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UK businesses want the government to invest more in skills. But the “skills system” should be conceived as the whole outcome from education and learning. Too many people read it as training delivered by the public sector for young people who don’t go to university. 80% of investment in post-compulsory training is by employers.

UK businesses want the government to invest more in skills. But the “skills system” should be conceived as the whole outcome from education and learning. Too many people read it as training delivered by the public sector for young people who don’t go to university. 80% of investment in post-compulsory training is by employers.

For any government to raise the skills of the UK population (we’re mediocre by international standards) means many organisations have to adapt their role in the system. Furthermore, perhaps some fundamentals of the system must change as well. That was the message we heard yesterday, when the City Growth Commission brought together 30 experts in skills and labour market productivity at the RSA, to discuss how these factors affect the ability of UK cities to grow.

To do this, we need to move beyond a shared diagnosis, and a consensus that “we need to do better”. Inspired by a recent RSA workshop in Cambridge where a leader of a local homeless charity urged participants to not just identify barriers, this write-up focuses on ‘who are the owners of the barriers?’. Several participants yesterday remarked that despite years of shared understanding and consensus - and effort and intent - we’ve never really even tinkered with the skills system; we’ve merely played with it. We therefore conclude by considering how we could build new levers for change.

As Professor Mike Campbell explained (view presentation), growth means change in employment multiplied by productivity - how much is produced for each hour of work. Skills are a key part - but not all - of addressing the UK’s stagnant productivity. Skills make people more productive and productivity aligns to pay: one of the main concerns of voters at upcoming elections.

The consensus

  • “Skills are more valuable now than they used to be...a key driver of growth”

  • Skills upgrading is important but only if the skills match those required in the labour market. There is “no point skilling people up only to let them down”. If you don’t match well, you won’t get the prosperity and growth outcomes.

  • You can get locked in to a cycle if you are just seeking to meet existing need: “its the economy, stupid”. Business strategy and economic structure matter. Final demand matters, as does business ambition to push up value chain and sell internationally. This is true of firms in many cities; not generally London (though likely in some parts). Businesses need to pull up the demand for skills.

  • We do not have a serious skills shortage problem - I’ve been measuring it since 2001. Shortages are very severe in a specific number of sub-sectors and occupations. Where they do exist they are very serious.”

  • Welfare-to-work is part of the growth agenda, not just high skills, which is where many LEPs focus their economic strategy.

  • Migration is “the saviour of the British skills system”: employers vote by recruiting and hiring, the contentious issue is this diminishes their incentives to invest in developing the domestic and native workers.

    • Social care, retail, hospitality, logistics are growing sectors with low skills. But the prevalence of these sectors locally is “not the whole story” - their concentration in certain parts of the country “do not predict skills variations very well” between cities. The labour market is changing and it is “skill biased”, but jobs growth in the UK is not predominantly in low skilled jobs and occupations. Over the last 20 years, demand for higher skills has grown - it’s not a simple “hourglass” tendency and work by Centre for Cities us underway to understand how changes vary by city.

    • “Skills poverty” is greatest in Wales, East Anglia; regional and local variations are very large. Liverpool and Birmingham are “disaster areas” on skills. Our top urban areas - Core Cities (measured by their Primary Urban Areas) - generally underperform national average.

      "The key question is ‘Who are the beneficiaries of growth?’ We want local people to drive growth and benefit from growth. I like the idea of growth being sticky to places. London is held as a model, but is utterly divided. Is London really the picture of sustainable growth? Does it’s economic footprint stop at the M25? No, it exudes itself to East Anglia, East Midlands, and beyond. People generally aren’t generating wealth and leaving it for local residents in Hackney and Tower Hamlets. The difference within places is usually greater than the differences between places; and every city has its problems."

      - Hugh Stickland, Chief Economist at Citizens Advice.

      Who owns the barriers?

      • Its not just about policies and practices, but the policy architecture. Its about governance in cities - getting the interdependencies right. This barrier is effectively owned by central government who legislates for the powers and funding available to local public bodies.

      • Employers are integral. If you are going to train people, you are best to do it with the employer. They will be the ultimate judge of whether skills are economically valuable. Employers will get more on board with locally based solution and infrastructure. Why aren’t businesses investing in skills when the evidence is they can realise a return? In part, we know there is a long-tail of underperforming and poorly-managed “zombie businesses” - many of which are particularly pressured but have survived the recession; if you’re future is uncertain, you’re unlikely to invest in training. Reaching SMEs is particularly difficult; the UK has a particularly high number of family-owned and small private businesses, and public agencies often don’t appreciate

      • BIS wants FE colleges to control skills; “BIS see localised budgets as a power play, I don’t think it is.” Although we have a labour market (with some inefficiencies and blockages), we don’t have a skills market - we have skills institutions looked after by a central government department. Political choice theory says that monopolies lead to poor outcomes. At the moment BIS sets budget and supply of skills training. FE Colleges have a captive market of 16-18 year olds, but are often not the best place to go for adult learners. Their provision is driven by funding and quantified delivery of qualifications as outputs.

        “We need competition in system. We’ve got to get a model in which if a local coalition establishes priorities, they need to be allowed to prioritise, incentivise, decommission. We’ve got a coalition for change locally - but we still can’t get any traction, because Whitehall didn’t want us to have any traction.”

        • While the Skills Minister would currently argue that we should try different things in different places (as with the City Deals), and there is merit in experimenting and evaluating, the group felt this should be on a bigger long-term scale; but that lessons learnt already were waiting to be faithfully applied. In this light, “cities need to take leadership, as there will always be national political change.” Indeed, the barrier here is in the DNA of government: Ministers have changed frequently, and will continue to do so.

          “Skills Funding Agency has a role in incentivising new practice which combines approaches evident as being successful from different pilots, rather continue isolated pilots with specific areas.”

          • There are relevant relationships with transport and connectivity, which afford access to training opportunities, and a wider set of issues in areas such as housing and childcare. Getting policy-makers in these areas to see the connections with the skills agenda is a barrier.

            Changes in UK occupation structure 1987 - 2017 Changes in UK occupation structure 1987 - 2017

            How do we build the levers for change?

            This comes down to incentives for institutions: a powerful force in changing the skills system.

            One answer is creating a catalytic effect of business skills investment through supply chains. Beyond signing up as Investors in People, or developing structured and funded development plans for staff skills, organisations could insist on this throughout the other businesses who sell to them. Merseytravel did this, others could follow.

            Universities have few incentives to engage with their local economy; many identify with (and see themselves as) global competitors in research and graduate employment. The barrier is patrolled by both universities and other local partners, who often market the university as an education tourism destination, rather than as the key anchor of the local labour market. Graduate recruitment is closer to being a national market, but the fabled ‘milk round’ could become a bridge to more sustained local involvement of firms requiring skilled workers.

            Political imperatives in many cities call for colleges to increase participation among the hardest to reach groups, but this drives down measurable outcomes in aggregate. Colleges are scared of this, and of their Ofsted rating - even if Ofsted’s remit for assessing the courses they run only represents a minority of their provision. The concept of a value added league tables still hasn’t filtered through to the education system. The barrier here might be owned by the bodies responsible for publishing and interpreting data.

            To go beyond the current arrangement where central departments of the state driving their own outcome measures for political points, one government representative suggested funding for skills investment based on employment outcomes not qualifications, which would incentivise responsiveness and accountability. However, this is similar to the kind of payment-by-results schemes which have been tricky to implement in the Work Programme.

            Making change in the skills system - at this budget and throughout the next parliament - is going to take a long time before having any affect on people, firms, institutions, cities and GVA growth. It’s also humbling to consider that we are “running to stand still”, and that predictions of future changes in the structure of the labour market make the skills system challenge even more acute. These changes, along with barriers and levers for change, will be considered in more detail in the City Growth Commission’s forthcoming research output, supported by JRF, released in the summer.

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