THE literacy and numeracy of new employees have tumbled over the past decade despite Labour's £28 billion increase in annual education spending, according to research by a leading employers' organisation.

The Institute of Directors (IoD) found that 71% of its members believe the writing abilities of new employees had worsened, while 60% believed numeracy had also declined; 52% reported a worsening of the basic ability to communicate.

With the exam results season under way, more than 60% of company directors now think GCSEs and A-levels are less demanding than a decade ago. Overall, only 27% believe schools have got better under Labour.

A-level results to be released this Thursday are expected to show the number of passes going above 97% and the proportion of A grades rising slightly from last year's 25.3%, the 11th successive annual rise.

One exam board chief said the results will show continued decline in the numbers taking languages but rises in some science subjects, reversing the trend of recent years.

According to the IoD report, to be published this week, the results of Labour's education policies fall far short of what might be expected given the surge in school spending since the party came to power. In 1997-8, £48 billion was devoted to education, rising to £76.3 billion in the current year, an increase of nearly 60% when adjusted for inflation.

"Despite the impressive political energy and resources focused on education, our members believe the government has generally performed poorly in this critical area," said Miles Templeman, the IoD's director-general. "There is a substantial credibility gap between what official statistics show and what employers feel on the front line."

Exam grades improve almost every year, leading to arguments between ministers who claim they show a real improvement and critics who argue that standards are becoming more lax.

The research also includes a review by Durham University academics of evidence on whether the rigour of GCSEs, A-levels and primary education has been maintained. They find that, at best, standards have remained the same or improved marginally. In basic scientific knowledge — such as knowing what density means — they report a "dramatic" fall, particularly for boys.

The Durham academics, Robert Coe and Peter Tymms, found strong evidence of "grade inflation" in their analysis of GCSE and A-level results over the past three decades. They also report that the understanding of basic scientific concepts such as volume and weight among 11 and 12-year-olds has deteriorated since 1976. The proportion of boys giving the right answer to an elementary question on the displacement of water fell from 54% to 17% over the period.

"The fact schools are not teaching this is a real problem," Coe said. "The scale of the drop is just huge: it is dramatic. Many people would argue that you cannot do science without these fundamentals."

Jim Knight, the schools minister, said: "English and maths standards have risen over the last decade and quality has been rigorously scrutinised.

"Business concerns about school-leavers reflect the reality of the changing economy with historic low unemployment and the virtual elimination of low-skill jobs. Employers rightly have far higher expectations of workers' skills than ever.

"We are tackling employers' concerns head-on with the biggest education reforms for generations such as tougher A-levels and GCSEs; improved skills training across the board; and raising the participation age to 18."

- More teenagers are not in education, employment or training (Neet) than studying for

A-levels in three of Britain's poorest boroughs, according to new research by the Conservatives. Michael Gove, the shadow schools secretary, argues that the figures for Rochdale in Greater Manchester, Sandwell in the West Midlands, and Knowsley, Merseyside, are evidence of "shocking" polarisation between rich and poor areas.

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