Earning and Learning

Policy makers realise that human capital is now the most important factor of production. Since the early 1980s, the economy and labour market have changed dramatically as technological change and global competition have imposed intense pressures on all types of enterprise.

Skill shortages have worsened and some of the Government's ambitions for a better educated and trained workforce have not been met. In particular, the goal for 85% of 19 year olds having achieved VQ level 2 is nearly 10 percentage points adrift of its target. And a key Government aim of reducing the number of young people not in employment or learning has not yet delivered results - with almost 220,000 people aged 16 to 18 still outside the system.

Yet policy has been locked in a rut for many years. Politicians have berated employers for poor investment in skills whilst business leaders blame Government for failing to deliver the essentials of school based learning. Not all employers will train, but Governments have been reluctant to induce and encourage employers whilst keeping the share of public spending on training low by many international standards.

An effective skills strategy must strike the right spending balance between employers, Government and individuals. It must create the right framework for employers to identify their industry requirements and to collaborate. It must achieve a shift in power that strengthens the status of vocational learning against academic teaching. And it must listen more to market signals by reducing the power of supplier institutions and put decisions in the hands of the customers of learning - individuals and employers.

The next Government needs to focus on 4 main areas of weakness to achieve greater productivity and higher levels of social inclusion.

Very substantial spending is needed to improve basic skills. Deficiencies here account for about a third of Britain's productivity gap. Yet the LSC's target to help 750,000 people overcome their barriers by 2004 represents barely 10% of the seven million people who need the help. These are people stuck at the bottom of the labour market experiencing spells of poorly paid insecure employment that are punctuated by periods of unemployment. Only a half of this population group is employed - compared with over three quarters of the working age population that are skilled to VQ level 3. Many joined the labour market when a poor education did not seem to be a barrier to getting work.

However, effective delivery of basic skills needs imagination and flexibility. The Government should learn from its difficulties with Keyskills - firms desperately want these attributes but an over-formal testing regime alienates employers and puts-off many potential learners.

Next, we need to figure out exactly what the economy needs. A radical shake-up is needed of the employer-led national bodies in order to get relevant, employer designed training that reflects industry sector requirements. Then we need to speed-up the process of researching the skills requirements. In February, the Government published skills shortages reports for construction and engineering but this leaves another 13 main sectors still to be analysed.

We need to fund training with a mix of public and private money, for example, using tax credits to encourage employer spending on training - especially where firms have already achieved IiP status. Further tax breaks need to be available to individuals, to encourage personal investment in learning. There should be a range of funding mechanisms. This could include the statutory levy/grant model that works well in construction and engineering, a voluntary system like the film and broadcasting industry or the status quo which is favoured in industries that have a small number of large firms.

Where public money is the main source of funding, we need a regime that has a minimum of bureaucracy and where providers compete on a genuinely level playing field. Learning needs to be funded on the basis of a realistic understanding of costs and employer.

The Government has already recognised it needs to invest in its suppliers. A 10m "Standards Fund" has been announced for boosting the quality of work-based providers - particularly those that have poor access to capital investment. However, with a more market-led, responsive system of choice for learners, many private and voluntary sector providers will bring in capital to invest in innovation and to improve quality.

We need diversity and choice - for learners and for employers. A mixed economy is needed so that the customers of learning can drive the system - not the supplier institutions. For example, Labour's ambition for 50% HE participation amongst young people will not be achieved by asking Universities to extend their existing curriculum and hoping students will roll-in. Foundation degrees, in particular, do not need to be delivered by traditional institutions.

Employers and learners need to control the funding - perhaps through an extended Learning Account regime - and many different kinds of providers should supply the learning - work-based, voluntary sector, commercial or college based. Indeed, much of the learning materials should be on-line, bite sized and fitting the timeslots of the learner not the institution.

The next Government must ensure there are incentives for young people to participate and for providers to commit substantial growth in their capability to offer more than half a million extra learning opportunities that are required to genuinely deliver higher productivity and wider social inclusion.