Mark Twain pointed out that “history doesn’t repeat itself, but it does rhyme”. Britain risks a repeat of the massive social and economic failure of the 1970s and 1980s. Faltering global growth may push us back into recession. Figures released last week showed that unemployment had risen by 80,000 - the largest increase in two years.

FE is frequently cast as the neglected “Cinderella” sector, but it is uniquely placed to help tackle the unemployment crisis. Even during the long boom, Britain had a large rump of unskilled workers who stumbled in and out of the labour market. They are the first to be fired in a downturn: unemployment in low-skilled occupations has risen by 52 per cent since 2008, to 434,000. They are in dire need of help to retrain and improve their skills. But is FE in a position to deliver?

There are two reasons why it isn’t.

First, the Government is making swingeing cuts to the sector’s budgets. Given the fiscal state we’re in, all public services have to take a hit. But cutting skills funding back to the bone will make it very difficult for providers to deliver quality training. The Government hopes that businesses will join up with providers to fund more of the training they need. But training is the last priority of many firms trying to find efficiencies and reduce costs.

Second, training must match the shifting needs of employers, but in reality it doesn’t. The UK’s economy is undergoing major changes: bubble sectors like construction and business services are deflating. Local economies are different, and will react to the recession in different ways. Colleges need to respond flexibly to them, but the inflexible way in which they are funded does not encourage them to do so.

A group of central government agencies direct funding towards training they think the economy needs. The bureaucracy tries to work out where there are skills gaps across the economy, how much the Government should spend per course and what skills need qualifications. Providers are then paid according to how many of these qualifications they deliver. This is a pretty dire way of distributing funding.

Local labour markets need different skills. In the South East, where business services are the major employer, secretarial and accountancy skills may be crucial. In the Midlands and the North, the challenges are different - the economy is still switching over from an industrial economy to one led by services. Different economies have different training needs.

The Government must devolve decision-making on skills to providers. They are in the best position to steer unemployed people towards training that will get them a job. And trainers must be given more discretionary control over funding and the courses they offer. At the moment, providers are not given incentives to focus on the outcome of their training - whether it leads to employment or wage increases. That must change. With power comes responsibility: if colleges fail to get the people they train back to work, they should be held accountable. Which is why the Social Market Foundation is working on a revolutionary new skills model that aims to pass discretion to providers and which holds them accountable.

John Springford is senior research fellow at the Social Market Foundation, whose report on skills funding will be launched during the autumn.