Skills and Skills England: Should employers really be driving policy?

Skills, skills, skills

If New Labour is still strongly identified with Tony Blair’s early admonishment for ‘Education, education, education!’, then it seems likely that Sir Keir Starmer’s new Labour government’s equivalent focus in its employment and education policies will be on ‘Skills, skills, skills!’.

The King’s speech on July 17th setting out his new government’s legislative agenda for the next year confirmed their manifesto pledge to create a new body, Skills England. This will work across government departments with key partners in the economy to ‘oversee the national skills effort of the coming decade, ensuring we have the skills we need for the challenges of the future’, through being able to ‘identify skills and labour needs, drive training opportunities and ensure that skills policy is aligned with the wider needs of the economy’.

Those challenges, even in addressing the current extensive labour and skills shortages, never mind predicting and forecasting the skills’ needs of the future, are undeniably enormous. The CIPD skills survey (2023) found that ‘skills and labour shortages continue to?impact?employers across virtually all?sectors of the economy’. With 900,000 unfilled vacancies in the February to April 2024 quarter (ONS), half of employers report serious skill and labour shortages and 36% said that their hard-to-fill vacancies were down to skill shortages.

Whether you are recruiting chefs in Canterbury or care workers in Cardiff, electric vehicle technicians or bricklayers, cyber specialists or nursery assistants, lack of labour with the requisite skills is one of our main business and national economic recovery challenges. The CBI’s annual Employment Trends Survey reported that ‘shortages in the labour market are having a material impact on firms’ ability to operate at full capacity, let alone grow’. A third of large companies report such shortages as a material risk to their business in their annual report and accounts.

Even if you adopt a ‘no-people’ workforce strategy of automation in response, it might well be frustrated by the global talent shortages hindering the fields of robotics and AI.

The acquisition of requisite skills and upskilling, reskilling and multi-skilling are taking up an increasing proportion of the people agenda and management resources in employers in the UK, Europe and US. Three factors - technology, organisation and job restructuring, and widespread labour shortages - are powering this skills transformation that is forcing governments and employers to act.

According to McKinsey, (Hancock et al, 2022), after the previous decade of austerity and low inflation, ‘the effects of the Covid-19 pandemic, a potential recession, high inflation rates and the great attrition have driven employers to rethink their approaches to human capital and talent management… to focus on skills’. ‘Taking a skills-based approach to the future workforce’, they claim, ‘saves time, energy, and resources while fostering a more diverse and better-equipped?workforce’. Sounds great!

An employer-led partnership?

Skills England was described in the King’s speech as ‘a partnership with employers at its heart’. Employers, as well as the CIPD, have been highly critical of previous governments’ skills policies, especially the apprenticeship levy on larger firms. King Charles confirmed reform of this levy, another of Labour’s manifesto pledges. It is to be replaced with a more flexible ‘growth and skills levy’ that employers can spend on a wider variety of training needs and courses, which the CIPD has advocated for some years to help to increase employer investments in training.

But are the enormous skill shortages and shortfalls evident in the UK purely down to addressing ‘the (education system’s) bureaucracy around the approval of qualifications’, and the failures and constant changes in government policy which Skills England is designed to address?

Or do employers themselves need to shoulder a large part of the culpability? Rather than moaning at inflexible levies, should they be looking at their own lack of attention to and investment in their employees training, development and careers?

Government spending on skills last year was its true estimated to be 23% lower in real terms than in 2009/10 according to the Institute of Fiscal Studies; and apprentice starts were down by one-third, or 160,000 since the levy was introduced in 2017 (CIPD).

But in a coruscating critique of employer training performance using multiple sources, my IES colleague Becci Newton highlights just why government compulsion for employer training of some form is still required. Employer investment in training has ‘plummeted 28%’ since 2005 according to a research she quotes from the Learning and Work Institute, with almost no recovery in the training spend since the financial crash in 2008. UK employers invest only half the average per worker in training of their major European competitors. ‘putting the Government’s ambition of a high skill, high wage economy at risk’ according to the LWI.

The CIPD skills survey (2023) found that Investment in training per employee had declined by almost 20% since 2011 across the UK, from ￡2191 to ￡1778. And Willis Towers Watson report that in respect of longer-term development, ‘career progression and promotion pipelines are often broken’. To illustrate, ADP research (Carmichael, 2023) established that almost one-third of employees quit within a month of being promoted, largely due to lack of preparation and the increased stress relative to any increase in their financial rewards.

A scathing editorial in the Economist last year also concluded that ‘Britain’s biggest skills problem is that many firms don’t value them’, so that ‘too many jobs require virtually no education’ and receive no training. Low skill equals low pay equals low productivity equals low growth and living standards.

Moreover, the Economist notes that the investment that is made by many firms is limited to statutory requirements like health and safety and inductions, and as Becci also points out, overly focused on already well-educated employees. Those qualified to degree level are three times more likely to receive employer training than those with no qualifications, also putting at risk the government’s levelling up and social mobility goals. The proportion of the workforce with intermediate level skills qualifications is only around one-third of that evident in German and French employers.

Yet there is a wealth of evidence that employer training is associated with higher pay and productivity, a ‘win : win’ for employer and employees. IES (2019) carried out case study research involving 16 organisations across six countries in three low paying sectors: social care, retail and hospitality. These included Carrefour, Zara , Scandic Hotels and London-based restaurant chain Corbin and King.

The research found them all focusing in tight labour markets on the skills, career and pay progression of their low-skilled workers. Initiatives included: the redesign of jobs to provide the development of deeper and more flexible skill sets, facilitating the progression of these workers into supervisory roles; the design of pay and job progression through structured career paths and career pathway mapping; improved benefits and conditions, such as flexible working; and increasing training investments, with much more focus on competency-building and regular developmental and career conversations.

IES found that these employers generally reported highly positive outcomes leading them to extend and enhance these initiatives. They shared evidence with us including enhanced recruitment and retention, improved employee loyalty and satisfaction, higher service quality and sales performance, alongside of reduced absenteeism and attrition rates.

Put employers in the training policy car, but not driving it

“My Government will seek a new partnership with both business and working people and help the country move on…”? The Kings Speech.

The workplace and the skills and training of our workforce, as the King on behalf of the government said, are indeed at the heart of the UK’s economic recovery and return of our woeful recent national and employer productivity levels to closer to the historic trend, that is in turn key to the recovery we all want in our employees’ living standards.

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Of course, there are many brilliant employers investing in their employees’ (and their community’s) skills so as to drive their future success. We learned this month for example, that carmaker Nissan is planning to launch a training facility in the North East for those looking to enter the automotive sector, with a focus on training a ‘green’ workforce for electric vehicle and battery manufacturing. The ￡14.6m MADE NE project according to Adam Pennick, vice president for manufacturing at Nissan Sunderland, recognises that to "build the cars of the future you need the skills of the future."

The car manufacturer has developed the project in partnership with NECA, Sunderland City Council, Education Partnership North East, New College Durham, AESC, Vantec, Newcastle University, the Offshore Renewable Energy Catapult, and the North East Automotive Alliance.

Northern Irish meat?supplier Finnebrogue recently won The Grocer magazine’s gold award for its rapid rate of growth which is driven by its employment and training policies. It invests in a ‘meticulously crafted programme of career pathways and development opportunities. This includes collaborations with Queen’s University Belfast and various professional bodies on employee development, a programme tailored to people returning to the workplace after an extended break, and working with charities to provide employment opportunities for neurodiverse adults and people with disabilities’.

These initiatives and many more have led to a 22% reduction in staff turnover, a 43% decline in absenteeism, and a 31% increase in job applications.

There are many more great examples of forward thinking and human capital investment-minded firms. But there aren’t enough of them.

A two-year analysis of the last 15 years of economic stagnation and poor productivity in the UK? by the Resolution Foundation and the London School of Economics, (The Resolution Foundation, 2023) makes a powerful case for change. It calls for the urgent need to replace the over-flexible, lowest-cost-possible employment and workforce strategies that multiplied here in the 2010’s with a new formula in the 2020s for economic and business growth: invest in skills, career and associated pay progression. I similarly argue for a ‘paradigm shift’ in HR, people and employment strategies away from the prevailing 2010’s ‘austerity shareholder-value obsessed model’.

The skills levy, we can all agree, is a poorly designed policy which has had the opposite effect to the intended one on the number of new apprenticeships, especially for our school leavers and young people. The new government’s proposed reforms to it and commitments to our young people sound very promising.

But the need for it, to compel employers to invest in their people, and to prevent companies ‘free- loading’ by poaching staff from competitors who have invested in them and an over-reliance on low-paid migrant workers, continues to be a challenge that this government and its partners in Skills England have to address. Even the so-called ‘Nissan project’ is two-thirds publicly funded, so we are all investing and invested in its success.

Sir Keir and his government need to give employers the necessary flexibility on how to invest their training spend. But not on whether or not to invest. Too many have taken the short-termist and short-sighed latter option in recent years, relying on cheap migrant workers and poaching from more socially and economically responsible employers.

Employers, along with employees and trade unions; schools, colleges and educational providers; local government bodies and charities; HR and training leaders; and relevant policy experts, all need to be involved of course. But recent history would suggest that government shouldn’t, as Bridget Phillipson put it recently, ‘put business in the driving seat’.

?Copyright Dr Duncan Brown