The Local Skills Improvement Plan for London: Helping Londoners get into better jobs by ensuring training matches employer demand
Skills are important for the economy, individuals and employers. For the economy, education and skills are key drivers of economic growth and productivity. For individuals, people with higher level qualifications are more likely to be in work, earn higher wages, and enjoy greater job security. And finally for employers, hiring difficulties and skills gaps could limit the growth and profitability of employers and raise costs.
While there has historically been a strong “skills match” in London’s labour market, post-pandemic there has been a growing mismatch in skills supply and demand.
Ensuring that training better responds to employer demand at the local level is a key aim of the Locals Skills Improvement Plan (LSIP) for London. The plan comprised a data deep dive as well as consultation with key stakeholders from training providers, employers and government to provide an in-depth understanding of the challenges and opportunities in London’s economy.
This supplement details the key findings from the LSIP evidence base produced by GLA Economics which supported the development of London’s LSIP.
The LSIP for London, whose main objective is to better match training to employer demand at a local level, was launched in September 2023.
This Department of Education funded initiative is described as a “data-driven plan for better matching post-16 training provision to employer skills demand and the needs of London’s economy. This will help employers meet their skills gaps, fill vacancies and ultimately get more Londoners into jobs.”
London’s LSIP undertook an extensive data collection activity, gathering information through interviews and workshops with key stakeholders as well as conducting a survey.
The LSIP identifies key areas for action:
- Meeting London’s skills needs, focusing on transferable, digital and green skills.
- Supporting and galvanising business action including supporting SMEs to navigate the employment and skills system, supporting a pipeline of diverse talent and labour market inclusion, as well as boosting employer attractiveness, with more employers signing up for the Mayor’s Good Work Standard.
- Delivering a skills system which is fit-for-purpose andfocused on growing a flexible and more modular approach to training delivery, ensuring that the AEB delivers more locally relevant training and moving towards a multi-year funding strategy.
- Building an inclusive London workforce through employment support, programme alignment and addressing digital poverty.
As part of the LSIP process, GLA Economics developed an evidence base to support the plan by providing up-to-date and robust data on London’s labour market and skills landscape. The evidence highlighted the strengths but also the challenges faced by the capital post-pandemic.
Findings from the LSIP evidence base
Strengths of London’s labour market and skills system
The LSIP evidence base highlighted that London makes an important contribution to the national economy. This includes having a growing, diverse, and highly qualified labour force, and a growing concentration of jobs in knowledge-intensive sectors.
- The capital accounts for 1 in 5 jobs (20%) and just over 1 in 5 enterprises (22%) in England, while comprising 28% of England’s economic output.
- London has an estimated 8.8 million residents, accounting for 17% of England’s population. Around two-thirds (69%) of residents are aged 16 to 64, with a particularly high share of prime working-age residents (aged 25 to 49) (Figure A1).
Figure A1: Population by age group, 2021
Source: ONS, Mid-year population estimates (2021)
- The number of workforce jobs in London increased by 1.2 million between 2010 and 2019, an increase of 25%, compared to a 14% increase over that same period in England. In June 2023, there were 6.5 million workforce jobs in London, with jobs recovering to above pre-pandemic peaks.
- London’s workforce is the most qualified in the country. Half of Londoners of working age have a qualification at Level 4 or above, compared to 37% across England (Figure A2). Qualification attainment among Londoners has also increased significantly in the last decade.
Figure A2: Highest qualifications held by people aged 16-64, 2021
Source: ONS (2021), Census
- London’s economy is supported by a concentration of activity in knowledge-intensive sectors such as finance, information and communication and professional services, which together have accounted for around 45% of the net increase in jobs since 2010.
- London’s population is relatively young and ethnically diverse. The increase in the capital’s population and rising labour force participation rates led to an increase in the supply of labour available to employers.
- London offers a range of learning opportunities. For example, the capital is also home to around 30 Further Education (FE) colleges, over 40 universities – including four ranked among the world’s top 40 – and a significant number of other skills providers of different sizes and specialisms.
London’s labour market and skills challenges
Despite these positives, London also faces several challenges:
1 Poverty as a barrier to work and education
- Many Londoners face barriers to work and education which limit their ability to participate fully in the opportunities offered by the capital. Poverty rates, especially in central London, are higher than those of other English regions. The high cost of living, including unaffordable housing, public transport and childcare also increase barriers for many Londoners., It is worth noting that more than half (51%) of Londoners in poverty are in work, a higher rate than in the rest of England (44%).
2 Lack of awareness
- Stakeholders, including FE providers, have highlighted that many Londoners lack understanding of opportunities or sources of support.  Londoners from disadvantaged groups such as those in receipt of benefits, those with a disability and/or health condition, and those whose first language isn’t English – will often face multiple and interrelated barriers to learning.
3 Labour market inequalities
- While there has been improvement over the last decade in terms of reducing labour-market inequalities, they are still pronounced, especially when comparing outcomes for residents by ethnic background, disability status, and caring for dependents.
- A sizeable part of London’s population holds only lower-level qualification. Around a fifth of London residents aged 16-64 did not hold a qualification at level 2 in 2021 (equivalent to GCSEs at grades A*-C or 9-4). This was just below the England average (20% vs. 22%). However, it still amounts to 1.2 million people living in the capital – a higher number than in any other English region.
4 Economic inactivity
- Economic inactivity remains higher than before the pandemic (Figure A3). Working age Londoners have left the labour market for a range of reasons. One reason is them being students, while a significant share of inactive Londoners are unable to work because of health or caring responsibilities.
Figure A3: Economic inactivity (% of residents aged 16-64)
Latest data for the three months ending January 2023
Source: ONS, Labour Force Survey. Note: start of the lockdowns in March 2020 indicated by vertical line
5 Reduced lifelong learning and training
- Participation in lifelong learning has been declining in general, with limited recent recovery in London. Since 2011, participation in FE and skills training has fallen sharply across both London and England. This fall was exacerbated by the pandemic, with participation in London falling from 355,000 in 2018-19 to 289,800 in 2020-21. It also follows a large decrease in funding for classroom-based adult education, which fell across England from £2.6bn in 2011-12 to just under £1.5bn in 2021-22 (in 2022-23 prices)  The latest data shows a partial recovery, though, with 310,200 London learners participating in FE and skills in the 2021-22 academic year. These trends highlight the importance of supporting Londoners to up-skill and re-skill.
- London still has both a lower rate of adults starting on apprenticeships, particularly for younger age groups, and fewer employers offering apprenticeships than in other parts of the country.
- Workplace training activity has been falling in London. For example, while nearly two-thirds (64-65%) of London employers reported providing training from 2011 to 2017, this has dropped to 58% in 2019, and continues to lag pre-2017 shares in 2022 (60%).
- The reason behind this trend is complex. That said, factors that may have impacted on this trend include the expansion of higher education and the increase of qualification attainment, budget constraints, and wider economic factors such as the pandemic and the cost-of-living crisis.
Future labour market growth areas
The LSIP evidence base also investigated the London sectors which are expected to grow over the next decade. It revealed that most of the growth will come in service-based sectors as opposed to manufacturing.
- Post pandemic, the share of employers reporting a need to develop the skills of their workforce has increased. There is evidence of demand for a wide range of job-specific and transferable skills, including management and leadership, analytical, and digital skills.
- As with other areas, skill-shortage vacancies as a share of all vacancies In London have increased from 21% in 2019 to 32% in 2022.
- Regional projections from the Skills Imperative 2035 project offer more detailed information on employment trends to 2035. Outputs from this research – largely produced before recent events such as the cost-of-living crisis – suggest that total employment in London will increase by around 35,000 jobs (or 0.6% a year between 2020 and 2035).
- The sectoral profile from the Skills Imperative shows that the bulk (58%) of jobs growth in the capital from 2020 to 2035 is expected to come from business and other services (+314,200), with employment in manufacturing set to decline slightly (-13,600), having been flat in the last decade (Figure A4).
Figure A4: Net change in employment by broad sector, 2020-35
Source: Skills Imperative 2035, London LSIP tables. For more detail on these broad sectors see here. Note: Employment estimates are based on the ONS workforce jobs which is a quarterly measure of the number of jobs in the UK and is the preferred measure of the change in jobs by industry.
The LSIP is an important plan to ensure that Londoners’ skills can better respond to the needs of employers and to promote collaboration between the key stakeholders across London’s labour market and skills system.
The evidence paints a picture of a resilient labour market in London that is characterised by a young, diverse, growing and highly qualified workforce. Nonetheless, there are labour market and skills-related challenges that acutely affect the capital compared to the rest of the country, including poverty, inequality, inactivity, and reduced training and learning rates. These are some of the challenges that relevant stakeholders (including local and national government, skills providers, and employers) would need to tackle.
 Times Higher Education (2021) Times Higher Education World University Rankings 2021
 Trust for London (2022) London’s Poverty Profile 2022: COVID-19 and poverty in London
 Padley, M. (2022) A technical report on the calculation of a minimum London Weighting (e.g. Table 1)
 London households in poverty spend around half of their net income on housing costs, rising to almost two-thirds for private renters: Legatum Institute (2022) Poverty in London, before and during the Covid-19 pandemic
 Toynbee Hall (2022) More than just education: A participatory action research project on adult education in London. Also see: Pye Tait Consulting (2019) Post-18 Education Review: Call for Evidence
 Estimate as at Census Day, 21 March 2021.
 See: IFS (2022), Annual report on education spending in England: 2022.
 A skills-shortage vacancy refers to a vacancy that is hard to fill due to lack of skills, qualifications or experience among applicants.