Recession Report : December 2008 - Skills

Entering the recession

The labour market statistics are beginning to give some idea of the difficult times that lie ahead. In the first edition of Recession Report we put what was happening into context, and concluded that unemployment was still low by the standards of the recessions of the 1980s and 90s, but that substantial increases lay ahead.

Since then the news has been dismal. The latest figures from Eurostat show that the economy has been shrinking in both the UK and the Euro area, and that this country entered the recession ahead of most other European countries:[1]

Quarterly growth rates of GDP

compared with previousquarter (% change)
2007		2008
	Q4	Q1	Q2	Q3
Euro Area	0.3	0.7	-0.2	-0.2
UK	0.5	0.3	0.0	-0.5
compared with same quarterprevious year (% change)
2007		2008
	Q4	Q1	Q2	Q3
Euro Area	2.1	2.1	1.4	0.6
UK	2.9	2.3	1.5	0.3

Later in the month Eurostat reported that, between September and October, industrial production fell 1.2% in the Euro area, and 1.6% in the UK. Compared with October 2007 production was down 5.3% in the Euro area and 5.5% in the UK.[2]

The CBI's latest industrial trends survey reported companies' output expectations as 'their weakest since 1980', with 56% expecting their output to fall in the next quarter and just 14% expecting it rise. Stock levels, though down a little from the previous month, remained high by historical standards.[3]

The Treasury's monthly round-up of independent economic forecasters shows that the average predicted that the number of people claiming JSA would reach 1.6 million by the end of 2009.

This is almost certainly too conservative; the same survey shows that the average prediction for the number of people claiming JSA at the end of 2008 was 1.05 million, but the latest figures for November show it has already reached 1.07 million, with a month still to go.[4] A claimant count figure of 1.75 million by the end of 2009 therefore seems more likely.

The December employment figures

The latest statistics are entirely in line with these earlier results. The claimant count rose by 75,700 in just one month; even more worrying was the acceleration in this measure of unemployment that we can now see. The numbers claiming JSA rose by four per cent in September, 5.5 per cent in October and by 7.6 per cent in November:

There is a similar picture of rapidly rising redundancies:

Long-term unemployment (over 12 months) has increased as well, reaching 438,000, 54,000 higher than in October 2007:

This picture will almost certainly get worse - if employment figures are a 'lagging indicator' for the economy overall, long-term unemployment is a lagging indicator for jobs. If we look at what happened in the last recession, we can see that long-term unemployment (the broken line, right hand scale) followed the same trend as overall unemployment (solid line, left-hand scale), after a gap of about 6 months:

If this recession follows the same pattern, we can expect next year's figures for long-term unemployment to start showing significantly larger increases than those for all unemployment.

This is a major recession and the employment figures will continue to be bad for some months even if macro-economic policy is successful. We hope that the Government's efforts to persuade other countries to join with the UK in co-ordinated expansion are successful.

The Skills Factor

In the second part of each Recession Report, we consider how particular areas of policy are affected by recession. This month we look at skills.

In a marked contrast to the previous two recessions, the Government is making great efforts to boost investment in skills. The research evidence supports this policy stance. For example, research undertaken by the Sector Skills Development Agency in 2007 shows that firms that don't train are 2.5 times more likely to fail than those that do. And there are certainly some employers who have got the message, such as Nissan, which is using short-time working to improve training opportunities for the workforce.

But we cannot simply depend on exhortation to safeguard skills investment and we therefore welcome the recent shift in Government policy on this front. The previous focus on developing a wholly employer-led skills strategy has been tempered and Ministers are now talking about a new strategic skills policy, including a coordinated skills response to the downturn. A key element is to boost training and skills opportunities for people who are unemployed as well as supporting skills investment among the existing workforce. The aim is to safeguard as many jobs as possible and to support unemployed people to return to sustainable employment.

What has the Government done so far?

Flexing 'Train to Gain'

Over recent weeks there has been a spate of announcements on initiatives to support training and skills for both workers and those outside the labour market. A key focus has been to make the training system more flexible by relaxing the rules governing Train to Gain, which is one of the two main state-subsidised training programmes (the other being Apprenticeships).Train to Gain previously had fairly strict eligibility criteria which meant that individuals often could not access it because they already had qualifications at Level 2 (i.e. 5 GCSEs or NVQ level 2) or at Level 3 (A-levels or NVQ level 3). The programme also previously required people to largely train towards a full accredited qualification.Flexibilities announced to make the programme more fit for purpose to combat the recession include:a £350 million funding package aimed at SMEs (i.e. companies employing less than 250 employees) to enable them to give training to employees regardless of their previous qualifications and to offer employees bite-sized training units (especially in areas that will support business survival such as I.T., customer services, business and administration)

new flexibilities aimed at all employers to enable them to use the programme to train up unemployed people they recruit, who would not normally be eligible for the programme because of their existing qualification levels

a continued expansion of Sector Skills Compacts which involve a 'something for something' deal between Sector Skills Councils (SSCs) and the Government, whereby a Train to Gain package tailored to the needs of the sector is offered in exchange for SSCs committing to get more employers in the sector to invest in skills (e.g. by signing up to the Skills Pledge or taking on a number of apprentices).

Apprenticeships

The Government has also announced two major initiatives on Apprenticeships. One is an initiative to try and safeguard apprentices in the construction sector who are at risk of not being able to complete their training due to the serious downturn in the sector. A 'Clearing House' model is being developed to enable apprentices at risk of redundancy to be matched with employers needing new staff.

In the Pre-Budget report the Government also announced a major new commitment on the role of public procurement in driving up the number of apprentices over the coming years. In addition to bringing forward major infrastructure projects to counter the recession, the Government is 'making it a requirement that successful contractors have apprentices as an identified proportion of their workforce'. It estimates that this could lead to an extra 7,000 new apprentices in construction alone over the next three years.

Additional skills support for those who are unemployed or at risk of redundancy

One of the worst features of previous recessions has been the growth in the number of long-term unemployed people who have found it difficult to regain employment when the economy recovers. This adversely affects people who are often already disadvantaged. A fair approach to managing a recession must be to do everything possible to reduce long-term unemployment and this is where a focus on skills can make a real difference. To the Government's credit, it has acted relatively quickly on this front, although more needs to be done.

The latest Government announcement on Train to Gain[5] highlighted new investment in short term pre-employment training for 40,000 people, and has been accompanied by a range of other welcome initiatives to boost funding on skills and training opportunities to help people get back to work. For example, in October an additional £110 million was announced over the next three years 'for people currently facing redundancy and those looking for work to help them retrain and develop their skills so they can quickly move back into sustainable employment.'

The Pre-Budget Report also highlighted a number of new initiatives including an additional £1.3 billion to 'continue delivering effective support for the unemployed to find a new job', an expansion of the Rapid Response Service to target small and large scale redundancies, and the extension of Local Employment Partnerships to support more short-tem unemployed people to get jobs via this route. Additional funding of £158 million to enable FE colleges to play a greater role in supporting people who are unemployed or at risk of redundancy has also been announced.

What more should be done?

There are a number of areas where the TUC believes that the Government could go further in using training and skills provision to more effectively tackle the challenges of the recession.

People in work

The TUC is proposing that the flexibilities being applied to Train to Gain should be taken a step further by extending them to all workers at risk of redundancy, regardless of the size of the organisations they work for. With virtually all employees in SMEs now eligible for a flexible training package, there is a very strong case for arguing that Train to Gain should also now be directed at supporting all employees at risk of losing their jobs.

It is welcome that the latest announcement on Train to Gain suggests that this is the direction of travel, but the TUC believes that there needs be greater speed in delivering a tailored approach along these lines. In addition, more SSCs and their employer and trade union representatives need to be enabled to negotiate further 'Compacts' with the Government so that Train to Gain funding can be aligned to the skills needs of the sector in the context of the economic downturn.

Apprenticeships and procurement

There is a need to build on the new proactive approach to using public procurement to drive up the number of Apprenticeships. For example, the Government is already looking at how this approach could be used to oblige employers delivering large IT contracts for Government to employ apprentices. But there is a need to accelerate the overall review and also to examine what other contracts could be used to this end. The final report of the Public Services Forum Learning and Skills Task Group[6] has also called on the Government to urgently develop guidance on procurement and skills to drive forward this agenda as quickly as possible.

Flexible training for those who are unemployed

There is an urgent need to look at making learning and training opportunities even more widely available on a flexible basis for unemployed people, especially those who wish to train or study at FE colleges. For example, a recent LSC survey[7] has highlighted that two fifths of people on out-of-work benefits studying at an FE college progressed into work. But FE courses are not always a feasible option because the '16 Hour Rule' and other benefit regulations can often impede unemployed people from taking this route.

While such regulations may be more appropriate during a buoyant labour market, they urgently need to be reviewed in the current economic situation. The TUC also believes that training must be fully built into the new extended Rapid Response service being taken forward by Jobcentre Plus.

A strategic approach

The TUC is also arguing that Government should adopt a much more strategic approach. It is no good standing back and waiting for employers to decide what sort of training they want. Research has shown that one third of employers undertake no training and another third only do a little. In a recession the training budget is often the first to be cut - just when it is most needed. So Government needs to take a much more hands on approach, actively encouraging employers, spelling out the advantages of training and providing cash incentives.

The TUC has welcomed the new strategic skills policy set out by the Secretary of State in his speech to the CBI on 24th October. In this speech he highlighted that 'Government policy can and should be a major influence on employer investment in skills [and that] through policy, regulation and through procurement, we are able to shape and create markets, and the skills that will be needed to drive them....'.

In this speech he also set out the need to align skills strategy with industrial strategy and also to coordinate skills strategy to counter the recession. This new approach on skills will require a more active interventionist response from Sector Skills Councils (SSCs), Regional Development Agencies (RDAs) and other agencies, and trade union representatives on these bodies are now calling for this.

This new strategic approach should extend to building the skills that the future economy will need. The recession will not last forever. Training can play a big role in helping to ensure that when the upturn comes the UK economy is best placed to grow quickly. For example, it is highly likely that 'green' industries such as alternative energy or advanced energy saving construction techniques will be growth sectors. Without getting into the game of picking winners we already know that investment is need in the economic infrastructure such as road and rail, telecommunications, and a reformed finance sector. We do not need to wait for the upturn to start training in the skills those sectors will need.

The Government also needs to encourage employers, trade unions and SSCs collectively to protect training investment through the consideration of the regulatory measures highlighted by the Secretary of State in his recent speech. Some SSCs have already done this (e.g. Skillset has established a film production levy) and the TUC has submitted evidence to an inquiry by the UK Commission for Employment and Skills calling for a new strategic approach on the use of regulation and collective measures to drive up skills investment. The stark fact remains that even before the recession hit, a third of employers provided no training and around 8 million employees a year went without any workplace training.

The union role

Unions will help keep up the pressure on Government to prioritise fairness by boosting skills provision. When union members lose their jobs, unions are often best placed to judge how well the unemployment and skills system is working. They will know whether the Rapid Response service is really rapid; whether the training on offer is what they need; and whether they can access funding to attend courses quickly and easily. Government needs to hear union members' views to ensure the system is working - and put it right if it is not. All too often it is union members who know what skills they need better than their employers. Union Learning Reps can also play a big role in encouraging employers to take up extra funding and in preventing the knee-jerk reaction of funding cuts.

Read TUC policy officers' comments on this report and the ongoing economic situation at the TUC public policy blog: www.touchstoneblog.org.uk

And follow the series of TUC recession reports as they are published at www.tuc.org.uk/recessionreport

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[1] GDP by volume, seasonally adjusted. Source: Eurostat news release 171/2008, 4 December.

[2] Seasonally adjusted figures. Source: Eurostat news release 178/2008, 12 December.

[3] CBI Industrial Trends Survey, 11 December.

[4] Forecasts for the UK Economy, HMT, Dec 2008.

[5] Real Help to Keep and Get New Jobs, DIUS Press Release, 17/12/08.

[6] Quality Skills, Quality Services: Final Report of the Public Services Forum Learning and Skills Task Group, Cabinet Office, December 2008.

[7] Quoted in: FE Works: supporting individuals, employers and communities, DIUS, December 2008.