In his Budget speech the Chancellor Phillip Hammond spoke of building a ‘prosperous and inclusive economy where everybody has the opportunity to shine.’ It is a line in keeping with the type of language that has come to characterise the current government’s ambitions since Theresa May’s speech on the steps of Downing Street in July 2016.
The aim of inclusive growth is well-founded. Much of the political upheaval of the past few years has sprung from a sense among swathes of the population that, for a long time, they have not been included in the country’s progress; that they have not benefited from the often overwhelming march of globalisation and rapid technological progress.
The criticism of this government, however, has been on failing to translate the rhetoric into practical change. On this, the now ex-Chair of the Number Ten Policy Board is particularly damning. In an article for Conservative Home in which he announced his resignation he wrote, ‘Whilst the Prime Minister brilliantly defined her social justice crusade on entering Number Ten, we haven’t yet framed a coherent economic programme to tackle the underlying economic causes of the injustices’.
Getting skills right key to an inclusive economy
November has been a key month for setting out the government’s plans for ensuring positive economic change, with the Budget closely followed by the Industrial Strategy white paper. In both, it is clear that the government has identified skills – and in particular retraining – as crucial to delivering on their vision of an inclusive economy, and they were right to do so. The breakneck pace of change in the modern economy has decimated many traditional industries that were once deeply entrenched in the economic and social fabric of large areas of the country, disconnecting whole communities from economic progress. As has been recognised for quite some time now, reconnecting those who have been cast adrift requires a skills system that enables people to quickly and effectively retrain once their jobs are rendered obsolete.
It is therefore both encouraging and genuinely exciting to hear plans set out in the budget – and reiterated in the white paper – to form a national retraining scheme, to be given strategic direction by a high level partnership between the government, the CBI and the TUC. Done right, this will be an important step towards a far greater proportion of the UK workforce developing the agility to negotiate – and indeed benefit from – the challenges thrown up by the 21st century global economy.
The Danish retraining system – part of what is known as ‘flexicurity’ – is credited by many as having successfully adapted their economy to deal with these challenges. While the Danish case is more complex than often suggested, all agree that it has at its heart a social partnership between industry groups and trade unions. And so this announcement – and the extension of funding for Unionlearn – is welcome and has great potential.
But it is a plan not without risks. The culture of compromise and dialogue between industry groups and trade unions that characterises the Danish retraining system stretches back to at least the 19th century. It is doubtful whether such a culture exists between industry and trade unions in the UK, and it certainly cannot be built overnight. That this will be the first time the CBI and TUC have worked together on skills is therefore a major challenge. Another concern will be low union membership in the UK, down from 13.2 million in 1979 to 6.2 million in 2015-16.
A coherent strategy beginning to emerge
The retraining scheme will initially focus on digital and construction skills. Viewed alongside the government plans for digital and construction to be two of the first new technical pathways to be rolled out in 2020, it is possible to discern the emergence of a coherent strategy to tackle these key areas of skills shortages.
Analysis by the Centre suggests that in 2016, employers struggled to fill 31% of technical vacancies associated with the construction pathway due to a lack of appropriate skills. This translates into more than 100,000 skills shortage vacancies holding the economy back. The figures are also grim for digital, with 23% of vacancies difficult to fill due to skills shortages. In 2016, almost 133,000 digital vacancies were difficult to fill because the employers struggled to find candidates with the necessary skills.
Chart 1: Percentage and number of vacancies that were difficult to fill due to skills shortages by technical pathway, UK, 2016
(Source: Centre for Progressive Capitalism estimates based on analysis of UKCES Employer Skills Survey 2015 data)
It is important to remember that these are well paid jobs that often do not require an expensive university education. The average advertised salary in the UK in 2016 was £43,030 for digital vacancies and £31,700 for construction vacancies. These are for occupations typically done by less than 30% graduates and are realistically attainable from vocational education.
A scheme that can successfully retrain people with the skills they need to fill these positions will not only enhance economic inclusion, but will also remove a significant constraint on business growth and productivity.
Chart 2: Average advertised salary by technical pathway, UK, 2016 
(Source: Centre for Progressive Capitalism analysis of Burning Glass job vacancy data)
Breaking down the construction pathway into occupations is revealing. As chart 3 shows, the average advertised salary varies fairly significantly, with electricians seeming to earn more than the lower skilled construction workers. As the T-Levels and retraining scheme move forward, they must be careful to account for these important differences within pathways, not just between them.
Chart 3: Average advertised salary of occupations in the construction pathway, UK, 2016
(Source: Centre for Progressive Capitalism analysis of Burning Glass job vacancy data)
A local data revolution?
As the Centre has repeatedly argued, any government action to tackle these kinds of skills shortages must be informed by a detailed understanding of local labour markets. It is therefore positive that the government’s new Skills Advisory Panels (SAPs) – to be rolled out shortly – will ‘produce rigorous analysis of the current and future supply and demand for skills and help areas form a clearer understanding of their skills requirements’. Added to the latest developments in matched outcomes data being made available – for example, the Longitudinal Educational Outcomes (LEO) dataset – there is reason for optimism that a shift towards a more evidence based system may be forthcoming.
However, how this data and analysis then drives change in local level provision will be vital. The government has said that SAPs will have ‘real and meaningful influence’ over provision, and that they will work with Local Enterprise Partnerships and Combined Authorities to inform careers guidance. It remains to be seen what this will look like in detail. In addition, the funding arrangements for SAPs and how exactly they will interact with other local institutions are not yet clear. There is also a need to tie funding of FE courses to local economic needs in order to ensure the financial incentives of FE providers are not at odds with the wider strategic economic plans of the local area.
While in general this is a step in the right direction, local areas must be given the necessary powers to translate the forthcoming data into actual change. The white paper, however, confirmed that any devolution in this area will be limited to the adult education budget. There is a strong and growing argument that local institutions – informed by the kind of data the SAPs will produce – should be given the power to co-commission technical education provision for all ages, informed by the kind of localised data the SAPs will produce.
A further concern is that the government intends the analysis to be based on the 15 pathways. While it is important that the data is compatible with the new technical education system, if it is only done at this level then it risks missing important granularities. For example, a good balance of demand and supply for skills within the engineering and manufacturing pathway could well be hiding a surplus of one skill set and a deficit of another. A system that is blind to these important nuances risks simply exacerbating existing imbalances.
The white paper also promises to ‘update school and college performance measures to ensure that students can make an informed choice between technical and academic education’. This is to be welcomed given that this has been a key information failure in the past for those attempting to make a positive case for technical education.
Continuation of a misguided apprenticeships target
Two key pillars of the government’s skills policy – the introduction of T-levels and the apprenticeship levy – are still standing, lending much needed continuity to an area so often damaged by policy churn. While there are legitimate concerns about the structure and implementation of the levy, it is an important step forward in terms of increasing private funding of training, and should be given time to establish itself.
However, the government would be well advised to drop the target for 3 million apprenticeship starts by 2020. The policy prioritises quantity over quality to the detriment of the entire system, and so it is disappointing that the Chancellor found space in his Budget speech to reiterate the government’s commitment to the target.
Policy must recognise that not all apprenticeships are of equal value to society and to the individual, and take a more nuanced approach. It must prioritise high quality apprenticeships in skill areas that are most in demand by employers. Examples of ‘sandwich artist’ and call centre apprenticeships do nothing to improve the image of technical education and often merely accentuate the low skill, low wage economy that apprenticeships should be pulling people out of.
Analysis by the Centre suggests that as many as 12% of apprenticeship completions in 2015/16 were in these low skill areas, which would amount to 360,000 of the three million target. The success of the government’s apprenticeship programme should be gauged, not on reaching a gross numerical target, but on how many good quality apprenticeships are created.
It is also noteworthy that the government is no longer pledging that these apprenticeships shall be for ‘young people’, as they did in the 2017 general election manifesto. An optimistic reading of this omission is that it reflects a shift in government thinking towards the belief that apprenticeships can play an equally valuable role at all stages of life, a view recently articulated by the skills minister Anne Milton. However, it is more likely to be evidence that the target is warping policy decisions, shifting opportunity away from where it is needed most.
Despite being unwilling to give up on reaching 3 million apprenticeships, new figures released the day after the budget suggest the government’s ability to reach this target is now severely under threat. It was revealed that apprenticeship numbers have fallen by 59% since the new levy came into force in May. The government should now accept that the 3 million target is unachievable, rather than compromising outcomes in an effort to deliver on a misguided promise.
Done well, the apprenticeship system can develop the next generation of electricians, IT technicians and engineers the UK so desperately needs, particularly post Brexit. It is on this measure that the government should be judged
Still more to do
It is also encouraging to see skills once again feature prominently in major speeches and strategies. Gone are the days when this area of public policy was barely on the edge of mainstream political consciousness. What’s more, the government has set out some genuinely interesting and innovative policy proposals, and the Centre has long been calling for local FE decisions to be better rooted in local data.
Yet there is evidently still much to do to build a skills system capable of meeting the challenges of the 21st Century global economy, and this is an area of policy that has grown used to innovative proposals blighted by poor real world implementation. The lack of positive impact observed from the £380 million of public money ploughed into the National Careers Service is a case in point.
Skills shortages continue to act as a significant barrier to inclusive economic growth despite years of policy tinkering. With the UK’s departure from the EU edging nearer the stakes are rising, yet the government is still a long way from turning rhetoric into reality.
Photo credit: World Skills UK / CC BY 2.0