It's skills and infrastructure, stupid!
It's a difficult time for the United Kingdom. Can we think about what might help us all in the long term?
Its the economy, stupid, is one of the mantras constantly repeated to campaign workers by James Carville, a strategist for Bill Clinton's 1992 US presidential bid. The campaign successfully used an economic recession to unseat George H. W. Bush. Why was this mantra so important to Carville? Thirty years ago, workers in advanced economies had a particular reason to fear recessions; they resulted in 'double-digit' unemployment, with potential hardships at all levels of society.
Of course, in 1992, many national economies struggled; the graph below indicates the high unemployment in the UK at that time.?You will notice, however, that since then, the underlying trend is on one direction: down; good, right?
For 25 years, the UK economy has proven remarkably good at providing work in a way that would have amazed your grandparents. From 2008 to 2012, neither the worst financial crash in living memory, nor the UK Government's Austerity policy response could not push the figures above 8%.? Since then, numbers have fallen below 5% and stayed there throughout a pandemic.
The future is always uncertain. Still, most of today's workers are not fearing unemployment (you must be 50 years old to have been long-term unemployed in 1992).? Indeed, over the last decade, some commentators have talked about the UK's 'employment miracle' (and right now there is a shortage of people in many sectors).
As a result, today, the greatest concern for many is a reduction in living standards?caused by stagnant wages and significant cost of living increases; most of us are in work and working hard, but are the resulting rewards enough?
In such circumstances, the least well-off are particularly vulnerable.?This vulnerability has been increasing for a long time.?Today a substantial minority of workers are poor by the standards of the majority, challenging their ability to heat their homes or feed their children (and that was before current inflation levels).
Over the last decade, we have reformed the benefits system, introducing a single?Universal Credit?for those with or without work. This is a tacit admission that in the present UK economy, ?for many, work simply does not pay enough.??In 1994-95, 40% of working age benefits were paid to households with someone in employment; by 2016-17, this had risen to 58%. This trend is also emblematic of a broader concern: the widening gap between the rich and poor.
When mentioning the poorest paid, I expect that some of you will be thinking about personal responsibility and the value of entrepreneurship, after all that's the hallmark of this particular social platform. I agree that entrepreneurship is vital for wealth generation, but you will behave like that anyway, right? That does not mean that we should not also have the best policies; there are things you can do, and things a government can do.
So there needs to be a wider and more mature political debate over recent employment trends, but here I want to highlight one issue: productivity.
Why is productivity important?
Across the western world, evidence linking increases in productivity directly to increases in pay is mixed, but in general, what you might expect is true.? The more economically productive you are, the more you are likely to be paid.? This is especially true if you contribute significantly to your productivity via your own knowledge and skills.
There is then a direct link between the productivity of the average worker, the nation's overall GDP (Gross Domestic Product), and overall levels of wealth in society. The UK is no basket case, but it's certainly no model success story. The chart below indicates GDP per head of population from 1992 to 2018 (for eight mature northern European economies with similar starting points); you will see that the UK starts second from last and ends up last (and, yes, the gap is getting wider).
The next chart indicates productivity per hour worked for the same economies and over the same timescale.? From a UK perspective, it's also a disappointing read, starting and ending up at the bottom. ?If you were wondering how France is slipping down the ranking on the first chart but much better on the second, well French workers are increasingly productive per hour worked but are also working fewer hours. By contrast, UK workers are working longer to keep in touch with the pack.
The UK Productivity Commission, established last year by the National Institute of Economic and Social Research, aims to develop policy proposals to tackle the UK's modest productivity.
The Commission is still in the evidence-gathering stage.?Still, it has recently produced an interim report summarising the evidence received to date. The Commision opens by saying:
The evidence that we have taken underlines the importance of productivity, its impact on living standards, and the need to improve productivity growth in the UK.
In the three decades since the Second World War, the average annual productivity growth rate (output per hour worked) was around 3.6 per cent. The following three decades saw this fall to around 2.1 per cent. From the start of the financial crisis in 2007 to 2019, this declined even further to 0.2 per cent.
Demonstrating the importance of productivity for the economy and living standards, the Office for National Statistics (ONS) told us that if productivity had continued to grow at two per cent per year in the last decade, it would have meant an extra ￡5,000 per worker per year on average.
￡5,000 on average per year; money that private citizens could have spent, or invested, or donated to charitable causes, or could have been collected in taxation in support of significantly improved public services or infrastructure (including green energy projects), or used to make a substantial reduction of the national debt (whatever your political preference, ￡5,000 per worker per year goes a very long way).? This is how far we have fallen behind our previous trajectory.
Idealogue politicians often talk in macro-economic terms (lowering interest rates, cutting taxes etc.).? Macroeconomic decisions are good to get right; when steering the bus, you don't want to veer off the road.? However, productivity is the real engine of the economy; without that, the bus is going nowhere. We need to improve productivity with policies designed to support increased output and improved pay for all people. So, although it is the Economy, Stupid, today's politicians need to work harder to establish what will actually make a positive difference to people's lives. Without this approach, it's likely that, for many, an expanding economy may simply mean working harder and longer for a modest hourly rate.
The UK Productivity Commision: the Big Picture
Its important to state that to date The Commission has been gathering evidence, and that evidence will undergo further scrutiny. However in its interim report, The Commission was sufficiently pursuaded to publish particular viewpoints; I have summarised some key points below.
The chart below (not from the Commission but from the Office for National Statistics) illustrates the uneven distribution of productivy across the UK (click on this chart for more useful information from the ONS).
The Commision's Priorities: Governance, Infrastructure & Skills
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"The UK system of governance is highly centralised, with state power remaining concentrated in London and the South-East with weak institutional capacity to improve productivity in other regions and cities."
The Commision has identified a number of potential priorities for further investigation; these are as follows:
My Personal Observations
As an Architect and a Strategic Property Advisor, I have worked for education clients for over thirty years. Like most designers, I am not only motivated by the thought of creating beautiful environments but their purpose, thinking about how buildings can support the learning process.
In Property Advisor mode, the advice takes many forms. For example, ensuring the construction of just-sufficient-space-and-no-more. Therefore money that might have been spent on the construction of 'excess' space is diverted for other purposes, such as the employment of teachers or the acquisition of IT equipment.?
Both?Schools and Universities?play a remarkable role in the life of this country. Educators within schools constantly strive to deliver higher standards whilst operating under strict conditions passed down from above and challenging OFSTED inspections. Meanwhile, our Universities advance world-class research programmes (above and below are research buildings we have designed for the Universities of Sheffield and Nottingham respectively) that contribute to the economy and to the life of our nation. At the same time Universities provide an excellent range of learning opportunities and experiences for our own young people and for students from overseas (the latter generating revenue and lasting personal connections to the UK).
However,?Further Education Colleges,?so often overlooked, are the workhorses of the education sector, mainly providing?vocational training opportunities?(some are branded as 'sixth-form' institutions, with a greater emphasis on A-levels). There are around 230 FE College organisations in England alone; however, many operate colleges under several names and often on numerous sites (there are about 800 major FE sites in England). Colleges are significant institutions with management infrastructure to match; they are more than capable of managing their own affairs.
There are more 16-18 years old students attending Colleges than there are 16-18 years olds in all state and private schools combined.
There are more 16-18 years old students attending Colleges than there are in all state and private schools?combined (around 700,000 in England alone). Colleges also provide a range of short and part-time courses for older (typically employed) students; in any year, around one million people will attend one of these courses.
FE Colleges teach a vast range of skills used in the workplace: Construction (see Barnsley College above), Engineering & Manufacturing, Motor Vehicle (see North Lindsey College below), Information Technology, Hospitality and Service Industries, Performance and Music, Health & Social Care, Finance & Accountancy, Business & Management, Agriculture and Horticulture and much more (as noted earlier, they also provide catch-up courses in literacy and numeracy).
However, FE Colleges do not generally prepare people to be ministers of state or take on roles in the upper echelons of the UK's civil service. In our society this is mostly left to the Russell Group or Oxbridge Universities. University graduates are generally either unaware that colleges exist or, at best, do not understand College's purpose or true value, leaving Colleges friendless in the corridors of power.??This contrasts sharply with other advanced economies, for example, Germany, where technical/vocational education enjoys a position of respect.
In 2010 the UK government embarked on a programme of Austerity, looking to reduce public spending wherever possible.? Spending on schools was squeezed.? By contrast, Universities were encouraged to charge significantly higher fees to students (who were then required to take out large student loans), thus unburdening the public purse.
Prior to this period, the FE College sector had been facing a growing challenge: how to respond to the rapidly changing needs of employers in the new century.? The growth of the internet was revolutionising computing and affecting many work environments (environments that Colleges need to replicate on their sites).? Investment was needed to re-equip colleges with the latest industry-standard technology and to encourage more new people, with skills in the new technologies, to join the FE teaching workforce.? More than ever Colleges needed to be supported to be bolder and more ambitious.
Instead of ambition, Colleges got significant cuts. Liberal Democrat politician Vince Cable, then business secretary in the coalition government, has claimed that Government officials wanted to axe all English and Welsh FE Colleges to save money.? Cable said he blocked the move, despite being told by civil servants in his department that nobody will really notice.
Nine years later, the Department for Education (the stewardship of Colleges mercifully transferred away from the Department for Business) announced an increase in College spending, but a ￡300 million increase in spending left them over ￡1 billion short of what was needed to fully reverse cuts since 2010.
It seems sensible to me that a nation's physical infrastructure and the knowledge and skills of its citizens will contribute directly to future productivity and overall levels of wealth. If the economy is the bus, and workplace-productivity the engine, then education and skills training are surely part of the fuel-mix. Whilst The Commission points to a range of factors that may have slowed UK growth since 2010, the defunding of Further Education Colleges, and the general lack of respect for skills training, must count as an own goal.
Ministers have attempted to repair some of the damage with the T-levels initiative, technical qualifications designed to bring parity of esteem with A-levels. Whilst this is not a bad idea, and certainly a good bit of branding, it does not come with the funding levels that supported previous delivery programmes.
On the property side, my personal, professional experience is that much-needed government grants for improving College's estates have become much more available since 2010.?The Department for Education appears to have won a series of victories. Each victory involved cajoling the Treasury into forwarding more funds for estates expenditure in support of a specific headline government objective (for example, supporting the introduction of T-levels). Of course, linking a bid for more cash to a previously agreed high-level objective is the best way to win over the sceptics in the Treasury.? However, this approach means that not all funds are directed toward the most pressing requirements at each college site (requirements which are, of course, invisible in Whitehall).
Each victory has generated a separate fund with different qualifying criteria. Colleges must bid in competition against each other, applying to whichever fund they consider is most likely to support their preferred project.? This drip-feeding and subsequent supervison by the Treasury appears to place a very significant bureaucratic burden upon the Department for Education. One funding round took over a year to get from the initial applications stage to making funding awards; awards were based on original project budgets, many outstripped by soaring construction price inflation in the intervening period. On certain college sites, this system is also generating a series of relatively small, individual buildings (one for each fund), delivered via a series of construction contracts that will likely cost considerably more than one single contract.
Economists measure national productivity by observing the total output of everyone, as everyone can contribute to the wealth of a nation. This includes the private and public sectors; productivity rises if things are done more efficiently.
Due to a lack of trust, knowledge and understanding, we have developed a 'low productivity method' of distributing property funds to Colleges.
Due to a lack of trust, knowledge and understanding, we have developed a 'low productivity method' of distributing property funds to Colleges. This is justified on the grounds of ensuring best use of tax payers money. I understand that the system's attitude to Colleges and their Estates is just a microcosm of the broader 'limited trust' relationship. Remember The Commission's observation:
The UK system of governance is highly centralised, with state power remaining concentrated in London... spending decisions are also taken in an over-centralised way by the Treasury.
This is not to say the people working within the system are bad; everyone working for the Department for Education that I have met appears well-meaning and highly-intelligent. I think what this demonstrates, however, is the challenge of leadership in government since leadership sets the culture and the rules by which everyone must operate.
Of course, the leadership changes (writing on 22 September 2022) provide the best opportunity for review, reflection and improvement.?
Last week?David Hughes CBE, CEO of the?Association of Colleges?wrote to the new Education Secretary?Kit Malthouse, asking for him to work to change attitudes towards colleges, build more trust and set the whole of the FE sector's operation 'free'. Hughes writes:
The fundamental issue for colleges is that they are not respected and trusted enough in Whitehall and among politicians...
Colleges are vital to every thriving community, for economic growth and for inclusion (whether we call it levelling up, social mobility, or social justice). Yet a major part of your challenge will be to overcome poor understanding, low respect and low trust as well as 12 years of underfunding. You’ll encounter this in your negotiations with the treasury and probably around the cabinet table.
... colleges have too many separate funding lines and programmes, all [have to be] individually accounted for. Too many instructions on what they can and cannot do, who they can and can’t help.
So, as you consider where to invest your time and efforts, I hope that you will prioritise working with us to ensure colleges can deliver the economic growth that the new prime minister has promised.