How is the system changing?
To varying degrees, the deals agreed over the last five years have enabled cities and LEPs to flex national policies, fill in gaps to meet local criteria and priorities, and experiment with new approaches. These flexibilities have the potential to enable cities and local partners to develop more demand-led local employment and skills systems, explored further in the third and fourth sections of this report.
This section provides an overview of the localism agenda and policies within it that relate to employment and skills. It also considers the ways and extent to which the reforms have enabled partners at local level to influence local employment and skills delivery.
The localism agenda from 2010 to 2015
The 2010-15 government’s approach to local economic growth focused on “shifting power away from central government to local communities, citizens and independent providers”11 principally through the establishment of LEPs. Since 2010, several reforms and funds have been established to give local partners greater freedoms and flexibility to respond to the employment and skills needs of their local economy (Figure 1). Each of these policies are discussed in detail in this section, starting with the Regional Growth Fund.
The Regional Growth Fund was introduced in 2010 with the aim of raising private sector investment to stimulate economic growth and job creation in areas where there is a relatively high dependency on the public sector. LEPs received approximately £570 million from rounds three and four of the Fund (later rolled into the Local Growth Fund).12 Much of this funding was routed to local businesses in the form of grants to support specific projects and business expansion. Some of the bids did have a specific focus on skills and training, however. For example, Tees Valley Unlimited submitted a bid to work with training providers and large employers to assist SMEs to take on a greater number of apprentices.13
Measures included in the Localism Act 2011 gave local government and local communities some modest additional powers to promote growth and potentially employment.14 The Act also included the Core Cities15 amendment which allowed local councils to make the case for being given new powers and set their own distinct policies, and paved the way for City Deals.
The eight Wave One City Deals (2012) agreed with the English Core Cities gave cities greater powers to pilot and design skills-related policies:
Apprenticeships: All of the Wave One City Deals included measures to increase the number of apprenticeship placements by supporting businesses, SMEs in particular, to take up and invest in apprentices. In the majority of cases, this included local and central government investment to support the establishment of Apprenticeship Hubs. Several of the deals also specified a commitment from the National Apprenticeship Service (NAS) and National Careers Service to integrate and align services. Two of the deals included notional allocations or ring-fencing for Apprenticeship Grant for Employers (AGE), while the Sheffield City Deal included ring-fenced AGE and the Leeds City Region City Deal included provision to set up Apprenticeship Training Agencies.
- Investment: The deals involved varying levels of investment from government and local authority partners, as well as in-kind contributions from the private sector. In Sheffield, the government agreed a three-year, tripartite investment plan with Sheffield City Region’s Employment and Skills Partnership. This included £44.4 million of local public and private sector investment, and £23.8 million of devolved funding and an additional £4 million from government. Greater Birmingham and Solihull’s City Deal included government investment of £500,000 matched with in-kind contributions of £500,000 from local authorities and £230,000 from private sector leads (from the Employment and Skills Board) per year.
- Employment: Specific agreements to align DWP commissioning or JCP services with local need were included in three deals. Liverpool agreed that a Youth Taskforce would be chaired by the JCP District Manager. Newcastle agreed to the co-location of services, sharing of data, more integrated working and co-financing between JCP and local services.
- Youth Contract: Three cities agreed to directly deliver the 16-17 Youth Contract. Leeds (Leeds – Bradford – Wakefield), Liverpool and Newcastle (Newcastle – Gateshead) received a grant for this purpose and it was agreed they would be able to set criteria for eligibility as well as to design and shape the initiative.
- Tax incentive: Greater Manchester agreed to pilot a tax incentive-style approach, working with small employers in Wythenshawe, Manchester Airport and Airport City Enterprise Zone to test whether the key barrier to SME investment in workforce skills is primarily financial.
The majority of the 18 Wave Two City Deals (2013/14), signed with cities and surrounding local authority areas, also included employment and skills agreements, although they varied significantly in focus:
Youth unemployment: There was a strong focus on youth unemployment in a number of the deals due to the labour market conditions at the time, and several included Youth Guarantee or employment schemes to widen training and employment opportunities for young people. Plymouth and the South West Peninsula’s scheme included the establishment of an employability charter for businesses. In 2013, the DWP agreed to devolve £50 million of Youth Contract funding to support local schemes.
- Apprenticeships: Apprenticeships were also a feature of many of the Wave Two Deals, with cities committing to establishing Apprenticeship Hubs and agreeing to align local services with NAS. The deals included some ring-fencing and joint promotion of AGE rather than any devolved responsibility for the grant.
- Payment-by-results: Hull and the Humber, for example, agreed to work with BIS, the SFA and local skills providers to develop a payment-by-results pilot for adult skills, where an incentive is introduced to reward skills providers that support local adults into sustainable employment or education that furthers their careers.16
- Wage progression pilot: Plymouth and the South West Peninsula, for example, and DWP agreed to work with an existing Work Programme provider to test a range of approaches that seek to help young people to progress in their careers and increase their earnings.
- Training Hubs/Centres of Excellence: Hull and the Humber agreed to create a Centre of Excellence for energy skills, and Stoke-on-Trent and Staffordshire will develop an Advanced Manufacturing Training Hub.
The Core Cities were also able to bid for 18-24 Youth Contract for Cities Programme (2013) funds that came from underspend within the National Youth Contract. In some instances, this was matched with local funds to create single points of access to employment and skills opportunities for 18 to 24 year olds. The Leeds City Region was awarded £4.6 million to deliver the 18-24 Head Start programme, of which £1.2 million will offer a supported work experience placement to 800 young people furthest from the labour market.17 The Sheffield City Region secured £5 million from this underspend to fund Ambition SCR, which will ensure young people are better prepared for the labour market and equipped with the skills for job survival. It is designed to meet the substantial demand for apprentices unlocked through the City Deal which are currently not being fully met and aims to progress a minimum of 950 young people into the labour market.18
The Glasgow City Deal followed shortly after the Wave Two City Deals in 2014. The city agreed to develop a new scheme to provide employment support to Employment Support Allowance (ESA) claimants and a single integrated Guarantee for Young People across Glasgow and Clyde Valley. Glasgow City Council has also agreed to co-invest and work with DWP to design an employer-led progression pilot to boost earnings and career progression for low paid workers.
The Local Growth Deals (2014/5) assigned pooled central departmental funding from the Local Growth Fund which was initially proposed in Lord Heseltine’s review in 2012. Lord Heseltine argued that decisions about significant economic development issues, including employment and skills support, housing and infrastructure, and business support, are more efficient and effective if taken at a local level. His suggestion was that up to £49 billion of funding related to local economic development should be allocated to a single pot over four years. This led to the establishment of the Local Growth Fund, a £2 billion per year fund.19 The focus on skills in most of the Local Growth Deals was predominantly on capital investment, including new schools or college buildings. Nonetheless, some deals did agree programmes that went beyond capital investment:
- The London Deal included the Working Capital scheme which pilots a scheme of tailored support to help ESA claimants into employment (Box 1).
- The Sheffield City Region Growth Deal included a commitment from the government to invest £21.7 million over six years in the City Region’s Skills Bank20 and Greater Manchester gained control of £12 million of adult skills funding for 2015/16 and 2016/17. The government committed to investing £6 million per annum over a two-year period (in 2015/16 and subject to departmental budgets being available, 2016-17) to enhance Greater Manchester’s support under the Access to Employment theme within the European Social Fund (ESF) Programme. Greater Manchester, Leeds City Region and Sheffield City Region were also given specific powers to redirect Growth Deal funds if appropriate.
- The government also committed to invest £1.4 million in 2014/15 in a Skills Brokerage for Armed Forces Service Leavers scheme in Swindon.21
- The SFA made a more general commitment to support the process to ensure that provision meets local priorities through procurement and accountability mechanisms.
Box 1: Working Capital: the London pilot to help ESA claimants into employment
As part of the London Growth Deal in 2014, Central London Forward (a sub-regional strategic organisation representing the eight central London local authorities) will pilot a new model, Working Capital, to support ESA claimants into work.
The pilot will run for five years with a budget of £11 million and aims to support nearly 4,000 central London ESA claimants who have left the national Work Programme after two years without finding long-term employment. The scheme is wholly funded by the London Enterprise Panel’s European Social Fund (ESF). Central London Forward is leading the scheme, working in partnership with London Councils, the Mayor of London and central government. DWP has worked with local partners to design the scheme.
Every person supported by Working Capital will receive dedicated help from a case worker who will use existing local council, health and voluntary sector services, but also bring in specialist services, such as mental health provision or specific skills training where required, to support the claimant find work.
A rigorous independent evaluation will be run throughout the programme and government has agreed that success will unlock a series of progressive steps towards further local service integration for London.
The Greater Manchester Agreement (2014) set out the offer of powers and budgets from the government, and the reforms and measures that Greater Manchester will need to deliver in return. The government proposes to work with Greater Manchester to reshape and restructure FE provision (with the re-commissioning process to be led by the Greater Manchester Combined Authority (GMCA), BIS, DfE, SFA and EFA) and to devolve the AGE, enabling Greater Manchester to vary the level of financial support available to different types of learner, sizes of business and subject areas. Greater Manchester will also take control of an expanded Working Well pilot and co-commission the next phase of the Work Programme (see Box 2 for a summary of the employment and skills elements agreed through the 2010-2014 Deal process).
Box 2: Summary of employment and skills deals in Greater Manchester
Brokerage: A City Apprenticeship and Skills Hub to broker deals between groups of SMEs and skills providers, with SME employers directly funded by SFA.
Piloting: A pilot to incorporate locally determined outcome measures into the SFA national funding framework for apprenticeships, working with the Greater Manchester Skills and Employment partnership, including colleges and providers, to implement an approach to setting outcomes which address gaps and priorities identified by the LEP.
Payment-by-results: The Working Well pilot will go through a staged expansion subject to performance gateways demonstrating success. Greater Manchester will be rewarded for performance by a payment-by-results mechanism, up to a fixed Departmental Expenditure Limit (DEL) limit and funded from a combination of the Greater Manchester budget, European Social Fund and a central government payment-by-results mechanism.
Funding control: A City Skills Fund to support the Skills and Employment Partnership to develop robust labour market analysis and respond to skills needs. Devolution of the AGE in Greater Manchester.
Co-commissioning: Power to reshape and re-structure the Further Education (FE) provision within Greater Manchester after 2017. Opportunity to be a joint commissioner with DWP for the next phase of the Work Programme.
Other funds: Measures also include the establishment of a joint life sciences fund with Cheshire and Warrington supported by £10 million of public sector investment, as well as investment in the FE estate across the city region.
The Chancellor put forward an invitation in his 2014 Autumn Statement for other local partners to come forward with city region plans. The second wave of Local Growth Deals (£1 billion allocation from £12 billion) was also announced, which to date has been focused on capital investment in colleges and training centres.
The Sheffield City Region Devolution Agreement was signed in December 2014. The deal includes an agreement for the LEP and the South Yorkshire Combined Authority to form a joint-venture partnership with the SFA to re-commission adult skills. The Skills Bank will also be enhanced and the city region will work in partnership with the National Careers Service to coordinate employer-education activity. DWP has also committed to consulting with the city region on the possibility of commissioning the next phase of the Work Programme and to entering discussions on an ESA pilot (see Box 3 for a summary of the employment and skills deals agreed with Sheffield City Region through the 2010-2015 deal process).
Box 3: Summary of employment and skills deals in Sheffield City Region
Funding control: Devolution of £28 million Adult Skills Budget funding (approximately £24 million from existing allocated funding and £4 million added investment from government to drive up employer engagement), contributing towards a tripartite funding model including employer and city region local authority contributions.
Incentives and brokerage: A ‘Skills Made Easy’ brokerage model to stimulate apprenticeships starts and upskilling of existing workers in SMEs based around a £1,000 per learner incentive for providers to train according to business needs. The ‘Skills Bank’ plans to expand the SME brokerage model to a wider range of employers in the city region. A pilot will test if this mechanism can facilitate training brokerage activities for SMEs.
Co-commissioning: Agreement of a joint venture between the LEP, combined authority and SFA to co-commission skills, including shared decision-making, financial risk and delivery. The arrangement will cover the Adult Skills Budget and the AGE. There are commitments to consult on a joint commissioning approach for the next phase of the Work Programme beginning in 2017, and for a public sector reform pilot bringing together JCP, the city region authorities and other agencies to improve outcomes for ESA claimants.
Influence: Measures also include greater influence over careers advice for young people, building on Enterprise Advisor Pilot through working with National Careers Service, as well as a Skills Capital Fund to upgrade the existing FE estate across Sheffield City Region.
Flexing national policy, filling gaps and piloting new approaches
To varying extents the City Deals, Growth Deals and Devolution Agreements have enabled cities and local partners to:
- Flex national policy to local criteria and priorities
- Fill in gaps in national provision to meet local needs
- Experiment with new programmes and policies and approaches agreed as part of negotiations to localise employment and skills.
Flexing national policy: The first wave of City Deals, in particular, gave major city regions the ability to shape national policy. For example, the Devolved Youth Contract for 16-17 year olds gave local partners greater flexibility in managing the application of payment-by-results, in defining programme entry criteria and in determining the measurement of sustained outcomes. The Local Growth Deals did not, on the whole, devolve or localise flexibilities over national policies, although several cities were given the flexibility to re-route funding if local priorities changed. A total of £330 million of the Skills Capital budget was devolved in 15/16 as part of the Local Growth Fund.
Filling gaps in national provision: The Apprenticeship Hubs established through the first and second wave of City Deals are one example of local partners using agreements with national government to fill gaps in national provision. The Hubs aim to increase the scale, breadth and quality of apprenticeship delivery in local areas by supporting employers, and SMEs in particular, to engage with the apprenticeship process. MyGo in Ipswich is the UK’s first youth employment centre, set up following Greater Ipswich’s City Deal. The centre acts as the delivery vehicle for the area’s Youth Guarantee and offers all 16-24 year olds in Ipswich and the surrounding area free training, career and employment support. Existing JCP support will be complemented by additional intensive caseworker support through the centre.
Experimentation: A number of pilots were set up as a result of both waves of the City Deals, Growth Deals and Devolution Agreements. Two of the most significant in terms of scale and evaluation are the Manchester Working Well pilot22 and the London Working Capital pilot (see Box 1). Overall though, the focus on capital funding of projects available through the Local Growth Deals meant that there was less scope to experiment with new policy. Other examples of experimentation that took place, but outside of the deals process, include Skills Funding Incentive pilots; the government agreed to pilot an incentive-based employment and skills model in Bristol to test whether more local influence over funding to FE colleges can improve local outcomes and deliver training that meets local priorities (see Box 4).23
Box 4: Skills Funding Incentive pilots
The Skills Funding Incentive pilot initially agreed in the Bristol City Deal was extended to form a national pilot through an agreement with BIS and the SFA with three LEP areas involved: West of England (Bristol), Stoke and Staffordshire and the North East. The pilots seek to positively incentivise providers to align their provision to local priorities by allowing the LEPs to recommend for up to 5 per cent of the Adult Skills Budget allocations to be withheld in future if the priorities are not deemed to have been met.
In the Stoke and Staffordshire LEP, colleges and training organisations in receipt of the Adult Skills Budget will be formally recognised for qualifications delivered according to local priorities and the LEP’s ‘red-amber-green’ priorities framework. In the West of England, the pilot is based around challenge frameworks co-designed with employers to tackle the barriers to training provision that meets locally set priorities. The five main FE colleges in the area have formed a consortium to deliver provision according to the framework designed to make the system more responsive to employer need. And in the North East, the LEP will seek to incentivise and reward Adult Skills Budget-funded providers according to their performance against three key metrics – job outcomes, achieving level 3 or above qualifications and moving people into higher level training – using a data-driven approach.
A varied landscape
The 2010-15 government’s tailored approach to devolution resulted in a gradual transfer of powers down to the local level through City Deals, Growth Deals and Devolution Agreements. The deals that were agreed, as well as the process of devolution itself, has been inherently varied, with the transfer of powers based on existing local governance and accountability arrangements. This is reflected in the variation in scale and scope of the deals in relation to employment and skills. For example, the totality of the agreements made with Greater Manchester (Box 2), a city region with a strong history of partnership working accompanied by formal city region wide institutional arrangements, was more extensive than those made with other cities.
The extent to which the deals have resulted in additional powers and flexibilities in employment and skills is also varied across localities. Some cities, for example, gained greater influence over the wider employment and skills system, while others received additional funding for individual projects. This is also reflected in the variation of funding freedoms. Sheffield City Region, for example, negotiated control over a 3 per cent portion of the Adult Skills Budget (£28 million, Box 3), while respondents in other cities did not feel this option was available.
Similarly, the deals affected the way FE colleges are funded to a greater extent in some areas than others. For example, local partners in national skills funding pilot project areas (North East, Stoke and Staffordshire and West of England LEPs) can recommend for up to 5 per cent of the Adult Skills Budget to be withheld from local FE colleges if they are not felt to deliver according to local need (see Box 4 on Skills Incentive pilots). The Manchester and Sheffield devolution deals agree for FE provision across the city region to be redesigned. In all areas, chartered status for FE colleges will be dependent on taking account of the skills priorities of local LEPs.
The Conservative government is likely to continue to take a tailored approach to devolution over the course of this parliament. The Chancellor has restated his commitment to devolving further powers, and as before these will be negotiated with individual cities and localities. He has also been explicit that devolution of any Greater Manchester-style powers will be to combined authorities with directly elected mayors, with the Cities and Local Government Devolution Bill introduced to enable this.
The next section sets out the framework used to examine the effect of City Deals and Growth Deals on enabling cities and LEPs to create a more demand-led local employment and skills system.