stuff, but in some respects misleading. Getting people to NVQ level 2 will hardly equip them to compete with graduate Chinese engineers or Indian computer programmers - and in any case, the UK's universities are flooded. There are increasing numbers of graduates doing jobs that do not require graduate skills. Our problems are not at this end of the market; or at least, if they are, they are the result of over-training, not under-training. And Brown elides the two issues of flow and stock, when in economic terms they are chalk and cheese. Britain can afford to "leave untapped the talent" of an adult if their basic skills are so low that huge investment is required to achieve modest improvements in productivity.

As Alakeson's paper shows, the earlier an investment in skills is made, the better the return - and the greater the chance of progression to a higher level of attainment. Economic studies of skills programmes for the older long-term unemployed show returns lower than the initial spend. Given that the government spends only £7bn on all programmes to support skills, there is a strong economic case for support targeted at the young. After adolescence, the hill that has to be climbed gets much steeper.

Two key lessons need to be learnt for youth training. The first is that workplace-related training is far better than classroom learning: a message that does appear finally to have sunk in on Whitehall. Employer Training Pilots - expanded by Brown in the Budget - fund employers to train directly on the job, and Apprenticeships requires workplace-based learning. The Skills Passport is designed to capture informal learning that takes place in the workplace, which is especially important in small firms.

The second, more challenging lesson is that low-level vocational qualifications are next to useless on their own. The government's target is to get 85 per cent of all young adults to NVQ level 2 by 2010 - the current level is only a few percentage points below the goal. But possession of a vocational qualification at this level does not appear to enhance job chances or wages. GCSEs have a better record. The truth is that NVQ level 3 is where the gains really kick in, and a person is much less likely to progress from level 2 to level 3 once they have embarked on their working life. This suggests that the government is still aiming too low.

As far as adults are concerned, there are even tougher calls to make. It is likely that the economic benefits of investing taxpayers' money in a mature, unskilled person will be zero. Alakeson concludes her survey of "second chance" learning schemes for adults on a gloomy note: "While it is difficult to identify exactly what percentage of the £7bn spent on the low-skilled is wasted because individual programme options are not accounted for separately, the figure most likely runs into billions. Many programmes could be stopped overnight with few repercussions."

What does appear to work is work. The subsidised employment stream of the New Deal shows much greater impact than the learning option. And "intermediate labour markets" such as the Wise Group in Scotland, which train people as they work, show positive results in launching unemployed people of all ages into the mainstream labour market. But these schemes are expensive, and it is not clear that they represent "value for money", especially for older beneficiaries. This is an area where new Labour's insistence that economic efficiency and social justice always go in hand is palpably false. If the UK really does face a growing challenge from Asia, then arguably every spare penny should go on investing in children and young people; the "stock" of unskilled adults should be written off to lousy work or paltry benefits.

Yet there is another case for supporting those adults who were failed by the education system, for giving them a second chance: social justice. As Ivan Lewis, the minister for skills, says (see page xii), this is a question not just of productivity or competitiveness, but also of "the dignity of self-improvement". The spectacle of millions of adults being stuck outside the mainstream labour market, in a low-pay, no-pay vicious circle, offends against decency. The difficult political question is whether we are prepared to pay not merely for skills, but for social justice.

It must also be recognised that some of the skills required in the modern labour market are hard to teach and learn. Certain attributes such as interpersonal skills, team-working abilities and customer service - what businesses call "soft skills" - are important in a growing number of jobs. Asked what was the secret to the great service in his hotels, Rocco Forte replied: "Hiring nice people." But there's no NVQ in niceness, no certificate for confidence. And there is some evidence that jobs in the service sector are going to middle-class students rather than the unskilled, in part because of the disparity in these skills. In the drive to equip people with tangible skills - vital though these are - we must be careful not to neglect the ones that, while harder to measure, increasingly count.

A final challenge is the need for private sector organisations to help shape the provision of skills. Historically, employers have simultaneously derided government for sending them such shoddily educated workers and turned their noses up at state-provided training schemes. There have been some important recent moves here. The establishment of the Sector Skills Councils holds out the prospect of fitting skills to the needs of particular sectors; most of the councils have managed to land some big-hitters from the relevant bit of the private sector. "It looks as though the historic dominance of supply over demand in training is being addressed," says Isles. "The key is to get employers on board, which will in turn ensure that they are getting the skills they need."

The provision of skills is an area where an effective partnership is a necessity rather than a politician's cliche. The recent closure of the NHS University - brainchild of the then health secretary Alan Milburn - demonstrates that setting up entirely new centres of learning within an organisation is unlikely to be cost-effective. And the successful entry of unions in this market suggests that there is promise in institutions brokering and combining the needs and demands of workers and employers. A new trade union academy for skills is on the way.

But ultimately the labels of qualifications, structures of funding and bureaucracies of inspection mean nothing. At the heart of the matter is quality. The further education sector, the Cinderella of the education and training world, is a case in point. (Inevitably, it is currently being reviewed.) High-quality teaching in modern, well-equipped facilities is what is required. And this applies across the piece: no amount of re-labelling will help unless the substance of the training improves. Employers will quickly sniff old wine in new bottles.

The prospect for a step change in Britain's skills deficit is real. But the risks are equally so. If vocational training remains the second choice of both teachers and learners, if the government does not address the division between assessment systems for academic and vocational learning, if employers don't buy in, then the current round of institution-building, reviewing and funding will simply be added to the bulging history of how the elite failed the luckless - yet another rearranging of deckchairs on the Titanic. We must all do better.