Hard-nosed business leaders of companies ranging from BT to Zeneca rate David Blunkett and his team. They rate the Secretary of State for Education’s vision to raise standards for all. They rate his courage to pin his political career on measured improvements in literacy and numeracy by 2002. They are also impressed by his pragmatism, as when making local authorities and schools more accountable. Blunkett has won the trust of business.

Yet, a year since Labour swept to power, there are already concerns in many companies that the Government has not grasped the nettle. The scale of the UK education challenge is daunting. For generations we have educated an elite to manage this nation and got by with the mass having comparatively low skills. Now technology and global competition are wiping out low-skill jobs across this relatively high-wage economy.

Those without skills face lifetime unemployment, poverty, exclusion and even social breakdown. The social and economic costs undermine future investment and the prosperity of all.

The dramatic increase in the under-educated and now virtually unemployable underclass is the greatest threat to this nation. One in four people have literacy problems and 40 per cent of adults lack qualifications.

Tony Blair and David Blunkett have the policies in the New Deal - Welfare to Work and lifelong learning to improve skills - focused on tackling low literacy, demotivation and regeneration. The big issue is the inadequate investment from the Treasury to tackle the causes of one of the highest levels of under-achievement among developed nations.

Major policies such as the literacy and numeracy strategies, headteacher training, school improvement and action zones are underfunded. Teachers are underpaid and schools have a recruitment crisis. Schools are spending more and more time bidding for basic funding. Teachers’ morale is sinking.

Business is being asked to pay up in place of the state. The result is a host of good but mouse-size programmes launched with ministerial hype to tackle elephant-size problems.

David Blunkett has won some extra cash. But, despite Government rhetoric on the vital role of teachers, it was not enough to fund their pay award. Education action zones will benefit few of the 5,000 schools in disadvantaged communities. And local authorities must help fund headteacher training.

Business in the Community’s member companies spend pound;200 million a year on education - pound;50 million on primary schools, teacher training, literacy and numeracy and management support for headteachers. Thousands of employees volunteer to work in schools.

But if we are to improve the quality of basic skills in pre-school and primary education, support those with special needs, ensure school improvement and tackle demotivation which undermines access to lifelong learning, we need increased public investment.

The Prime Minister and Education Secretary must convince the Treasury that small sums thrown at big structural problems mean small change. National Power and KPMG funded the numeracy task force but are now very worried that cash to be invested in staff training and resources will be inadequate.

The Government needs to recognise five priorities. First, more must be spent on training and new developments.

Second, stop criticising teachers and schools facing the changes. We must take action over poor teachers, but hammering the profession is counter-productive.

Third, we need a new deal on teaching contracts and pay which rewards talent and performance. A great teacher deserves a pound;30,000-pound;40,000 salary. We need a national debate on flexible contracts and rewards.

Fourth, we need new schools performance targets that show the added-value for all students, including those with special educational needs and behavioural or emotional problems. This would help end the covert selection that favours the few.

Finally, we need more concerted action to help deprived communities with residual low skills. Regeneration initiatives are carved up between agencies for the environment, local authorities, training and enterprise councils and the European Union’s Social Fund while mini-action areas seem to sprout like grass across health, crime and education.

We need co-ordination, strategic planning, much broader public-private sector partnerships and long-term public monies to attract business resources at a scale that will change society.

* John Baker is chairman of Medeva, chairman of the New Deal Environmental Task Force and a member of the Government’s Standards Task Force. Ian Pearce is director of education for Business in the Community and a member of the Department forEducation and Employment task forces on demotivation and New Start.