Skills for London: Meeting the Challenge

Skills for London:

Meeting the Challenge

A report* by Stephen Evans

27 September 2011

*The report is one of the outcomes of the AoC London project funded by the LSIS

Regional Response Fund

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INTRODUCTION

AoC London region successfully bid for funding from the LSIS Regional Response

Fund earlier this year to undertake a project looking at how London Colleges were

addressing key issues for London learners and employers in the new policy and

funding context.

The report by Stephen Evans, former Director of Employment and Skills in LDA and

Researcher at DEMOS Centre for London, is the main output from the project. Stephen

gave a presentation on his at a Principals’ Forum in September.

AoC London Region is in discussion with the LSIS Regional Development Manager,

Abigail Lammas, who is keen to explore how the outcomes of the project can be taken

forward.

Kate Anderson

AoC Regional Director

December 2011

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SKILLS FOR LONDON: MEETING THE CHALLENGE

1. INTRODUCTION

London has longstanding challenges...

1.1 London is one of the most prosperous and successful cities in the world. Yet too many

Londoners are not sharing fully in this success. One in three working age Londoners is out-

of-work, with employment rate gaps particularly pronounced for groups often

disadvantaged in the labour market, such as lone parents. Poor skills are one of the causes

of this weak employment performance - the skills out-of-work Londoners have too often

does not match the skills employers need - particularly as London's employers have access

to a global labour market. This interaction between skills and employment makes it crucial

that the two systems work well together and with other services.

1.2 These links and interactions between employment and skills are strengthening. This is the

result of fundamental global economic change, driven by technological advances,

improvements in transport and communication and increased economic openness.

...with major economic and policy changes underway...

1.3 At the same time, the increased inter-connectedness of the global economy means that

unless London successfully also meets the skills needs of key growth sectors, that this high

value-added activity will be lost overseas or elsewhere in the UK – economic growth may

be compromised.

1.4 In this context, the Government is introducing a broad range of changes to the employment

and skills system. A Universal Credit is intended to better make work pay, a particular issue

for London where the cost of living is higher. A Work Programme is intended to help more

people to find and keep work, based on paying providers according to the results they

achieve. In the skills system, the overall level of public investment is being cut, entitlements

for those out of work changed and a new system of HE-style loans and fees introduced.

...which make this a good time to consider how best to respond

1.5 This makes it an opportune moment to consider how best the skills system can deliver to

the needs of London’s employers and individuals in this changing context. This project has

taken a specific focus on:

Welfare to Work (given the importance of skills in boosting employment)

English for Speakers of Other Languages; and

specialist provision (for example in skills such as engineering, which can be more

expensive to deliver).

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1.6 It has aimed to consider London’s needs, the potential impact of policy changes and how

best London can respond to them.

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2. WELFARE TO WORK

London’s need: Employment is among the lowest in the country

London’s need: London has longstanding employment challenges

2.1 London has one of the highest rates of worklessness in the UK. One in three working-age

Londoners is out of work, an additional 150,000 would need to find work in order for

London’s employment rate to match the national average.

London’s employment shortfalls have built up over a generation... 2.2 Unemployment in London rose in the recent economic recession. However,

London’s employment rate has been lower than the UK average for around 20 years. One third of London’s 1.5 million workless people have been out of work for more than five years. In other words, London’s employment challenge is a generational one.

Summary

One in three working age Londoners is out-of-work. Some 150,000 additional

Londoners would need to find work for London’s employment rate to reach the

national average.

Employment inequalities are particularly pronounced for groups such as lone

parents, people with health problems and disabilities and some ethnic minority

groups. London has more people from these groups and a higher incidence of

multiple disadvantages. Coupled with this, London’s openness and

attractiveness as a global city intensifies competition, especially for entry level

jobs, and higher costs of living mean work does not always pay.

Skills also play a key role. The employment rate for those with no qualifications

has fallen over recent decades and is today less than 50%. While some jobs

require specific skills, employers often cite soft skills such as customer service,

literacy and communication as a bigger challenge.

The skills system has always played a key role in boosting employment, both

through work-related support and in-work training that can boost job retention

as well as in partnership with Jobcentre Plus and Welfare to Work providers.

The mechanisms for playing this role are now changing significantly. Skills

funding is increasingly focused on those on JSA, not other benefits. The role of

Jobcentre Plus is changing. A new Work Programme pays six providers in

London according to the results they achieve, allowing them to take a ‘black box’

approach.

This means that the role of the six Work Programme providers is critical. In

other countries, such as the Netherlands, similar changes have led to substantial

falls in spending on skills in the welfare system. Avoiding this will require the

skills offer to be pitched in terms of its employment and retention impact.

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...the product of complex factors, including skills shortfalls... 2.3 There are two broad categories of factors underpinning London’s employment

challenge. The first is demographics. London has a higher proportion of people

from groups often disadvantaged in the labour market, such as lone parents and

people with health problems and disabilities. What’s more, these groups tend to be

more disadvantaged in London than elsewhere – London has a higher incidence of

multiple disadvantages than the UK as a whole. So London has more people from

disadvantaged groups and they have lower employment rates in the capital than

elsewhere.1

2.4 The second category of factors relates to inadequate support and incentives

resulting from London-specific factors. London has a much higher cost of living

than the UK as a whole. Yet tax and benefit systems are national, meaning that the

gains to work for entry level jobs is lower in London than elsewhere – for too many

people, work does not pay enough. Similarly, these higher costs make it more

expensive to deliver services in London. Yet these have not always been fully

accounted for in national commissioning. London’s status as a global city means

there is greater competition for entry level jobs than elsewhere.

2.5 Skills challenges overlay and compound many of these factors. Fewer than one in

two people with no qualifications or lacking functional literacy are in work. There

are some industries, for example those with licenses to practice, where specific

skills are required to be accredited before people can begin work. In others, further

training is needed to sustain work or progress. Across most sectors of employment,

basic literacy and numeracy and employability skills, such as communication and

team working are regarded as a pre-requisite. Yet employers regularly cite these

skills as too often lacking in would-be employees in surveys.2

...which impacts on individuals, employers and London’s economy

2.6 All of this has a significant impact on individuals, employers and London as a

whole. For individuals, lack of employment is strongly correlated with poverty and

can have an intergenerational impact on children’s life chances. A period of

unemployment, particularly when young, can have a permanent scarring effect on

pay and job prospects. For employers, access to an appropriately skilled labour force

is essential to business success.

2.7 For London as a whole, high levels of worklessness bring significant economic and

social costs. London Councils estimate that the annual cost of worklessness in

London in terms of direct benefit payments alone is more than £5 billion.3 It is for

1 Increasing employment in London, GLA, 2010.

2 VoLE, London First, 2010.

3 London Councils & Inclusion, 2010.

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these sets of reasons that the Mayor’s Economic Development Strategy sets out clear

goals to increase employment in London and extend opportunity more widely and

equally.4

London’s approach: Complexity and centralisation have constrained progress

2.8 The employment and skills systems have changed significantly over the last 20

years. While much good work is done and many good results achieved, employers,

individuals and those working in the system itself have often highlighted its sheer

complexity as a key challenge.

Complexity, centralisation and silos were seen to be key challenges... 2.9 The stylised view in the middle of the last decade was that the employment and

skills systems operated too separately. That the national framework for

commissioning skills focused too much on qualifications, and not on whether these

improved the pay and job prospects of individuals or the productivity of employers.

And that the national Welfare to Work system focused too much on job entry, and

not on helping people also stay in work and build their careers, resulting in too

many people becoming stuck in a ‘low pay, no pay’ cycle. Too often, the best

employment and skills providers were those who found ways to work around a

centralised system.

...leading to efforts to integrate and simplify employment and skills services...

2.10 Responses to these complaints of complexity led to numerous efforts to better

integrate employment and skills at national, regional and local level. The Leitch

Review recommended that the incentives of all skills and employment services be

aligned to focus on sustained employment and career progression in order to allow

services to integrate in the most effective way at the local level.5

2.11 Following this, the DWP’s Flexible New Deal focused on 6 month employment

sustainability (though short of the 12 months that Leitch had called for), cross-

Departmental teams were set up to co-ordinate policy and employers placed in

greater charge, in particular through an enhanced role for Sector Skills Councils.

2.12 The London Skills and Employment Board Strategy mirrored this call for

integration and a focus on outcomes, and its implementation plans focused on how

to make this happen in practice in London, including for example more integrated

approaches to ESF commissioning.6 This led to a London Skills and Employment

Observatory (to provide an agreed and shared platform of labour market

4 Economic Development Strategy, GLA, 2010.

5 Skills in the global economy, Leitch Review, HM Treasury, 2006.

6 LSEB Strategy.

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information for London) and a framework for integrated commissioning of ESF

(albeit subsequently superseded by Spending Review decisions).

...with some excellent examples of this delivering on the ground... 2.13 At a delivery level, skills providers have delivered employment-focused

programmes directly (for example through the Skills for Jobs programme), in

partnership with Welfare to Work providers and Jobcentre Plus (for example the

Employability Skills Programme) and contributed to employment sustainability and

progression (for example through Train to Gain and Apprenticeships).

2.14 Similarly, the London Development Agency was the first in the country to

commission to achieve 12 month sustained employment for the long-term workless.

It aimed to do so in partnership with Local Authorities, who also had significant

resources for example through the Working Neighbourhood Fund.

2.15 The general direction of travel in national policy was to increase the proportion of

training that was free of charge to individuals and employers. This was based on an

explicit assumption that market failure was greatest at basic and low levels of skills

(therefore justifying a higher level of public subsidy) and an implicit assumption

that employers and individuals would not pay for such services (therefore that

skills improvements would not happen without higher public subsidy).

...but it proved challenging to build coherent integration at national level 2.16 The overall result was a patchwork of systems and provision that was

undoubtedly too complex (not just for its customers, but also for providers trying to

navigate different funding streams and the various requirements and focuses of

particular Departments and programmes), but that had many examples of good

outcomes and best practice. There remained also a curious and unresolved tension

between a recognition that local areas had different needs (leading to devolution of

some adult skills powers to London and other cities) and tightly controlled central

commissioning and targets (which meant the national Learning and Skills Council

plan took precedence over priorities that London and other cities might identify).

2.17 However, at the heart of it all was recognition that skills can be a good way of

engaging those furthest from the labour market as well as a key barrier to finding

and sustaining work. But critically that individuals typically face a range of barriers

to work requiring skills support to be set in a wider context – a training course on its

own will not be sufficient for many people to find work, just as job brokerage

support on its own is rarely enough for those most detached from the labour

market. This recognition still stands today, but with changing views on how best to

translate this into practice.

London changing: Major policy and delivery changes are underway

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2.18 The Government is now introducing three significant sets of changes to the

employment and skills system.

The first change is a new single Work Programme...

2.19 The Coalition Government has now contracted a new Work Programme, with

seven year contracts. In London, there are three providers in each of East and West

London.

2.20 The Work Programme applies many of the principles of the previous

Government’s New Deals, but takes them further and faster. At its heart is a ‘black

box’ approach, allowing providers to tailor their approaches to individuals,

recognising that a personalised approach works better than ‘one size fits all’.

Providers will then be paid by the results they achieve, measured by 12 month

employment sustainability (in line with the Leitch recommendation and LDA lead).

In this sense, the Work Programme is a continuation of the previous Government’s

direction of travel.

2.21 There are two key areas where the Work Programme moves far further and

faster. The first is that, by reassessing all of the UK’s 2.6 million Incapacity claims

and reducing the age of eldest child at which lone parents need to move from

Income Support and Jobseeker’s Allowance, the number of people eligible for the

Work Programme will be significantly higher than previous individual New Deals.

This means that Work Programme contracts are significantly larger (at some £50-

100m per year) than most previous New Deal contracts.

2.22 The second relates to the funding. The Government has adopted the DEL-AME

switch, that is paying for provision today using tomorrow’s benefit savings (with

the financial risk being borne by Work Programme providers through payment by

results). However, the DWP has set much higher performance expectations from

providers than in previous programmes. This combined with the fact that many

providers have offered discounts on the maximum unit prices DWP have set, means

the Work Programme is not as generous as the initial unit prices may have

suggested. Analysis by the SMF suggested that, based on FND performance, these

contracts would not be deliverable.7

2.23 This is particularly the case in London. DWP have not reflected the higher costs

of living and delivering in London in their unit pricing, arguing that it would be too

complex to do so. Many of the successful providers have, however, still offered

substantial discounts even below this unit price. As a result, it is highly possible that

(especially with reduced availability of ‘top up’ provision from Local Authorities,

the voluntary sector and skills providers), as with most previous employment

7 Will the Work Programme work, Social Market Foundation, 2011.

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programmes, performance in London will be substantially below national levels.

However, the Work Programme does offer skills providers the opportunity to work

entrepreneurially and collaboratively with Work Programme providers, on the basis

of a black box approach not as constrained by national design.

...the second is a new Universal Credit...

2.24 All of the evidence shows that people are far more likely to look for, take and

stay in jobs if work pays more than welfare. This was recognised by the previous

Government. Their introduction of a National Minimum Wage, tax credits and

support for childcare meant that most people would be at least £40 better off in

work. However, people often faced very high marginal deduction rates of 80% or

90%, the system was highly complex (meaning that people often could not be sure

they would be better off) and, as set out above, little specific account was taken of

the higher costs of living in London.

2.25 The Coalition Government is now introducing a Universal Credit, replacing

previous benefits and tax credits. This is intended to ensure work always pays more

than welfare, that the gains to work are clear (with the marginal deduction rate set

at 70%) and that the system is simpler. It is worth noting, however, that the

Universal Credit will be less generous than the previous system of tax credits, that

the benefits being merged into it are being capped and up rated in line with a lower

measure of inflation and that the Government does not plan to reflect London’s

higher costs in the new Universal Credit. Coupled with this, the Government has

not yet decided how it will support parents with childcare costs and has already cut

the proportion of childcare costs eligible for Childcare Tax Credit from 80% to 70% -

this is a particular issue for London where childcare costs are so much higher.

2.26 Independent research suggests that the Universal Credit will leave many

Londoners worse off.8 It found that lone parents and families with two or more

children are likely to be particularly hard hit, compounding London’s already high

rates of child poverty. This will clearly affect whether Londoners move into work

and stay in work (for example when they find they are only marginally better off),

but also whether those out of work or in low paid work have sufficient disposable

income (particularly at a time of falling real wages) to make the co-payments

expected of them in the new skills system. Allied to this, analysis has suggested that

significant parts of London (particularly Inner London) will be unaffordable to out-

of-work Londoners (as well as some who are low paid) as a result of the

Government’s plans to cut and cap Housing Benefit.9 So the new Universal Credit

may limit gains to work for Londoners and hence the number finding work, and

also whether Londoners can afford training courses.

8 Making work pay in London under Universal Credit, Inclusion and London Councils, 2011.

9 Shelter and University of Cambridge.

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...the third are policy and funding changes for skills...

2.27 The Comprehensive Spending Review (CSR) announced a one third cut in

funding for adult skills over the four year CSR period. The new Skills Strategy

included a range of changes to how this funding is allocated and used, including:

Single budget. The previous split between Adult Responsive and Employer

Responsive budgets has been ended, to give colleges greater freedom;

Co-payment. There is an increased expectation of co-payment by individuals

and employers (with the exception of Skills for Life outside of ESOL), in

particular fee remission limited to those on active benefits such as JSA; and

Apprenticeships. On the employer side, funding for Apprenticeships has

been increased, while Train to Gain has been abolished.

2.28 The result is that learner volumes will fall significantly unless FE providers can

persuade employers and individuals (including those out-of-work on inactive

benefits) to pay a greater contribution than in the past – this will require different

forms of marketing and engagement. Encouraging Apprenticeships in ‘non-

traditional’ sectors, which dominate the London economy, along with designing in-

work training with Work Programme providers, will be the only routes for in-work

training.

Key issues

2.29 Pulling all of this together, suggests a number of key issues:

Business case. There is not a shared economic and business case for skills in

London, the argument often focuses on (clearly important) social inclusion

issues. In particular, the impact of globalisation and ensuring London’s

future competitiveness is central but under-argued;

Work Programme. The six Work Programme providers will be critical

partners. Their tight margins means they will need to be convinced of the

direct impact of the skills offer on employment and job sustainability;

Focus on JSA. This will have a significant impact on colleges’ customer base,

and require some of those furthest from the labour market to pay fees. This

could lead to a significant fall in demand for training, particularly during the

transition period of IB reassessment;

In-work support. Models for 12 month job sustainability are relatively

untested and skills can play a key role. Clear models of skills’ impact on

retention and productivity could drive business with Work Programme

providers and employers, particularly important given the loss of Train to

Gain; and

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Local flexibility. The lack of central co-ordination brings risks (for example,

Work Programme providers don’t have to engage with the skills system at

all if they don’t want to), but opportunities too if the right mechanisms can

be designed.

Conclusion

2.30 This project has explored the role of skills in the Welfare to Work system and

found:

skills play a critical and increasing role in employment, yet London retains

key skills deficits;

while much good work has been done, it has been too often constrained by a

complex and centralised employment and skills system;

major changes are now underway with a new Work Programme, Universal

Credit and cuts to the skills budget with requirements for greater co-

payments. Government does not plan ‘top down’ integration and intends to

leave it to local areas;

this is likely to have a significant impact, with Work Programme providers

crucial customers for the skills system and focused on direct links to

employment and sustainability. Co-payments mean that individuals

(including those long-term disengaged from the labour market) and

employers will need to be persuaded of the direct benefits of training to part

with their cash; and

it will be for local providers to decide how best to work with each other –

there won’t be central or regional coordination - giving an opportunity for

London to innovate and tailor to local needs.

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3. ENGLISH FOR SPEAKERS OF OTHER LANGUAGES

London’s need: Literacy is key to employment but London falls far short

3.1 Functional literacy skills are key to employment prospects, both in London and

across the UK. The employment rate for those lacking such skills has continuously

fallen, even through the 15 years of unbroken economic growth to 2008. Today,

more than one in two Londoners without functional literacy skills is out of work.

The evidence clearly shows that functional literacy skills can boost: employment,

earnings and social inclusion for individuals; productivity and efficiency for

employers; and growth and prosperity for the economy.10 Increasingly, literacy is

the gateway to active economic and social participation for individuals, as well as a

driver of business and economic success.

3.2 In London, a key component of functional literacy comes from ESOL. This is a result

of London’s diversity and status as most popular destination for inward migration.

Evidence cited by the Mayor’s refugee integration strategy shows that for such

groups English language fluency is the most important factor in finding work and

their subsequent prospects.11 It shows a gender difference, with migrant women

from many countries being less likely to speak English. The Government has set a

policy aim of significantly reducing the level of migration to the UK from outside 10

Skills in the global economy, Leitch Review of Skills, HM Treasury, 2006. 11

Mayor’s Refugee Integration Strategy.

Summary

London has a significant shortfall in the functional literacy skill levels needed for

employers, individuals and the economy. London’s employers’ regularly report

literacy as a key source of skills gaps and around one in five Londoners lacks

functional literacy, with around 600,000 having ESOL needs.

This shortfall has translated into high demand for and provision of language

and literacy courses, particularly ESOL. ESOL accounts for around one third of

public investment in Further Education in London. In 2008/09, around 100,000

Londoners enrolled in ESOL courses either individually or through their

employers.

National Government has introduced a series of changes to try to cap the rise in

public investment in ESOL, requiring more individuals and employers to pay

for such provision. Significant further changes are now underway, in particular

limiting fee remission entitlements to those on ‘active’ benefits.

This is likely to have a significant impact, both on those that need ESoL

provision and those that provide it. On current trends, it would take until 2030

to meet London’s ESOL needs and 2050 if training levels were cut by 1/3. Yet

jobs increasingly require such skills as a basic necessity. So the needs of

London’s economy, individuals and employers will not be met, putting at risk

future economic growth.

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the EU. However, the importance of London as an open, global city means that,

even if this policy aim is achieved, London is likely to continue to have ongoing

ESOL needs.

London’s literacy skills base falls far short of economic and social need...

3.3 Matched against this central importance, London’s current skills profile falls far

short of economic and social need. Around one in five Londoners, more than 1

million, lack functional literacy skills.12 Within this, some 600,000 Londoners have

ESOL needs.13

3.4 Surveys of London’s employers regularly find that soft skills such as customer

handling, team working and oral communication are the most commonly cited skills

gaps. Within this, London has a high concentration of workers lacking sufficient

proficiency in literacy (31% of skill gaps).14

...making a clear case for setting a higher ambition

3.5 Economic analysis strongly suggests that the trend of recent decades will continue.

That is, jobs will increasingly require at least a basic level of literacy as a result both

of rising skill requirements within existing jobs as well as new jobs being created

generally having higher skill levels than those they replace.15

3.6 In 2006, the Leitch Review recommended the establishment of a national ambition to

eradicate adult illiteracy and innumeracy by 2020.16 The Coalition Government,

while not in favour of national targets, has committed to improving levels of

functional literacy and numeracy. The Mayor has also made improving literacy in

London a key priority.

3.7 Given the political imperative to improve literacy and the rising economic demand

for such skills, there is a clear and unambiguous case for going further and faster

both nationally and in London on boosting literacy. In London, by definition this

translates into a clear case for improving the language skills of migrants including

through ESOL. Both need and demand are likely to remain high and outstrip

current levels of supply.

London’s approach: Despite significant investment, unmet ESOL demand is likely to remain

3.8 A significant proportion of London’s public sector adult skills budget (funded via

the Skills Funding Agency (SFA)) is invested in ESOL provision. This proportion is

also much higher than in other regions of the UK, reflecting London’s higher need

and demand.

12

Skills for Life survey, DfES, 2003. 13

A Common Language: Making English Work For London, Demos, 2008. 14

Voice of London Employers, London First, 2010. 15

Destination 2020, Oxford Economics, 2010. 16

World class skills, Leitch Review, HM Treasury, 2006.

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ESOL is a high proportion of London skills provision...

3.9 The latest data available from the SFA relate to 2008/09, when funding for providers

was split between an Adult Learner Responsive (ALR) budget, focused on

individuals, and Employer Responsive (ER) budget, focused on employers.17

London accounts for one third of the national ESOL budget, with the highest

concentrations in East and Central London. Changes to rules regarding ESOL

therefore have a disproportionate impact on London. The majority of provision now

is at entry level ESOL but the Learning and Skills Council raised concerns that this

does not get people to ‘work-ready’ level.18

3.10 The majority of London’s ALR provision in 2008/09 was in Level 1 and entry

level skills (much of this is made up of Skills for Life qualifications). Skills for Life

courses in literacy, numeracy and ESOL (language) represent the largest single

volume of learners (168,691 enrolments). Of learners undertaking Skills for Life

qualifications, ESOL represents 53%, with numeracy at 18% and 29% Literacy. So, in

2008/09, more than 85,000 Londoners enrolled in ESoL courses aimed at

individuals.

3.11 In 2008/09, much of the Employer Responsive budget was accounted for by

Train to Gain (86% of provision, with the remaining 14% for Apprenticeships,

reflecting the relatively low take-up of Apprenticeships in London at the time) and

therefore focused on Level 2 provision. Out of around 100,000 people starting

courses via their employers, around 15,000 were at Level 1 and Entry Level. This

suggests that around 5-10,000 London employees began an ESoL course with their

employer.19

...despite policy changes to make employers and individuals take more responsibility

3.12 In 2007, the Government made changes aimed at preventing ESOL accounting

for an ever higher proportion of the adult skills budget, coupled with some concerns

over the extent to which it enabled participants to progress in terms of both their

social and economic inclusion.20

The key change was that from September 2007, all

ESOL learners were required to pay fees unless in receipt of means-tested benefits.

The stated aim was to better target provision and support on those who needed it

most and ask for a contribution from those who could afford to make one.

London changing: Policy changes will have a significant effect

17

London Skills Priority Statement, LDA, 2010. 18

London Enriched, GLA, 2009. 19

It should, however, be noted that literacy provision may also be embedded in other provision and that a proportion of the 85,000 Londoners taking ESoL courses as individuals will be employed, but doing so as individuals rather than through their employers. 20

(O’Leary 2008)

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3.13 Following the October 2010 Comprehensive Spending Review (CSR), large scale

changes to skills policy and funding are now underway. These are likely to have a

significant impact on how ESOL and other basic skills provision are delivered.

Public investment is being cut...

3.14 The CSR announced approximately a 30% reduction in public funding for

Further Education over the four year CSR period. Allied to this, the previous split of

the budget between ALR and ER has now been removed, with the stated aim of

allowing colleges and providers greater freedom to respond to local need.

3.15 The upshot is this is that skills providers face a choice about where to focus their

cuts. As set out above, demand for ESOL and economic need for language skills are

set to remain strong. The impact of overall cuts in public funding for skills on ESOL

(i.e. which judgments providers will make) will therefore depend on providers’

judgment of the relative revenue generation and fee collection prospects. In this

context, changes to funding entitlements are crucial, and discussed below.

...with cuts to entitlements and greater use of fees...

3.16 As part of this, there is an increased expectation of a contribution by individuals

and employers to many course fees. Entitlements to fee remission, particularly for

ESOL, are being tightened. Only claimants of Jobseeker’s Allowance and work-

related ESA will be entitled to free skills provision. Today, only around one fifth of

London’s workless population is claiming JSA. The other four fifths are in receipt of

Income Support, Incapacity Benefit / Employment Support Allowance or not

claiming benefits.

3.17 The proportion of workless people claiming JSA is likely to rise (as a result of

reducing the age of oldest child at which lone parents must move from IS to JSA as

well as the reassessment of all IB claimants), but this process will take a number of

years. Even at its conclusion it is likely that the majority of London’s workless

population will not be claiming JSA and therefore no longer be entitled to full fee

remission.

3.18 The Government’s Skills Strategy states that, ‘In line with the increased

accountability to their local communities, FE colleges and training organisations will

be tasked to identify particularly vulnerable learners in their communities as part of

their business planning and local engagement.’21 In addition, ESOL for Work would

no longer be eligible for fee remission.

...which, all else equal, would lead to a significant reduction in provision

21

Investing in skills for sustainable growth, BIS, 2010.

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3.19 These changes have greatest effect on London, given its relatively higher need

due to demographics and its higher share of adult skills budget going on those out-

of-work and ESOL in particular.

3.20 In effect, they curtail or cut off some of the major routes of delivery over the past

15 years, primarily:

Entitlement-based provision will now be limited to those in receipt of JSA and

will rely on good referral relationships with Jobcentre Plus. Any provision for

the longer-term workless, including on JSA, will depend on Work Programme

providers; and

Train to Gain provision to low skilled employees will need to be replaced either

with employers paying themselves or on key skills elements in Apprenticeships.

3.21 Considered together, these sets of changes clearly bring some considerable risks.

Primary amongst these is a large scale drop in the quantity and quality of ESOL

(and indeed other) provision. This is set against the backdrop of continuing need

and an increasingly pressing case to meet this need in order to facilitate future

economic growth and social inclusion.

3.22 Research undertaken by this project shows how far short London is likely to be

in the absence of action to do better and go further. On current trends, London’s

ESOL needs will not be met until 2030. If policy changes lead to a one third

reduction in provision, this will rise to 2050.

3.23 In particular, it is not clear that individuals or employers will step in to foot the

tab. Indeed, for much of the last 15 years, the argument has been that it is in basic

skills that market failures are greatest and therefore that public intervention and

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investment is most justified.22 That said, it also likely that some provision will be

‘badged’ by providers as literacy rather than ESOL, to a limited extent mitigating

some of the effects of the additional constraints on ESOL provision.

Key issues

3.24 Pulling all of this together, suggests a number of key issues:

Business case. While ESOL has a clear and important impact on social inclusion,

the economic and business case needs to be made more clearly too. For example,

the impact on business productivity, savings to the Exchequer and that

globalisation means London’s competitiveness depends on having a fully literate

workforce;

Work Programme. The six Work Programme providers need to be convinced

that investing time and money in ESOL will help them deliver their outcome

targets. In part this may require the development of new delivery models (see

below);

Focus on JSA. There is a real risk to provision in London if people, including on

inactive benefits, cannot be persuaded to pay fees for ESOL. There may be a case

to argue for transition arrangements while IB reassessments are taking place;

Employers. With Train to Gain abolished, it is far from clear that employers will

invest in language training for their staff. There is a case for engaging employers,

particularly in sectors with high proportions of migrant workers, to pledge to

ensure their workforce has language skills, perhaps incentivised by ESF funding;

and

Delivery models. It will be important to work with Work Programme providers

to develop and implement the most appropriate delivery models to boost

employment. A similar process with employers would also be beneficial.

Conclusion

3.25 This chapter has analysed London’s ESOL needs and found:

language skills are increasingly critical to success in the jobs market and social

integration. Yet London has huge unmet demand, with 1 million adults lacking

literacy and 600,000 of these having ESOL needs;

ESOL is hugely significant to London’s skills system: one third of London’s

public skills investment is in ESOL and 100,000 Londoners enrol each year;

Government changes are now cutting the overall size of the skills budget,

limiting fee remission and placing greater reliance on six Work Programme

providers;

22

Skills in the global economy, HM Treasury, 2006.

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collectively this is likely to lead to significant reductions in ESOL provision. It

may take until 2050 to meet London’s ESOL needs; and

given the increasing economic and social importance of literacy, there is a clear

and unambiguous case for not accepting this and seeking ways to deliver a much

higher ambition.

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4 SPECIALIST PROVISION

London’s need: London has distinctive economic structure

4.1 London has a particularly high value-added economy, accounting for one third of

all the UK’s knowledge intensive jobs.23 The decade to 2008 was dominated by

growth in finance, professional services , tourism and the creative and cultural

industries. Within this, occupational growth was dominated by managers and

professionals, and personal services and sales and customer services.

London’s knowledge economy has shaped skills demand...

4.2 It is these changes that have driven demand for high skills (almost one in two

London jobs are filled by people with degree-equivalent qualifications) and

employability skills (such as team working, communication and literacy and

numeracy).

4.3 Furthermore, such trends are set to continue, as the chart below shows. So trends in

skills demand seen over the last decade are likely to continue. The challenge for

London’s skills system will be to meet the needs of managerial and professional

services, customer services, retail and hospitality.

23

Destinations 2020, Oxford Economics and LDA, 2010.

Summary

London has a distinctive economy, with a more polarised and service-based

labour market. Global economic changes are placing an increased premium on

flexibility, innovation and high value added sectors and occupations.

These trends are projected to continue. Job growth will be concentrated in

knowledge-based and service industries. London’s future economic success will

depend on having the skills to meet job growth and business need.

In part, this means that some small sectors, occupations and skills are of key

strategic importance – they can have a wider impact. Engineering is one such

example. Such training is often only provided by a small number of providers.

Policy changes underway could place this at risk for two key reasons: 1) some

such provision can be expensive to deliver and hence reductions in unit rates

may lead to it being cut; and 2) without strategic coordination this could lead to

London lacking the mix of provision it needs.

As a consequence, there appears to be a clear case for building a strategic

approach to an agreed set of specialist provision, in partnership with employers.

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...wi

th some key areas of strategic importance

4.4 At the same time, there are a number of industries and sectors that, although

relatively small in volume, are of strategic importance. This is because they have the

potential to catalyse growth. For example, the LDA’s Statement of Skills Priority

identified low carbon as a key growth sector. Similarly, high level manufacturing

can help to drive economic growth and innovation.24

4.5 This is particularly the case in the current economic context, where the ‘old’ growth

model, which can be stylised as being driven by debt-financed consumption, is no

longer viable. Instead, there is widespread agreement that a more outward-focused,

export-driven model will be needed (though less agreement on how to ensure this).

24

London Statement of Skills Priority, LDA and LSEB, 2010.

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While London is already more focused on export driven, high value added sectors,

the challenge will be to preserve and enhance this.

London’s approach: Skills needs are met through a global market

4.6 London’s status as a world city means its employers have access to a global labour

market. This means they will always meet their skills needs, whether by bringing

people in from across the country and around the world or by outsourcing part of

the production process.

London’s employers are truly global and London must compete...

4.7 Global economic changes have driven this and it has brought enormous benefits and

opportunity for London. However, it also brings challenges: companies will only

use ‘London’ labour when it is the best available and will only use London’s skills

system if it meets their needs.

4.8 Breaking down the sectoral and occupational growth described above, gives a

number of detailed growth occupations, set out below. This is intended to illustrate

what the likely forthcoming labour market changes might mean in practice, not

provide a definitive list.

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...but policy now risks an unstrategic approach

4.9 The risk of current changes to the employment and skills system is that London

ends up with a pattern of provision that does not meet its future economic needs.

This is for two key reasons. The first is that some specialist provision can be

relatively high cost and low volume. So in the context of cuts it may make sense for

individual providers to cut provision. In the absence of a strategic overview this

could mean London losing all provision in a particular sector or occupation.

4.10 This links to a second reason, which is the removal of previous mechanism of

strategic coordination, such as the LSEB. Whatever its pros and cons, it provided a

forum with the potential to articulate London’s future skills needs, examine how the

skills system was delivering this and consider how best to coordinate and overcome

any blockages.

Key issues

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4.11 Pulling all of this together suggests a number of key issues:

Strategic needs. There is significant value in someone setting out a collective

view of London’s strategic skills needs. But the previous mechanisms for doing

this (e.g. LSC, LSEB, LDA) are no longer in place. New mechanisms, led by the

skills system itself, will be needed;

System mapping. It makes sense to have a clear overview of how delivers what

and where, but, again, the regional mechanisms for doing this are no longer in

place. Greater co-ordination and networking of provision could add value; and

Cost pressures. The above is particularly true given that reductions in funding

rates and overall cuts in skills funding could, in the absence of strategic

coordination, lead to the loss of strategically important provision.

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5 RISING TO THE CHALLENGE

Summary

Skills are vital to the future health of London’s economy and to individual’s

opportunities. Yet London has longstanding challenges, with shortfalls

particularly in a range of employability skills and a hard core of long-term

worklessness.

Major changes are now underway to the employment and skills system. All told,

these could, all else equal, lead to falls in the take-up of skills opportunities.

London’s ESOL needs alone could take until 2050 to eradicate.

The clear risks are that a lack of strategic approach leads to the loss of

strategically important provision, challenges engaging employers and an

employment and skills system that does not match up to the future economic

challenge London faces.

This project therefore recommends a four part approach:

o Strategic co-ordination. It is important that the skills system is able to

speak and influence with a collective voice where appropriate. In practice,

this could include ensuring skills are fully represented in the new London

Economic Partnership (LEP);

o Leading policy change. London’s colleges can be on the forefront of

working with other stakeholders to achieve policy change – a collective

voice on issues such as Universal Credit, Work Programme management,

skills funding rules etc is more likely to be heard. This could come

through a jointly agreed London Employment and Skills Manifesto;

o Employer engagement. Work Programme providers are currently

working on a Single Employer Offer. Skills should be a key part of this.

AoC London should be fully engaged with the Working Group aiming to

establish this integrated employer offer and work with GLA and others to

continue the successful London Apprenticeship Campaign;

o Employability skills. It is clear that employers have long standing

concerns about employability and that the skills system has a range of

offers designed to tackle these. But at present there is a risk of being

divided by a common language – there is no real agreement on what

employability in London is or how to deliver it. The case for a London

Works kitemark, developed jointly with welfare providers and employers

groups (such as SSCs), to build a light touch framework should be

considered.

All of this highlights the importance in the face of significant changes of

speaking with a collective voice wherever possible, linking together with other

mechanisms of strategic governance. It has highlighted a number of areas that

could form the initial basis for joint working with the wider system and set of

stakeholders. This could also be expanded to include the range of major projects,

such as Crossrail and Olympic legacy.

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London’s challenge: A rapid and widespread set of changes are happening all at once

5.1 The increasing importance of skills to London’s economy and the life chances of

Londoners are clear. The employment rate of those with no qualifications has been

falling for 20 years or more and today stands at less than 50%. Skills drive earnings

potential as well as employability. Global economic changes have been driving this

and are only set to continue – skills are likely to rise further in importance over the

coming decades.

5.2 Yet London has historically not risen sufficiently to this challenge. London’s

employment rate continues to lag the UK’s (150,000 more Londoners need to find

work to lift the capital’s employment rate to the national average) and skills deficits,

particularly in basic employability skills such as literacy and numeracy, remain.

5.3 At the same time, rapid changes are now underway to the employment and skills

system. What is more, these have the potential, without action, to have a

disproportionately negative impact on London:

Universal Credit. This doesn’t reflect London’s higher costs of living and hence

could leave Londoners with worse work incentives than today. At the same time,

cuts and caps to Housing Benefit could make much of Inner London

unaffordable to HB claimants. Taken together, these could significantly change

the customer base for the skills system and the amount of money people have

available;

Work Programme. This doesn’t reflect the higher costs of delivery in London

and some providers have offered significant unit rate discounts. This is likely to

make the interaction between skills and welfare ever more commercial – Work

Programme providers will be focused on the direct links to employment and

levering in funding;

Skills funding. Overall cuts of 30%, reductions in unit rates and limits in fee

remission all bring significant challenges. Training volumes will only hold up if

a culture of employers and individuals not paying for much training) can be

changed. The risk is that London’s ESOL challenge alone will take until 2050, an

extra 20 years, to meet.

5.4 Crucially, previous mechanisms of co-ordination and planning, such as the role of

the LSC and LSEB, have now been removed. There is obviously a debate to be had

as to the effectiveness of these anyway. But at the same time, there is recognition

that mechanisms to bring different parts of the system to work together are going to

be critical if it is to match up to the long-term strategic needs of the London

economy (for example, changing the culture of payment for training will require

collective effort, and employer engagement needs a strategic level approach as well

as individual providers engaging individual employers).

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Meeting the challenge: Working together to identify key priorities

5.5 This project has identified the need for a mechanism for the skills system to have a

strategic dialogue with wider stakeholders, as well as a number of potential initial

priorities for this dialogue to focus on.

Strategic co-ordination

5.6 The GLA are currently developing their plans for the London LEP. This will likely

have a skills and employment workstream and sub-group. This has the potential to

provide a useful mechanism for the skills system to raise some of the issues outlined

in this report and gain support for a joint position. It will be important to ensure that

the skills system is adequately represented on this group and on the wider LEP.

5.7 As part of this, it is important that the skills system speaks with a collective voice

wherever possible. Consideration should therefore be given to what mechanism can

best deliver this, in line with the timetable for LEP development.

5.8 Importantly, strategic co-ordination can happen on a sub-regional basis as well as

city-wide. While it is important to avoid the creation of too many groups, it is

important that skills are adequately represented on these. The most obvious

example would be the 6 Olympic Boroughs, which have worked up a strategic

approach to meeting the economic objectives they have including to help harness

the Olympic Legacy. However, equally important would be the major projects that

London will be undertaking in the coming years, such as Crossrail and the Thames

Tunnel. It is important that skills are an integral part of building a strategic

approach to major projects.

5.9 Beyond this, there is a need to remake the case for skills more widely. The AoC

should consider pulling together the economic and social case for skills, setting out

the hard-headed case for individuals, employers and the London economy in the

context of ongoing global economic changes. This is important for making the case

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to Government for policy change (see below) and to individuals and employers for

investing and getting involved (see below). It could, for example, take a similar form

to the Leitch cost-benefit model which showed an £80bn, 30 year economic benefit

(as well as wider social benefits) from attaining world class skills.

STRATEGIC CO-ORDINATION There would be significant value in building mechanisms of strategic co-ordination, replacing those that have been lost

1. Clear skills representation on the London LEP. It is important that skills are effectively represented both on the main LEP and any sub-groups.

2. Regional skills networks. There is value in ensuring regional information sharing, for example on patterns of delivery of specialist provision and ESOL demand.

3. Building the business and economic case for skills. In addition to the social case, the pressing case based on the impact of global economic changes.

4. Strategically important skills. Using RCU-collated data could help to map delivery of London’s strategic skills needs and co-ordinate provision.

Leading policy change

5.10 It is clear from the preceding analysis that some national policy changes are

likely to have a particularly detrimental impact on London in their current form as

they do not account for London’s particular characteristics. There has been attention

on a number of these individually (for example, the Housing Benefit changes).

5.11 However, it is also important to fully consider the bigger picture of how these

changes impact in the round. There is also a need to maximise impact by talking

collectively about the collective impact (rather than, for example, the skills system

lobbying about skills changes, Local Authorities about Universal Credit, charities

about Housing Benefit etc). In other words, there would be benefit to London

building a collective voice about the collective labour market impact of policy

change, as well as practical suggestions about how policy can be altered (in a cost-

neutral way) to account for these. London helps to drive economic growth and

should punch at or above its weight.

5.12 There is therefore a clear case to take the lead in building a coalition to consider

the full set of policy changes, their impact and potential alternatives in the round.

This could, for example, take the form of a London Jobs and Skills Manifesto. This

need not be an enormous piece of work, rather it would be more about drawing

together existing evidence and policy positions into a coherent whole. Particularly

in the run-up to the 2012 Mayoral election, where unemployment is sure to be a

topic, this could have a significant impact.

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5.13 It could include a range of issues and proposals, for example two inclusions

could be:

Universal Credit. Welcoming the principal of smoothing the gains to work,

but calling for London’s higher cost of living (particularly housing and

childcare) to be reflected in the calculation; and

Skills entitlements. Calling for transitional arrangements phasing in the

restriction of skills funding to those on active benefits in line for the timetable

for reassessing Incapacity Benefit claims.

5.14 The most obvious route would be through the new LEP. However, this may not

prove possible or timely given that it is not fully established yet and that it may be

difficult to get all stakeholders to agree (for example, a Mayorally-led route may not

be the best in this circumstance). The alternative therefore would be to build a

‘coalition of the willing’ with, for example, London Councils, ERSA, LVSC and

others.

5.15 The current contract for the London Skills and Employment Observatory will

come to an end in March 2012. It is therefore timely to consider the future for this

forum. For example, one model worthy of consideration is for key stakeholders

(including AoC) to work together (perhaps with Inclusion, the current provider,

Centre for London or others) to build a new model. This would require a financial

contribution, but would allow the AoC to specify what it wanted. This could include

forward labour market information, market analysis, best practice models and a

London policy think tank.

LEADING POLICY CHANGE The skills system can lead in building a London consensus around skills and employment policy and a realistic set of changes

5. Consider joint development of a joint policy position – a ‘London Jobs and Skills Manifesto’ - potentially linked to upcoming 2012 Mayoral election. This could be developed through the LEP, or with a ‘coalition of the willing’.

6. Joint policy work could include: devolution of skills and employment policy, Universal Credit, transitional arrangements for skills entitlements etc. This could be done through a newly formatted London Skills and Employment Observatory.

Employer engagement

5.16 One of the routine criticisms of the ‘old’ employment and skills system was that

it confused employers who did not like the volume of people contacting them nor

that each focused on their own silo. In other words, that there was not an integrated

employer offer with a no wrong doors approach. Some progress was made on this,

for example through the London Employer Accord, but challenges remained.

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5.17 Now these central approaches have come to an end and there is a risk of even

greater fragmentation. Yet the evidence shows that a more integrated approach is

both more cost effective (effectively you have a number of bodies ‘cross-selling’ each

other’s products) and more engaging (employers are more likely to engage with

someone who can help them with a range of their issues, rather than someone

aiming to sell a particular product come what may).

5.18 The six Work Programme providers are currently working with the GLA to

develop an integrated employer offer. It is recommended that skills be a key part of

this work to build an Integrated Employment and Skills Offer. AoC London should

engage GLA and the Work Programme providers to secure this expansion and

representation on the Working Group. This could include a sectoral approach, for

example where there is specialist provision.

5.19 Nowhere is this need for an integrated approach more obvious than for

Apprenticeships. London has historically had low take-up of Apprenticeships, but

this has risen in recent years. Take-up has risen sharply in the last year, partly as a

result of a successful NAS-LDA-GLA campaign. GLA are currently considering

whether and how to continue this campaign forward. It is recommended that AoC

play a leading role in developing and running a new Mayoral Apprenticeship

Campaign.

EMPLOYER ENGAGEMENT Employers are best engaged through a joined-up approach by skills and employment stakeholders and providers.

7. Build skills into the Integrated Employer Offer. Work Programme providers are currently working with GLA on an Integrated Employer Offer. Skills should be a key part of this.

8. Develop the next Mayoral Apprenticeship Campaign. After the success of the current Mayoral Apprenticeship Campaign, the skills system can work with employers groups, London Councils and the GLA to initiate a new one to build on this.

Employability

5.20 Employability skills are the most commonly cited by employers. Yet while

everyone agrees employability skills are important, there is no agreed definition.

Similarly, while there is much good practice around delivering such skills, a

common framework or badge does not exist. Where there is one, for example the Go

Forward model worked up by the London Employer Accord with Travelodge, it can

become a recognised brand in a particular sector in a particular geography.

5.21 There could, therefore, be benefit in a mechanism by which employers, Work

Programme providers and skills providers could agree what constitutes

employability skills and their delivery (for example, many Work Programme

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providers will require ‘roll on, roll off’ provision). This could build on previous

work by the London Employer Accord and Sector Skills Councils, but would need

to do be done in a light touch and localised way – there is no one size fits all or rigid

approach.

5.22 A ‘London Works’ approach could be developed by skills providers with

employers groups and Work Programme providers. This would identify core

employability skills and how these vary by sector or occupation, building on work

to date. It would also identify ways of delivering these and examples of best

practice. Over time, this could develop into a kitemark or assurance badge, this was

intended to be the legacy approach for the London Employer Accord which had

support for this approach at the time.

EMPLOYABILITY Employability is crucial for individuals and employers, and building a clearer offer would bring significant benefits.

9. Best practice. Consideration should be given to building up best practice models of what employability means and delivering it with Work Programme providers and employers groups.

10. Consider a London Works framework. There could be value in building this into a framework or even kitemark, as was planned for the London Employer Accord.

Conclusion

5.23 London’s skills and employment challenges are deep and longstanding. In the

absence of action, current policy changes could lead to a more fragmented system,

confusing employers, and falls in uptake of training, including ESOL, unless a

culture of paying to learn is more deeply embedded among employer and

individuals. While greater freedoms for providers are to be welcomed, these must

be accompanied by a strategic framework if London’s long-term economic and

social needs are to be met.

5.24 This report has highlighted the potential impact of these changes. However, it

has also sketched out a number of ways in which this challenge can be tackled. The

first and most important is ensuring that skills are considered as a matter of

strategic economic importance. This means ensuring it is at the heart of economic

governance mechanisms, such as the London LEP and for major projects such as

Crossrail, and making a clear, hard-headed business case for skills with others,

including business groups.

5.25 The research has identified three possible priority areas for initial focus:

Leading policy change. There is scope for collectively making the case for

‘London-augmentation’ of policy change, for example transitional

arrangements for limiting fee remission to active benefits. This case will be

more compelling if made in partnership with others;

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Employer engagement. Employers do not like silo or multiple approaches.

Work is already underway to build an Integrated Employer Offer for Work

Programme providers. This will be more compelling if it includes skills and a

second phase of the London Apprenticeship Campaign is agreed; and

Employability. Employability skills are employer’s most regular complaint.

They are crucial for Work Programme providers and the skills system has

much to offer. A new London Works badge / framework, agreed with the

welfare system and employers groups, could help to build a common

language.

5.26 There is no doubt that this is a major challenge. There is no silver bullet. But

there is no doubt too that it is a challenge that London must seek to meet, working

together.

Skills for London: Meeting the Challenge

Education

Transcript of Skills for London: Meeting the Challenge