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Blair's 'pay to learn' scheme needs work

Tony Blair's decision to ditch Labour's longstanding commitment to a compulsory training levy on employers surprised many in the education and training world. But press leaks have made public what has been known for some time: Labour needs an alternative.

New Labour is committed to the European Union's Social Chapter and a national minimum wage. The party needs Confederation of British Industry support, even if it decides to phase in such plans or make an exception for key industries. A training levy is the straw to break the camel's back.

Labour had hoped compulsory individual learning accounts (a bank into which employers and individuals invest) would give the alternative, but any compulsion on employers would be a "training levy" by another name. Hence Labour's interest in a system where every employer contributes Pounds 2 per week, and every employee above the PAYE tax threshold contributes Pounds 1 per week into a joint account.

Given the current composition of the labour market, 75 per cent of the workforce would be covered by the system. But the very people who need more access to training - the self-employed, the unemployed and very low-paid part-time workers - are not taxed through PAYE, the threshold above which individuals would pay into a learning account.

Compulsory accounts are portrayed as the solution to the failure of companies to invest in the training of temporary and casual workers, but the fact that these employees are regularly hired and fired makes it unlikely that firms would make continuous contributions to their accounts in any year.

It should also be remembered that the maximum amount paid into any account would be Pounds 156 per year. Not only is this a very small amount to spend on learning, but employers also would resent contributing if they knew that employees would not be in post long enough to attend, or afford, a training course.

It is the overall impact of such a model which would cause a future Labour government most problems. The total price-tag would be around Pounds 2. 1 billion for employers and some Pounds 1.1 billion for employees. In fact, the cost to employers would be nearly double that of a national minimum wage set at Pounds 3.40 per hour.

Since all employees would pay Pounds 1 per week, this would represent a regressive tax on the low-paid. Over the long term, however, employers would attempt to pass on the full cost of accounts to employees by holding down pay increases or by reducing benefits. Such a move would be equivalent to an increase of a penny or two on the standard rate of income tax.

Even though this model has been found wanting, it would be wrong to conclude that compulsory accounts have no place in creating a nation of lifetime learners. What is needed is a more expansive debate.

For instance, should employees only contribute to the account? Should employees be given a choice to opt in? Should employers be encouraged to contribute on a voluntary basis? Should the state offer tax incentives? Should higher paid workers have to contribute more?

Labour is fighting shy, proposing a first phase of tax incentives for employees to sign up to the "learning bank", with the threat of compulsion if it fails. But a wider debate is needed now. The challenge has been issued. Now a model must be found that works.

Mark Corney is co-author of Called to Account, published by the Unemployment Unit

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