Britain’s dreadful performance on productivity is the key to understanding our wage stagnation. Productivity is just 1% higher than a decade ago, and 17% per cent below the pre-crash trend. The government’s efforts to address the productivity crisis have been somewhat disappointing. Fixing the Foundations – their plan to boost productivity – was released two years ago this month. Since then, productivity has grown by 0.0%.
Key to ending the long stall in productivity, and the long squeeze in pay, will be improving our adult skills system. With millions of workers trapped in low pay, we need an adult skills system that helps support progression. With technology rapidly advancing and automation threatening millions of jobs, we need a skills system that helps adults adapt and keep their skills up to date.
However, our skills system is beset by systemic weaknesses. First, employers in the UK are not investing enough in the skills of their workforce. Employers here invest half as much as the EU average in continuing vocational training, and employer investment declined by 14% employee between 2007 and 2015. At the same time public investment has also been slashed, with the adult skills budget being cut by 41% since 2010.
Second, there is a lack of high quality vocational provision. Much of the training we are seeing – both through apprenticeships and FE – are low level. The wage and employment returns of lower level vocational qualifications are often quite poor, and too few workers are progressing to higher level qualifications.
Finally, the skills system has failed to address stark social and regional inequalities. Those who could most benefit from training – adults who left school early, who have low or no qualifications, and adults stuck in low-pay occupations – are the least likely to be engaging with lifelong learning. Employers are more likely to invest in training for staff who are already higher-skilled, and entitlement to public funding for training for low-paid workers has recently been restricted.
The skills system has also failed to narrow the regional inequalities that scar our country. The apprenticeship levy is likely to accentuate rather than address these; it will raise more money and stimulate more investment in London and the south east, where pay and productivity are far higher. Conversely, it will boost training least in the areas that need investment most.
In a new IPPR report – Another Lost Decade – we set out a series of reforms to address these challenges and get our skills system fit for the economy of the future.
We’ve called for the apprenticeship levy to be reformed into Productivity and Skills Levy, which would raise £5.1 billion – double what is currently raised. If a quarter of the contributions of the largest employers were top-sliced, this would provide a £1.1 billion Regional Skills Fund which could be devolved according to skills need in order to address regional skills gaps and drive skills devolution.
While boosting employer investment is important, we need to ensure individuals can invest in their own skills too. So we’ve called for a Personal Learning Credit, which would provide £700 a year for low-skilled, low-paid workers to invest in training.
Beyond these reforms, we believe that trade unions should play a much greater role in the skills system in order to drive up both the quality and the quantity of training.
Unions already do important work in workplaces where they are present. The presence of trade unions in a workplace has a positive impact on the likelihood of employers to provide training, even controlling for factors such as sector. UnionLearn does fantastic work, supporting hundreds of thousands of workers accessing learning and training to progress their career.
Recent reforms have aimed to make the skills system more employer-led. There are benefits in this approach. Employers should be involved in the design of qualifications, so that they meet their needs and deliver economic benefits. But under the current system, too many employers choose not to invest, and too much of the training we do see is low-level and narrowly firm- or job-specefic. While employers need to have a say in the system, employees deserve a voice too.
The government have recently established the Institute for Apprenticeships, which is tasked with developing and maintaining apprenticeship standards, and ensuring quality assurance in the assessment process. The institute is employer-led, and there is no voice for workers on it. Government should invite representatives from TUC and the biggest trade unions to sit on the Institute.
This alone will not be enough though. Compared to other advanced economies, the UK has comparatively weak sectoral institutions. In Denmark, the skills system is overseen by strong sectoral institutions, where employers and unions work together to design the content of training. As part of their new industrial strategy, government should seek to establish sectoral institutions to oversee a collective commitment to skills and productivity. These institutions should be responsible for designing the content of training, for developing career pathways that support progression, and for overseeing the operation of the levy in their sector.
We need stronger and more democratic local institutions too. We’ve called for LEPs to be reformed and redesignated as Local Productivity Partnerships, with responsibility for overseeing the skills system locally. With representation from local government, local employers, and trade unions, these institutions would invest the soon to be devolved Adult Education Budget, provide business advice for local employers, and provide high quality information advice and guidance to learners.
Our skills system has a poor track-record of supporting adults to adapt to economic change. With our economy set to transform in the coming years, we must not repeat the mistakes of the past. We need urgent reforms to improve the quantity and the quality of training, and trade unions are essential partners in making this happen.