Introduction

The government has made a renewed commitment to devolve power to give cities greater control over local housing, transport, healthcare and skills. The Cities and Local Government Devolution Bill was introduced in May 2015 to enable the transfer of powers to combined authorities with directly elected mayors. This marks a different approach to the one taken over the course of the last parliament, but nevertheless builds on the commitment made in 2010 by the Coalition government to a “fundamental shift of powers from Westminster to people.”1

The last government gave cities and Local Enterprise Partnerships (LEPs) a range of additional powers and resources through a series of bidding rounds and deals. This principally took place through the first and second waves of the City Deals, Local Growth Deals, and the Greater Manchester, Leeds City Region and Sheffield City Region Devolution Agreements over the last five years. These deals aimed to “end an era of top down government by giving new powers to local councils, communities, neighbourhoods and individuals.”2 As a prerequisite, local partners were required to demonstrate their capacity to take on additional responsibilities, and their appetite for risk.

Employment and skills has been a central feature in these policies, particularly the City Deals and Local Growth Deals, designed with the overarching aim to drive local economic growth. Skills are integral to the economic prospects of UK cities, impacting on business competitiveness as well as the employment prospects, pay and wellbeing of individuals. The appetite for greater devolution from cities and local areas reflects their understanding of the importance of local flexibility in meeting these needs.

Cities and city regions face different employment and skills challenges, reflecting the fact that there are multiple overlapping local labour markets rather than one national labour market. Previous research has highlighted the spatial mismatches in the supply and demand of skills across cities and local areas. For example, the OECD Local Economic Employment Development (LEED) programme has highlighted that in some areas the supply of high level skills is insufficient to meet employer demand, resulting in significant skills shortages and gaps as firms are unable to find suitable workers. Mismatches in the supply and demand for specialist skills in particular, such as engineering or construction, across the country can act as a significant barrier to growth.3 In others the supply of high level skills is met by demand for low skills, resulting in a skills surplus with wasted talent and individuals potentially moving to find appropriate work.4 Some local areas might also be experiencing a ‘low skills equilibrium’, with both a low supply and demand for skills and are reliant on low value added, low skilled and low paid jobs. This limits opportunities for individuals to progress and earn more, and risks the competiveness and long-term growth of local economies.

These challenges are indicative of the continued need to ensure that local employment and skills systems are flexible and responsive to individual and employer demand. A demand-led approach should effectively coordinate the current and anticipated needs of employers, with the supply of skills, by aligning training and employment organisations’ offers with local conditions. An essential part of this is closer collaboration between education providers and employers to ensure provision keeps pace with changing business needs.5 The challenge of upgrading demand for, as well as supply of, skills at the local level also underlines the importance of embedding and aligning employment and skills strategies within local growth strategies.6 These are long standing challenges and efforts to create more demand-led employment and skills systems span decades. Most recently, a number of policy initiatives at the national level have sought to introduce greater employer influence over training, including giving employers a greater role in shaping skills policies and introducing measures to stimulate demand.7

Consensus is building around the significant role that local partners can play in delivering a more demand-led system that supports jobs and growth. Currently, employment and skills programmes are designed, funded and delivered by a number of different public and private sector partners at national and sub-national level. Central government departments and agencies include the Department for Business, Innovation and Skills (BIS), Department of Work and Pensions (DWP), Department for Education (DfE), Skills Funding Agency (SFA) and Jobcentre Plus (JCP). Local partners include education and training providers, employment support providers, local government, LEPs, employers, representative and membership organisations and the third sector. Historically governments have grappled with how best to enable local flexibility and there have been relatively few opportunities for localities to influence delivery to ensure that skills provision is adapted to local economic and social needs. This has meant the majority of employment and skills policy and funding decisions have been held at national level. Over the last parliament, the government’s approach to devolving power sought to address this by trialling a number of deals to enable partners to flex national policy, fill gaps in provision, and experiment with new ways of working.

This report provides an early indication of how the transfer of powers in relation to employment and skills from national to local level has supported partners to respond to local demand. It provides an overview of the key policy developments and deals that have been agreed during the course of the last parliament as part of the localism agenda, and reflects on how these may have supported local partners to develop more demand-led employment and skills systems. The research has been conducted through a series of in-depth interviews and consultation with over 45 local and national stakeholders, including local authority, LEP and departmental representatives. All 68 deal documents (including wave one and two City Deals, the Glasgow City Deal, Local Growth Deals, and the Greater Manchester and Sheffield City Region Devolution Agreements)8 have been reviewed alongside other relevant literature. The report considers how the deals are supporting local partners to respond to the needs of local businesses and communities against a framework that sets out six key elements of a demand-led system and concludes by reflecting on the lessons learned to date, as well as highlighting where there are gaps in the evidence. This report mainly focuses on devolution to English cities, the exception being Glasgow – reflecting where most deals have been made. However, the lessons learned apply to other localities across the UK.

City Deals, Local Growth Deals and the move towards more localised control of employment and skills policy should also be seen in the context of wider reforms, both to employment and skills policy as well as other economic development policies and institutional structures over the long term. The government has opted for a mixture of local and national provision to replace regional provision. For example, the Regional Development Agencies (RDAs), which were abolished in 2010, had an annual expenditure on activities related to people and skills of around £224 million.9 The majority of public funding for adult skills provision is now routed through the SFA to its network of approved and quality-assured colleges and training organisations. Changes to the way policies and programmes are delivered also impact on the potential scope of the deals. For example, the Work Programme was launched in 2011, replacing New Deals, Employment Zones and the Flexible New Deal with a payment-by-results model where contracts with Prime providers now last until 2017.10 The context of recent significant public expenditure reductions at the national and local level, including to the Adult Skills Budget, is also important. Ongoing austerity measures put increased pressure on maximising the impact of spend and therefore demonstrating greater value for money. Partnership working and the alignment of resources at the local level have a role to play here.

This report is structured into four sections:

  • The localism agenda from 2010 to 2015 and changes in employment and skills policy
  • The key elements of a demand-led local system for employment and skills
  • The extent to which the deals may have enabled local partners to respond to local demand
  • Conclusions and recommendations for policy makers at national and local level, and the broader lessons learned from the negotiation and implementation of City Deals and Local Growth Deals.

Footnotes

  • 1 Coalition Agreement 2010
  • 2 Office of the Leader of the House of Commons, The Rt Hon William Hague and Cabinet Office (2014) The Implications of Devolution for England, gov.uk
  • 3 Gardiner, L. & Wilson, T. (2012) Hidden Talents: Skills mismatch analysis, Inclusion
  • 4 Froy, F., Giguere, S. & Meghnagi, M. (2012) Skills for Competitiveness: A Synthesis Report, OECD Local Economic and Employment Development (LEED) Working Papers, No. 2012/09, OECD Publishing, Paris
  • 5 OECD (2015) Employment and Skills Strategies in England, United Kingdom, OECD Reviews on Local Job Creation, OECD Publishing, Paris. UKCES (2014) Growth through People.
  • 6 OECD (2015) Employment and Skills Strategies in England, United Kingdom, OECD Reviews on Local Job Creation, OECD Publishing, Paris
  • 7 UKCES (2011) Employer Ownership of Skills: Securing a sustainable partnership for the long term, UKCES
  • 8 At the time of writing the Leeds and West Yorkshire Devolution has not been officially published.
  • 9 PricewaterhouseCoopers LLP (2009) Impact of RDA spending – National Report – Volume 1 – Main Report, Department for Business, Enterprise & Regulatory Reform
  • 10 Each Prime provider agreed to take referrals for five years, until March 2016, and then to complete a further two years of service delivery. Department for Work and Pensions (2012) The Work Programme, DWP