Now is the time for radical action

Skill shortages are here again. Employers are whingeing about lack of suitable staff. There is talk again of recruiting overseas. Salaries are going up faster than inflation. Poaching is back in fashion.

There is nothing surprising about this. It happens on every upturn of the economic cycle. The only surprise this time is that it has taken so long. This may be in part because last time round the government did apparently learn the lesson of previous cycles and backed - or, more accurately, allowed - colleges and universities to expand on open-ended funding in response to demand from people who could see how unattractive the job market was for the unskilled.

Unfortunately, the government then lost its nerve. Expansion was stopped in higher education, a move spuriously justified by concern for standards and then on the grounds that there were too many graduates anyway. Then open-ended recruiting was halted in further education too.

The reason? Money. Public spending was too high and the government was too craven either to raise taxes or to do what it should have done years ago and reform funding to bring money in from students and employers. The new Labour government shares the Tories' aversion to higher taxes and higher public spending and has made promises on both.

The result of such rectitude is always the same. Each squeeze means a return to rationing. Three or four years ago, while the recession was still biting, it would have been possible to continue taking more people into full-time education and, if readers will forgive the term, stockpile well-educated people against the predictable shortages we are now seeing.

There would have been, indeed there were, moans about more meaning worse and where were the jobs, but unemployment would have been reduced more quickly and people would have learnt to learn, even if they had not quite learned the right things. A bit of quick retraining to take advantage of new job opportunities is simple for a graduate and not too difficult for a company to lay on. It is extremely hard for someone who has been out of school and out of work since 16 and is expensive, slow and risky for companies.

But instead of being prepared for the economic upturn with eager people and active and responsive institutions, what we now see is a raft of colleges and universities in serious trouble (pages 2 and 3). Institutions needing to respond quickly to demand are restricted, operating on too narrow a margin and have been pushed into concentrating on research to gain marginal extra money instead of expanding their mainstream teaching. Look at Luton, for example. A university committed to training for its local economy (page 8) is now struggling with deficits.

Meanwhile, British Aerospace is setting up its own university, apparently without the bureaucratic restrictions that confront colleges aspiring to call themselves universities. Sir Alex Trotman, the head of Ford UK which has been so successful in getting its employees hooked on training, is being invited to help sort out Labour's University for Industry. Necessity is driving expansion all round the edges of the publicly-provided system, while universities and colleges wallow in the doldrums created by political reluctance to get on with funding reform.

This awful hiatus may be about to end. Dearing will report soon. So will Helena Kennedy, who is tackling further education. Falling unemployment may release more money than expected from the social security budget. Rising demand for skilled people may force employers to pay for training instead of nagging from the sidelines. Reform of A levels may provide a more flexible base for lifelong learning. What is needed now from Mr Blair's shiny new government is a quick, well thought-out white paper and some radical action. Perhaps the lesson of the economic cycle really can be learnt this time.