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Solace blog

4th August 2017

Industrial Strategy and skills

Since taking up the leadership of her Party and becoming Prime Minister just over a year ago, Theresa May has advocated the development of an Industrial Strategy as a key means of advancing her declared ambition for “a country that works for everyone”, as well as preparing the country to prosper outside of the European Union. Whilst a lot of political water has since passed under the bridge casting doubt over a number of her policies, this one has staying power, within both the Conservative and the Labour parties.

The narrative is well known -our country’s productivity is a third lower than that of the US, France, and Germany, and this is holding back domestic growth, depressing wages and living standards. Even those sectors in which we are renowned, such as retailing (we were famously referred to as ‘a nation of shopkeepers’) we are inefficient when compared to our international counterparts.

Investment in skills has an important part to play in fostering productivity growth, in conjunction with other types of investments in innovation, connectivity, and infrastructure. We know, for instance, that inward business investment is attracted to economies with high skills bases. Investments in new technologies will reduce in value unless they are
supported by a human capital endowed with capacity, knowledge, and ideas.

Greater emphasis and funding by Government on vocational education and apprenticeships is to be welcomed, but there are still many challenges that remain. The apprenticeship levy, at its peaks, will only bring private sector investment in its own workforce from half to three-quarters of the European Union average. We have seen in recent years rapidly declining levels of public investment in further education and skills. The introduction of Advanced Learner Loans has led to a drop of almost a third in the number of students taking up FE courses, while investment in
skills made by individuals later in life are producing diminishing returns for those seeking wage progression.

On the other side of the coin, despite internationally high levels of investment in compulsory education, we are lagging behind our major competitors in basic skills of literacy and numeracy. Not only for those with low educational attainment, as you might assume, but also for those with university level qualifications.

At the same time, employers continue to grapple with skill shortages which act as a brake on their expansion and productivity, whilst over-qualified, over experienced workers are not able to make use of the skills they have. Similarly, sizeable proportions of our graduates are finding it difficult to get jobs requiring graduate-level skills. The Joseph Rowntree Foundation has shown that many deprived areas have jobs on their doorsteps but their low employment rates suggest that their residents lack the necessary skills to take advantage of them; with dramatic transformation in
many places not being matched by improved performance on skills.

The problem is not one of simply filling skills gaps. Half of the weaknesses in our productivity derive from structural economic shifts producing strong job growth in relatively low value-added and low paid sectors of the economy. It is for this reason that our response must stretch beyond investment in the supply of skills, and go to the heart of the structure of our firms, as well as our national and local economies and their competitiveness.

Our labour market is not functioning as efficiently as it should. As such rather than continuing as we are in assuming that supply-side boosts to the level of education and skills qualifications will turn into positive outcomes in terms of shared benefits in productivity, pay and growth, we need to bridge the divide between the supply and demand for labour and skills.

A number of these challenges stretch back quite a few years, decades even and some are more recent. But there is an urgent need to tackle these issues. The most obvious of which is Brexit. Not only in taking decisions over our migration policy and the successor to the EU structural funding, but also in finding new ways to grow our economy in a way that benefits everyone; chief among them is creating more high quality and higher paid jobs and a skilled and resilient workforce that is able to benefit from them.

I agree with Martin Swales’ earlier blog post that local government has a vital role, as a convenor of place, in charting a route through these complex issues. Government has begun to recognise this with the devolution of the adult education budget, but it can and should go a lot further. The Local Government Association is pushing the case with its ‘Work Local’ proposals to speed up the pace and increase the level of devolution ambition across the skills and employment agenda; we at Prospects support this, otherwise, the local industrial strategies which Government wants to see develop in local areas will be hollow ventures.

Solace has also recently published a paper on skills and local economic growth written by Tom Stannard (Director of Economy and Skills at Oldham Council and Solace Deputy Spokesperson for Economic Growth) setting out the challenges facing local authorities. Solace is keen to further discuss how to develop these ideas. As an experienced business partner to Solace in this field, we will support our colleagues in local government in that endeavour and hope to learn from the process too.

By Nick Bell, Chief Executive of the Prospects Group