WHILE the British economy has seen a strong recovery over the last few years, the key missing ingredient for households ahead of today’s Autumn Statement is real wage growth.
There are many explanations for this, but the most important is the considerable weakness in productivity. Every year since 2010, the Bank of England and the Office for Budget Responsibility have forecast a return to productivity growth and every year they have been wrong. Ultimately living standards will not rise unless as a country we start producing more for every hour of work we put in.
One of the most effective ways to increase productivity is to boost the skill level of the workforce. A higher skilled workforce is more innovative, competitive and in a better position to command higher real wages. The definition of skills must include “soft skills” such as time management and communication as well as “hard skills” including technological, quantitative and linguistic.
However, skills development is not just a helpful aside. The financial crisis and other factors such as the diminishing effects of the tech boom may be leading to a permanent slowdown.
Unless we take firm action now to reinvigorate productivity through skills, then we will all be poorer in the long term. This is especially the case given the big shifts in the labour market that are taking place. While the rapid fall in unemployment is very welcome, just 35 per cent of the new jobs created in 2014 so far are high skilled compared to 75 per cent from 2010 to 2013.
Two-thirds of parents do not believe the education system is preparing children for the workplace and almost 90 per cent of employers do not think school leavers are prepared for employment. More than half of employers think the same of university graduates. Given that business investment in training has fallen by 17 per cent per person since 2011, the warning signals are flashing.
However, one of the major problems in developing a coherent skills policy is the short-term thinking which pervades public policy. The positive benefits to individuals and to the economy of improvements in skills are significant, but they do take years before they are fully realised. Politicians have too often set skills policy in the hope that results can be generated within six months or a year.
Furthermore, they have too often failed to recognise that skills policy must look at both current and future workers and take in diverse areas ranging from welfare reform and visa reform to schools and apprenticeships.
Skills policy must start by looking at the education of children. Many schools do a fine job but the way we measure success is woefully deficient. Success cannot solely be judged according to the proportion of pupils getting five GCSEs at A* to C grade. We need to use far more sophisticated measures to assess teacher quality and judge pupil performance.
Looking at student achievement data over time, recording GPA-style continuous assessment scores and publishing and ranking the employment rates of alumni would drive up standards and employability.
The crippling lack of language skills is also a great concern for businesses because it makes exporting and expanding international networks much more difficult. The shocking decline in pupils taking a language GCSE from 78 per cent in 2001 to 43 per cent in 2010 will take years to reverse. However, ranking schools on the proportion of pupils taking modern foreign languages and their performance will help to encourage them to be more active in this area.
Apprenticeships are an increasingly valued qualification. The number of apprenticeships has grown strongly over the last few years but there are still bureaucratic burdens which make it needlessly expensive and complicated for SMEs in particular to provide them. These should be eliminated as soon as possible.
There are a number of other restrictions which the Government should relax such as the Equivalent or Lower Qualifications Policy and the Graduate Entrepreneur scheme. Shorter employer-led university courses are inhibited because of fee caps which are holding back in-work training. The New Enterprise Allowance, which has had a fantastic effect in boosting entrepreneurship amongst unemployed people, should be expanded. Visa reform would make it easier for businesses to trade and boost knowledge transfers from abroad. Extending the Super Priority Visa Service and making it easier for Chinese entrepreneurs and investors to spend time in the UK would be helpful.
Skills policy is not like tax policy because we cannot immediately see how it affects the pound in our pockets. Yet, while it may be less eye-catching, it is no less important in the long term for productivity and wages.
Bernard Ingham is away.
Adam Memon is Head of Economic Research at the Centre for Policy Studies and author of a new report entitled Mind The Skills Gap.