Skills Devolution (England)

Debate between Catherine West and Karin Smyth

Tuesday 23rd January 2018 Westminster Hall

[Catherine West (Hornsey and Wood Green) (Lab)]

I beg to move,

That this House has considered skills devolution in England.

What a pleasure it is to serve under your chairmanship, Mr Bailey. I hope to have the pleasure of hearing your speech later. I am grateful to the Backbench Business Committee for granting this debate on skills devolution in England. I am especially grateful to the Members here from outside London, as I am keen to hear about the reality in their constituency regarding how we can tackle the national skills gap as flexibly as possible.

Across our country, we face an enormous challenge in ensuring that we have the skills that we need to operate the economy, and that we are doing all we can to enable people to secure such skills, and support them in doing so. The issue is particularly acute in London, where my constituency is, but it also exists in the larger cities throughout the country and, indeed, in the regions, and the situation has worsened since 2010, when further education colleges faced cuts—they now receive 50% less funding. The centralised skills system needs to be looked at again, in London and in all parts of England. I will set out the problems seen by us on the all-party parliamentary group for London—and by the all-party group for Greater Manchester, with which we have done work on this—and the recommendations outlined in our report, “Bridging the Skills Gap”, which I recommend colleagues read.

Significant steps have been taken since the devolution project started in 2000, but there is a pressing case for specific devolution in this area, and a need to explore ways in which such devolution can be achieved in regions that do not have devolved Assemblies or metro mayors. Although recent economic growth has led to substantial reductions in the numbers of people on jobseeker’s allowance, an estimated 628,000 Londoners are not in work but would like to be—enough people to fill the city of Nottingham twice over—and youth unemployment is high. In 2016, 9.4% of 16 to 24-year-olds in London were unemployed, compared with 3.6% of 25 to 64-year-olds. For both adults and young people, that represents a huge waste of human potential.

The problem is very unevenly spread across London, a city of 8 million people; there are constituencies where very high numbers of young people face larger problems from unemployment and a lack of skills. Almost a quarter of all vacancies in London—23%—are due to a lack of applicants with the right skills. In addition, almost half of firms—42%—are not confident they will be able to recruit people with the higher-level skills that their organisation needs over the next five years. In the London borough of Haringey, where my constituency is located, 35% of 19-year-olds do not have a level 3 qualification, yet London is an increasingly highly skilled economy. There is a clear skills mismatch.

My local college, the College of Haringey, Enfield and North East London, now merged with City and Islington College and with Westminster Kingsway—mergers that took a lot of energy and money out of the sector when we could least afford it—tells me that many students were held back following the sharp reduction in funding. That has led to too many Londoners being in low-paid and often insecure employment, and there has been an increase in the number of low-paid jobs in the capital.

[Karin Smyth (Bristol South) (Lab)]

To highlight my hon. Friend’s point, in my constituency we send the lowest number of young people on to higher education in the country, despite having two universities in the city, and Bath and Exeter nearby. It is critical that the further education sector pick up such youngsters and support them in their skills and education, not just in London but in places like Bristol.

[Catherine West]

This needs to be looked at specifically in Bristol, where we have seen such a sharp increase in the population of under-30s.

Many people, once in work, fail to get salary and career progression, and 700,000 Londoners are paid less than the London living wage; that has a real impact on families. Recent research by Trust for London shows that people are more likely to be in insecure employment in the capital or in other large cities than elsewhere in the UK.

The population of London continues to grow rapidly—by 1.3 million since 2005—and the demand for basic skills provision grows alongside it. That population growth has increased demand for specific areas of skills provision, such as English for speakers of other languages, or ESOL; the Workers Educational Association has done excellent work in that area. Founded in 1903 and working for a

“A better world—equal, democratic and just”,

the WEA serves people within a two-mile radius and we can see the importance of that local provision throughout the country, not just in cities. However, our cities need to grow their own talent and get businesses to invest more in skills. Levels of business investment are unfortunately at an all-time low and we need a flexible and responsive skills system to respond effectively to the challenges the capital faces. They are urgent challenges and, if ignored, could significantly hamper economic growth, not just in the capital but elsewhere.

There has been criticism from business. Mr Quinn, chief executive of Balfour Beatty, has said that the apprenticeship levy system is very “Yes Minister”, which says something about where we are in thinking through how to enhance the human potential in our economy.

The skills system does not provide the flexibility and responsiveness needed, because providers are often incentivised and rewarded solely on the basis of the quantity of learners achieving a qualification, not according to the quality of the outcomes from getting that qualification, such as higher earnings. The system is market-based and is built on learner choice, but careers advice in London is patchy and inconsistent, which limits learners’ ability to make informed choices and understand the opportunities in the London economy. When I speak to headteachers, they talk about teachers often not being able to put aside valuable time to perform the crucial role of helping students decide which subjects to choose—say, whether to take a foreign language—not just at A-level or when they go on from school, but right back in year 8 or 9, so that they can have ready the skills that we so desperately need in workplaces.

Employers do not engage enough with the skills system to ensure that vocational courses are relevant to their needs. The creation of a Greater Manchester employment and skills board has resulted in the co-designing of apprenticeship courses that can be delivered locally, improving local responsiveness to skills shortages. That was replicated in Sheffield’s city deal and in several other cities, increasing the engagement of small and medium enterprises and delivering on local skills priorities.

It might be too early to tell what impact the apprenticeship levy has had, as it was introduced only in April 2017. I am sure that the Minister has a bit of time to get across that brief—her predecessors had not quite caught up with it. I am sure she will tell us her plans for the levy’s review. April 2017 is not that far back, but I am sure that the Department has plans to review its introduction and effect. Initial statistics from the Department for Education indicate a sharp drop in the number of apprenticeship starts across the UK. Between May and July 2017, they had decreased by 59.3% from the same period in the previous year—in numbers, from 117,800 to just 48,000. I am sure we would all agree, across this Chamber, that that is a crucial area that needs the Government’s attention.

Employers in the public and private sectors report issues with the system’s inflexibility, and it appears that many organisations will fail to spend significant amounts of their levy contributions. It seems highly unlikely that the Government’s aim of 3 million apprenticeship starts by 2020 will be achieved. That is another example of the skills system failing to respond adequately to the current and future needs of our economy.

The skills system in the UK is very centralised, leaving London with few tools at its disposal to cope with London-specific issues, such as the higher demand for English as a second language, historically low levels of apprenticeships and the reliance on incoming labour in key sectors. The picture is potentially worse in other fast-growing cities, such as Coventry and Exeter, which my hon. Friend the Member for Bristol South (Karin Smyth) mentioned; they do not have the same system of devolution that we have in the capital. I am hoping to hear more about those regions of the UK later in the debate.

The system simply does not respond well enough to our growing cities’ needs and priorities. Coventry, for example, is in part of the country that is seeing greater economic growth, although that is coming from a lower base. Our skills system is not matching that growth and is falling behind. The OECD predicts that without significant improvement, the UK will fall to 28th out of 33 OECD countries for intermediate skills by 2020. That would see the UK overtaken by Ireland, Israel and Belgium.

London faces myriad challenges: a rapidly rising population; an over-reliance on migrant labour; skills gaps in many key sectors; low numbers of apprenticeships and an inflexible apprenticeship system; patchy careers guidance; and poor match-up between skills spending and outcomes. The forthcoming devolution of the adult education budget represents an important first step in creating a more efficient skills system, but the Government must be bolder and go further and faster on skills devolution to have the impact needed. Devolving greater powers on skills to London and the metro mayors would enable cities to create a system that meets employer need, not just learner demand.

What about the impact of Brexit? Businesses have met an increasingly large share of their labour needs through immigration. Nearly one in three of London’s workforce is non-UK born, and 90% of London’s businesses recruit EU citizens. Workers from the EU play a vital role in many of the capital’s key sectors, including construction, financial services, hospitality and health and social care. In London, in construction, hospitality and the tech sector, just under a third of all workers are EU nationals. Any fall in EU immigration following Brexit or during the uncertainty that Brexit is producing has a significant impact on not only London, but the UK. We know that London’s economy is a driver of things and has knock-on effects on other regions. Many agricultural areas are over-dependent on the supply of EU labour. The outcome of the discussions and negotiations over Brexit could have a knock-on effect.

The capital attracts highly skilled graduates from across the UK. A significant drop in EU labour could increase that trend, undermining the Government’s industrial strategy and attempts to rebalance the national economy. There is a genuine desire across the House of Commons for every region to grow and for London not to attract all the high-achieving graduates. That could happen for a period, perhaps, but there is a real need to rebalance our economy.

The drop in EU labour could also have a knock-on effect on other key policy areas, such as the need to build more affordable homes in London. A chronic shortage of skills in construction, for example, will create higher project costs and diminish the ability of the sector to deliver the new homes required to tackle the chronic housing shortage facing the capital and the rest of the country. We can think of best practice in public procurement: in many boroughs and city regions, the local authorities are getting much better at using public procurement to ensure that for every £1 million that is spent, say, we get one or two apprentices back from the providers of that crucial capital work. That is mainly in construction and the renovation and refurbishment of social homes, but also in other areas.

All the factors I have outlined suggest that London government and the metro mayoralties need the ability to take a strategic, all-age, whole systems approach to skills. There should be greater engagement with employers and better access to and use of data. The system should allow a more localised approach that works at two levels. In the capital, for example, we should tackle pan-London issues while also having more targeted activity at a sub-regional level to take into account the variations of skills, needs and demand across cities.

The all-party parliamentary group’s report set out eight key principles that should underpin a future skills system. They were:

“1. It must be labour-market led, and include high quality labour market intelligence that captures the needs of individuals, employers and local economies informing learner choice and the provider offer.

2. It must have strong employer engagement in order to identify skills needs and sector priorities.

3. It must have strong local accountability, with joint governance agreed between the GLA and London boroughs via sub-regional partnerships.”

In that regard, we know that other sub-regional areas function much better than London. With a population of 8 million, it is very hard to match the economic partnerships with the various areas. In other sub-regions, we should be able to do much better on local accountability and buy-in from local authorities. The report continued:

“4. It must be outcome-focused, with strategic coordination across all aspects of post-16 professional and technical education to drive better outcomes. The system should focus on and reward delivery of positive outcomes covering jobs, earnings, progression”—

I emphasise that point; too many people are sitting in entry-level jobs way into their 40s and 50s, unable to get that progression that is so crucial—

“personal development and wellbeing outcomes.

5. It must include stronger incentives to encourage provision that meets London’s economic needs and supports progression.

6. It must be flexible to enable London government to have the ability to commission provision based on analysis of need.

7. It must include effective, impartial information and advice to ensure learners can make informed choices that will lead to future employment opportunities.

8. It must take a whole systems approach to ensure that skills policy and commissioning are effectively aligned.”

What would that mean in practice? The Government need to go further, faster, to give local government and metro mayors the levers to address the considerable skills challenges I have set out. They should consider devolving all 16-to-18 provision to combined authorities in other parts of England. The Government should provide commissioning freedom and the ability to set outcomes and incentives for the whole skills system. That would better serve the progression and economic priorities of different areas in England. The Government should give London government control over all vocational capital investments, such as 14-to-19 capital provision and institutes of technology, alongside existing further education capital responsibilities. That would capitalise on local ambition, expertise and intelligence, and align adult education and 14-to-19 capital investment.

The Government should devolve careers funding streams to London government, so that it can build a seamless, single, integrated careers service. The concept of a careers service is something that many people in local government would love to see return, so that they can match aspirations and assist parents, who are so key to helping young people decide what to do next. It would also allow older people to get back into the workplace—or change what they do, now that we are all meant to be working until we are 70. [Interruption.] You have loads of time, Minister. Through those things, we can have a proper system that we can be proud of.

We would like the devolution of careers funding streams to a local level, to build a seamless, single, integrated careers service. The Government should devolve the capital’s future share of the UK’s shared prosperity fund to London government, and ensure that future skills funding settlements take into account each area’s unique needs. We also need short-term flexibilities around the apprenticeship levy. In the longer term, we need to devolve the levy to London. That will be quite a difficult trick to master for a new system, but we need it to be as flexible as possible, so that we can use the resource quickly and build in the ability to develop that longer-term devolution. We could get longer-term value by getting together with local areas to work out the best way forward.

The other voice that needs to be listened to is that of small and medium-sized enterprises. They provide many of the job starts for young people, and older people entering the labour market who need their skills updated. It is difficult for SMEs to communicate with Government, Members of Parliament and the wider system, so that relationship with SMEs must be developed in a special way. We want more flexibility in the levy; for example, it could allow an increase in the amount of levy funding that employers can pass on to their suppliers. That is currently capped at 10%. Local authority areas increasingly use their contracts to have suppliers generate apprenticeship opportunities, but capping that at 10%, particularly in the short term, might mean we are not getting as much value as we could in our timeframe. In 2016-17, for example, London boroughs created 60% of their apprenticeships through contracts and suppliers, as I mentioned earlier.

The Greater London Authority and the Institute for Public Policy Research, a think-tank, have developed a proposal for a skills and progression pilot project, which I recommend the Department look at. A strand of the proposed pilot is to work with employers to pool the 10% that can be passed on to non-levy-paying employers, and support them in developing good-quality apprenticeships through that. The pilot wants to test out increasing the 10% cap as well. There is a strong push for that proposal. In the longer term, the Government should consider full devolution of the apprenticeship levy, as has happened in Scotland and Wales. Obviously, London and other key areas would need to bid and make the case for that, but the Government should not rule that out.

A recent Chartered Institute of Personnel and Development survey found that 53% of employers who pay the apprenticeship levy would prefer a training levy; just 17% support the apprenticeship levy in its current form. I am keen to hear the Minister’s feedback on that proposal.

In conclusion, the proposals might seem radical and far-reaching, but London, Manchester, Birmingham and other major UK cities are experiencing severe skills challenges that could be exacerbated significantly by Brexit. The Government need to act now and allow the skills system to deliver in flexible, responsive ways that the current centralised system does not. The Mayor of London has already indicated that London government is keen to work with central Government to deliver on this agenda, and there is a clear appetite from many of the elected mayors to do the same, as there is from leaders of local areas. I hope we can all work together to improve skills outcomes for all learners and businesses across England.

[Ian Paisley in the Chair]