Policymakers have claimed for many years that the UK should develop a knowledge-based economy (KBE). This vision shaped New Labour’s policies for vocational education and training (VET), higher education, and skills, and was based on the assumption that the UK required a better skilled workforce with higher levels of education to compete in a globalised economy. Learning for the KBE, according to this analysis, requires individuals to acquire measurable knowledge or skills in the form of qualifications through formal education and training, which will allegedly improve national economic competitiveness and productivity. This paper argues that quite different conceptualisations of learning for the KBE can be drawn from the ‘cluster’ literature, which analyses the processes which underpin innovation and learning in regional agglomerations of economic activity. It shows how the cluster literature can and should be used as a basis to open up a debate about the nature, scale and location of the learning processes that support the KBE, the implications of which have not yet been fully appreciated in the fields of VET and skills policy. The paper concludes with some recommendations for the new Coalition Government as it develops polices to rebalance and grow the UK economy.