Introduction In many countries there has been a gradual reduction in the number of massproduction jobs with increasing job complexity and skill requirements now being characteristic of all employees. Policy-makers are aware that recruitment difficulties and skill shortages may reduce the competitiveness of small and large firms (Campbell and Baldwin, 1993). In order to move from a low skill equilibrium (Finegold and Soskice, 1988), policy-makers are aware that: Major investments in human capital, both in the form of education and workforce training and in the form of research and development activities, appear to be an increasingly indispensable condition for enabling firms to move towards new markets and up-scale market segments that yield higher economic returns than standardised mass-commodity markets… (Buechtemann and Soloff, 1994, p. 243). To meet changing requirements and market challenges, governments throughout Europe have introduced a number of policy instruments to encourage the survival and development of small and medium-sized enterprises (SMEs). Education and training support is now one of the leading measures to increase the skill level of the workforce (Blundell et al., 1996), to ensure stronger long-term national economic performance (Worswick, 1985; for a dissenting view see Shackleton, 1992), to reduce labour mobility (Elias, 1994), to improve employee motivation (Heyes and Stuart, 1995), to improve the internal efficiency of SMEs (Addison and Siebert, 1994; Department of Trade and Industry, 1996), to improve business factor productivity (Bishop, 1994; Steedman and Wagner, 1989), to improve business performance (Lynch, 1994) and to achieve accreditation for BS 5750 British quality standard (Vickerstaff, 1992). In the UK, the provision of training to SMEs has become a central issue of economic policy (Miller and Davenport, 1987) and is a major indirect small firms policy initiative. Training provision by an employer is, however, one of a range of