There’s no nonsense on Tyneside. People work hard and play hard - as anybody with experience of Newcastle’s nightlife could testify. Work has a long history on both banks of the Tyne; even in medieval times it was industry - first wool, then coal - that brought prosperity to the area. In the 17th century, Newcastle was the fourth largest provincial town after Norwich, York and Bristol.

Today, Tyneside is emerging from a painful period of restructuring after the collapse of coal and heavy engineering. It is a common assumption that the North-east, with its high unemployment and low-skills economy, must be an area on its knees. And this is partly true: in August last year, the Independent Labour Organisation put unemployment at 8.9 per cent, compared with 5.3 per cent nationally.

But the North-east is not a manufacturing desert bereft of skilled jobs: 28 per cent of the area’s gross domestic product relates to manufacturing - compared with a national average of 21 per cent. Contrary to expectations, growth in 1997-98 was even slightly above the national average.

What remains critical is the need to re-skill the area’s workforce in order to allow people to take advantage of the jobs available. So this is an ideal area to spotlight in the search for an assessment of how the new learning and skills councils will perform in their task of upgrading skills in the workforce. Olivia Grant ought to know the answers. The chief executive of Tyneside Training and Enterprise Council was the first head of such a body to be appointed back in September 1989. Newcastle born, she has first-hand knowledge of these challenges, and her recent appointment as chair of the neighbouring County Durham Learning and Skills Council gives her a foot in both camps.

“I’ve been very lucky here on Tyneside - with a strong board and a good chairman,” she says.

Like most informed observers, Grant argues that the main problem for skills councils will be that of reaching out to those businesses with fewer than 200 employees - small to medium-sized enterprises (SMEs) seen as the Gordian Knot of work-based training.

“It will be imperative to have an effective small business service,” she says. She also points to a change of emphasis for the new service. “It’s a service much more directly aimed at SMEs than the Business Link services it replaces.”

Grant is also optimistic about the potential for improved provision. “The combination of a new funding regime for FE colleges, convergence in the funding regime for the private-sector training providers - combined with some of the rethinking which I know is going on inside the Qualifications and Curriculum Authority - means you could end up with a funding structure based on a better curriculum base. This would enable LSCs to give the support and assistance needed by small companies,” she says.

Support and assistance are the important words here. Grant believes that without active support, small businesses cannot be expected to seek out provision or offer high-quality training.

“The problem for the SMEs is that they are stuck with the pressures of their everyday existence,” she says “There’s a need for umbrella organisations and collectives.” But a more pessimistic view comes from Professor Frank Coffield at Newcastle University.

“TECs were given the same agenda 10 years ago,” he says. “They’ve met their targets, but we’re still faced by the same problems.” He believes that dealing with a low-skills economy is going to take rather more than restructuring the quangos in charge of the funding routes.

“More than three-quarters of English firms are not training their workforce,” he says, quoting figures produced by a joint study carried out by Leicester and Kent universities.

“There are islands of excellence - typically large employers - but the British problem is the long tail of firms that don’t train. In the retail sector, discount storesI can make profits in the market without spending money on significant levels of training. Some firms don’t want to escape from the low-skills economy - it suits them.”

Professor Coffield has taken figures from last year’s National Skills Agenda Final Report that suggest small businesses are barely involved in training at all. Investors in People is commonly regarded as a good litmus test of employers’ attitudes to training, and Coffield’s figures reveal a depressing picture (see box below).

“We have tried to involve employers through exhortation; it hasn’t worked,” he says.

He points to practice abroad. In Denmark, for example, there is a right to educational leave for all workers - up to a year off at standard unemployment rates.

“This is far in advance of anything we have on offer,” says Coffield, and it’s true that the Government’s individual learning accounts seem unimpressive beside the Scandinavian scheme. Coffield also points to Singapore, whose government offers tax incentives to firms that train their staff, backed up by tax penalties for companies that don’t get involved.

“With some employers, business is a fight for survival and training becomes a luxury they can’t afford,” he says. “Unless we resort to legislation, we will not break out of the low-skills equilibrium.”

Olivia Grant acknowledges that statutory changes are not on Westminster’s agenda at the moment, but her view is that a balance between the old employer training levies and today’s voluntary arrangements would offer the best solution.

She believes it should be possible to build an accountancy framework to measure an employer’s investment in training; once in place, companies could be offered tax relief. “Some kind of tax incentive ought to be on the agenda,” she says. “People like incentives.”

The learning and skills councils in the North-east are confident that they can reach out to employers with schemes that can develop skills.

But history suggests a note of caution; in the case of Denmark, it shows that the small to medium-sized business sector is a hard nut to crack. Sooner or later, Westminster must give the skills councils some real incentives.

* SMALL MEANS MISSING OUT

BIG COMPANIES: 200-PLUS EMPLOYEES. 45% have achieved Investors in People status; 38% aspire to it.

MEDIUM-SIZED FIRMS: 50-199 EMPLOYEES. 20% have achieved Investors in People status; 21% aspire to it.

SMALL BUSINESSES: 1-49 EMPLOYEES 4% have achieved Investors in People status; 8% aspire to it.