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Another lost decade? Building a skills system for the economy of the 2030s

Joe Dromey
week

Over five million UK employees are ‘over-educated’ for their jobs – a third more than a decade ago and UK productivity held back as employers fail to make use of employees’ skills. From Joe Dromey, IPPR Senior Research Fellow – IPPR.

The number of ‘over-educated’ workers in the UK has increased by almost a third (1.9m) from 3.9m in 2006 to 5.1m almost a decade later. A landmark study by IPPR, the progressive policy think tank, published today, warns that the UK faces another ‘lost decade’ with stalled productivity and falling wages, unless the government and employers take action to boost employer demand for and use of skills in the workplace.

While it is generally assumed that demand for skilled workers is rising, IPPR analysis suggests this is confined to certain sectors, and complaints of skills shortages from employers masks a growing problem of employees ‘stuck’ in jobs where their skills and talents are not used.

With around a quarter of productivity growth accounted for by employee skills and training, the findings help explain why UK productivity has stalled. The study, which marks the conclusion of a three-year programme between IPPR and the JP Morgan Foundation on skills in the workplace, also finds that:

The biggest rise in those over-educated for their jobs is in the 25-34 and 35-49 age groups and rates of over-education among women have increased twice as quickly compared to men; Three in 10 employers admit to not fully utilising the skills of their employees; Less than half of employers in the UK have a training plan and less than a third has a training budget.

Findings show the ‘over-educated’ are not just graduates, but those who have invested in apprenticeships, NVQs or specialist training only to find they can’t get a job which brings them a return on this investment.

The report argues that to improve UK competitiveness post-Brexit and respond to trends such as rapid technological advancement, simply investing in skills and training is no longer enough. Government needs to incentivise employers to use employee skills in the workplace to turn around flat-lining productivity rates and weak growth.

The report, Another lost decade? Building a skills system for the economy of the 2030s, recommends that: A productivity and skills levy is introduced to drive a new national mission to support employers to make better use of employee skills in order to raise UK productivity. Set at 1 percent of payroll for large firms, this would replace the government’s apprenticeship levy and raise £1bn to support skills devolution and the establishment of local business support networks.

A right to a personal training credit is introduced worth up to £700 a year, instead of the failing advanced learner loans system, to help low-paid, low-skilled adults to up-skill and progress. Low-skilled workers who are made redundant should also receive a personal retraining allowance of £2,000 to retrain and return to work.

Outcome agreements are introduced to address the UK’s growing ‘progression gap’. Skills provision should be commissioned via outcome agreements with a focus on labour market outcomes such as improvements in pay, progression and productivity not merely qualifications delivered.

A Minister of State for Productivity and Skills should be appointed across BEIS and DfE to ensure that the adult skills system plays a central role in the government’s industrial strategy.

Employers aren’t using their employees’ skills or investing in them enough, and we’ve seen productivity and pay stall. This report sets out a radical plan to transform our skills system. It would boost employer investment, helping drive a collective commitment to skills and productivity. It would give workers a voice in the system, helping them take control of their careers. This won’t be easy to do, but tinkering with the current failing system just won’t cut it anymore.

Clare McNeil, IPPR Associate Director for Work and the Welfare state said: “There are now more people in the UK who are over-educated for their jobs than under-educated. While rising qualification levels are good news, this reflects poorly on UK employers who are not making use of their employees’ skills. It helps explain why we have so many people stuck in low paid work not giving them the chance to progress and why we are lagging behind our competitors on productivity.

“As long as UK employers are relying on low value, low cost business models that don’t value employee skills, productivity rates will continue to flat-line. We show how government can turn this around and improve opportunities for higher pay and progression at the same time”.

Hang Ho, Head of Philanthropy for Europe, Middle-East and Africa at J.P. Morgan: “A robust skills system is the heartbeat of any growing and resilient economy. Supporting skills development and establishing clear pathways for people to progress their careers is key to this. Whether that be by providing training to boost the capabilities of an individual, or avoiding underutilising the skills already acquired, an efficient and inclusive skills system is paramount to ensuring that the UK becomes a more cohesive, prosperous and productive nation.”

Responding to the report, TUC General Secretary Frances O’Grady said: “This is a comprehensive and challenging report with strong proposals to increase skills levels in the UK, including recognising the increasingly critical focus on retraining and upskilling existing workers. This is an area where trade unions make a major contribution and the report is right to locate unions at the heart of skills governance and delivery.”

David Hughes, Chief Executive at the Association of Colleges, said: “The UK needs to become more self-sufficient in skills and colleges are ready and willing to meet that need but we need to see more investment – from Government, from employers and from people themselves. This report has a range of innovative approaches which could help achieve that and has helpfully built its thinking on policy successes and failures from the past. More than anything, though, the UK needs to see a culture and behaviour change in which investing in skills is more common and delivers good returns for all of the investors.”

Seamus Nevin, Head of Employment and Skills Policy at the Institute of Directors, said: “The UK has long lagged our competitors in adult skills and training. Four in ten Institute of Directors members report the lack of appropriate skills in the workforce as their biggest barrier to growth. If workers are to keep pace with evolving skills needs and adapt to changes coming to the labour market, we need to prepare our adult education and training system now. This report sets out a radical plan to improve our skills system, with a vital focus on retraining and upskilling those already in work.”