In December 2004, Sandy Leitch, a former Chief Executive of Zurich Financial Services, was asked by Gordon Brown to look at the UK's long-term skills needs and recommend improvements. I spent two years working with Sandy on that review.

We started off knowing the scale of the UK's skill problems, we finished sure of the urgency of tackling them.

The statistics show that there are 5 million adults in this country who can not read or write properly and 7 million who can't count properly. Now, these are numbers so big as to perhaps seem meaningless but the lack of these skills is holding back Britain's economy.

These functional skills are the basics you need to get by in today's society. They mean being able to look up a plumber in the Yellow Pages or the equivalent of an English GCSE at grades D-G. Functional numeracy includes checking your change in a shop. So these are basic skills in every sense of that word. Yet, as a result of failures in education and training stretching back generations we have huge numbers of adults who don't have them.

The impact of poor basic skills

For individuals, good basic skills are a passport to employment. For example, less than half of people with poor literacy skills are in work, compared to three in four of the population as a whole. Many of those in work can find lack of basic skills a roadblock to career progression and better pay. For example, people with even entry-level numeracy can, all else equal, expect to earn 11-15 per cent more than those without this skill.

A lack of basic skills can impact on people's lives outside work too. A recent survey found that poor basic skills are costing £823 million every year as people are regularly short-changed or miscalculate the cost of purchases. It showed, for example, that one in five people cannot work out which retail offers are better value when comparing between packs of different weights. But perhaps the biggest impact on people's lives is in the home, whether it's trying to manage the family finances or helping children with their homework.

The impact of poor basic skills is felt by employers too. It is estimated that poor basic skills cost British businesses over £10 billion each year. The average company employing 1,000 people or more could save £500 per person if the basic skills of employees were improved.

This cost comes from two sources. The first is that a workforce of people who can't read, write or count properly affects the pool of labour available to businesses. This limits their ability to adapt to and take advantage of technological change. Secondly, the high prevalence of poor basic skills also distorts investment, focusing business on coping strategies that get around the skill problems of their employees. For example, firms may invest in till and training equipment that uses symbols rather than words.

These costs to individuals and business add up to a huge potential benefit to the economy of improving basic skills. The Leitch Review showed that, for every £1 invested in teaching people to read, write and countbasic skills, the economy would gain a £4 benefit through higher productivity and employment. Overall, achieving the eradication of illiteracy and innumeracy would boost the UK economy by around £3 billion each year for 30 years.

What is more, the importance of good basic skills to individuals, employers and the economy is increasing day by day as a result of global economic changes. The growth of emerging economies such as India and China has dramatically increased the size of the global workforce. Technology continues to advance at a dizzying pace, making geographic location an increasing irrelevance. These changes are altering the nature of jobs; making them more high skilled and demanding increased flexibility. In this changing global economy, a good platform of basic skills is increasingly essential for the success of individuals, employers and nations. In other words, if you think skills are important today, you ain't seen nothing yet.

Achieving world-leading basic skills

It was on the basis of these benefits (both economic and social) of improvement and the increasing urgency to do better that the Leitch Review recommended that the UK aim to match the best in the world in basic skills. This would mean more than trebling the expected rates of improvement so that, by 2020, 95 per cent of adults have both functional literacy and numeracy skills.

The Government has accepted this ambition and the challenge now is to deliver what would be a huge step change. We face two key challenges in the drive to move the UK into the Premier League for basic skills.

The first is to further improve standards in schools. There is no doubt that there have been significant improvements in standards in our schools over the last decade, particularly primary schools. Increased investment combined with initiatives such as the literacy and numeracy hours have contributed to this improvement.

Yet, there are still 120,000 children who leave primary school each year without the expected standard of basic skills. Following primary school, more than one in ten children fail to make any progress in reading and writing in their first three years at secondary school. Consequently, one in six young people leave school without functional literacy or numeracy – the very basic skills they will need to get a job.

This is clearly not good enough in the fifth largest economy in the world in the 21st century. It is absolutely essential that we work together to ensure that we never fail another generation in the same way: all young people should be equipped with these fundamental building blocks of life after 11 years of compulsory schooling.

As if that wasn't enough, we face a second equally difficult challenge too: improving basic skills among adults. There are some who argue that the focus should be on schools, after all, in the long-term surely they determine the skills mix of the UK. But this would be wrong for two reasons. The first is that our population is ageing, so that 70 per cent of the 2020 workforce have already left school. So we'll be waiting a very long time to improve basic skills if we focus solely on schools.

The second reason is that the set of basic skills is evolving as the economy changes. For example, over the past 30 years IT has become an essential part of most jobs, even those traditionally regarded as low skill. For example, the proportion of administrative and secretarial workers using IT has risen from 60 per cent in 1986 to more than 95 per cent today. Even in occupations defined as 'elementary', the proportion has doubled from 20 per cent to 40 per cent. Over this period, therefore, a degree of proficiency in IT has become, in many cases, a basic skill.

So an increasing pace of change in the workplace means that schooling, however good, can no longer be enough to see you through up to 60 years of working: there is an increasing need to continually update and improve skills and this applies to basic skills too.

Again, we've made progress here over the last decade or so. In 2001 the Government set out plans to spend around £3.7 billion by 2006 to improve the basic skills of 750,000 adults by 2010, 1.5 million by 2007 and 2.25 million by 2010. It recently met the 2007 milestone of 1.5 million.

But there are concerns over how far this represents real progress and also about its ambition. The target amounts to improving the basic skills of 225,000 adults each year. This does not look particularly ambitious when you consider that the UK has a stock of 7 million adults lacking functional numeracy and 5 million lacking functional literacy and that, as one in six young people leave school without these skills, the UK is adding similar numbers of poorly skilled young people back in to the workforce.

Even if the UK were to meet all of its targets to improve the basic skills of young people and adults, by 2020 there would still be 4 million functionally illiterate adults and more than 6 million will still lack functional numeracy. This basic skills profile would not even be internationally comparable by today's standards, let alone in 2020. So we desperately need to be more ambitious for our adults who have already left school, giving them a second chance to gain the skills they need for modern life.

Making the most of the future

As a nation, we face huge challenges in improving basic skills in schools and among the workforce over the next decade or so. We start from a desperately weak position and we're currently on track for undistinguished mediocrity by 2020.

But this is not a counsel of despair: rather than 'we're all doomed', I would say 'don't panic'. Because we have made real progress over the last decade. The challenge is not only to keep this going, but to go further and faster too.

We need to make this a national mission: employers, trades unions, individuals, schools and the Government working together. If we do this, we can make sure everyone, regardless of background, has the basic platform of skills they need to succeed in life, that businesses need to compete more effectively and that the UK needs to be richer and fairer in the new global economy.

Author: Stephen Evans, Chief Economist at the Social Market Foundation and co-author of the Leitch Review of Skills.

A copy of the Leitch Review can be downloaded here  »

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Ruth Miskin – What the Government Should Do | The Rose Review | Improving Literacy: The Government's Strategy | Leitch Review of Skills | Getting the Basics Right | The Rowntree Report (June 2007) | The Long Term Costs

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