Skills for London: Meeting the Challenge
- 1. 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
- 2. 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 Page 2 of 32
- 3. 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). Page 3 of 32
- 4. 1.6 It has aimed to consider London’s needs, the potential impact of policy changes and how best London can respond to them. Page 4 of 32
- 5. 2. WELFARE TO WORK 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 London’s need: Employment isin the welfare system. Avoiding this will require the falls in spending on skills among the lowest in the country skills offer to be pitched in terms of its employment and retention impact. 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. Page 5 of 32
- 6. ...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. Page 6 of 32
- 7. 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. Page 7 of 32
- 8. 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 Page 8 of 32
- 9. 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. Page 9 of 32
- 10. 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. Page 10 of 32
- 11. ...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 Page 11 of 32
- 12. 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. Page 12 of 32
- 13. 3. ENGLISH FOR SPEAKERS OF OTHER LANGUAGES 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 need: Literacy is key to employment but London falls farbe met, putting at risk London’s economy, individuals and employers will not short future economic growth. 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. Page 13 of 32
- 14. 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. Page 14 of 32
- 15. 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) Page 15 of 32
- 16. 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. Page 16 of 32
- 17. 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 Page 17 of 32
- 18. 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. Page 18 of 32
- 19. 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. Page 19 of 32
- 20. 4 SPECIALIST PROVISION 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. 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. Page 20 of 32
- 21. ...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. Page 21 of 32
- 22. 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. Page 22 of 32
- 23. ...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 Page 23 of 32
- 24. 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. Page 24 of 32
- 25. 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 Page 25 of 32 set of stakeholders. This could also be expanded to include the range of major projects, such as Crossrail and Olympic legacy.
- 26. 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). Page 26 of 32
- 27. 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 Page 27 of 32
- 28. 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. Page 28 of 32
- 29. 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. Page 29 of 32
- 30. 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 Page 30 of 32
- 31. 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; Page 31 of 32
- 32. 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. Page 32 of 32