UK: Skills shortage - we're learning (at last).

UK: Skills shortage - we're learning (at last). - The Government has made an encouraging start in working with business to tackle the skills shortages that plague the economy. But Britain still lags behind its competitor countries.

by David Smith.
Last Updated: 31 Aug 2010

The Government has made an encouraging start in working with business to tackle the skills shortages that plague the economy. But Britain still lags behind its competitor countries.

Successive business surveys often present conflicting evidence on the state of the UK economy. But they have been telling a consistent story in one very important respect over recent months. Even as the UK economy appears to be entering a period of slower growth, Britain is suffering from skills shortages. All the evidence is that employers cannot find enough round pegs to put into the round employment holes they have available.

A quarterly skills index produced by Reed Employment Services suggests that around three-quarters of firms are currently experiencing skills shortages, with no significant difference between manufacturing and services.

A similar picture emerges from Manpower's quarterly survey of employment trends. Meanwhile, members of both the Confederation of British Industry (CBI) and the British Chambers of Commerce (BCC) say that shortages of the suitably qualified labour, or more general 'recruitment difficulties' represent one of the biggest problems businesses face at the moment.

A British Chambers of Commerce/Alex Lawrie survey, published earlier this year, pointed, unsurprisingly, to serious skills shortages in computing and information technology, but also for managerial and clerical staff.

Reed cites particular difficulties in some parts of the leisure industry.

Britain has not quite reached the situation of many American cities, where the 'help wanted' signs posted along the length of the main drags outnumber more normal commercial symbols. But the problems go deep. And in some areas labour shortages in general, and shortages of certain skills in particular, represent a serious bar to business expansion.

The manifestations of this change are many. The Auf Wiedersehen Pet builders who went to countries such as Germany because there was more work have been tempted back home, partly because of extremely buoyant demand for their services here and partly because of a less-welcoming attitude and very high unemployment there.

Indeed, the single market is proving useful to hard-pressed British firms.

In full-employment towns such as Crawley and Newbury, companies are extending their recruiting net to the Continent, and in particular northern France. Sir Terence Conran's restaurant group has looked even further afield, recruiting chefs from Scandinavia and Australia.

On the face of it, the problem of skills shortages is a no-win one for both business and government. It takes time to educate and train people in the right skills areas and by the time they are ready, the economy will probably have thrown up other skills that are badly needed. Either that, or the job market will have turned down. Politically, a government which devotes itself to tackling skill shortages is clearly working for the public good. The benefits, however, will only come through well beyond the time horizon of most politicians.

For individual firms, meanwhile, there is the 'free rider' problem associated with extensive training programmes. What happens if you train people up, often from a very low base, only to find that all you get for your trouble is that they are poached by less diligent rivals? There is evidence that foreign firms investing in Britain have less worries about this problem than their domestic rivals. Both Robert Bosch in South Wales and Nissan in Washington, Tyne & Wear, have been notable trainers of skilled labour.

In the corporate cultures from which they come, Germany and Japan respectively, skilling workers is part of the employment deal, and is seen as breeding loyalty.

Few would argue that a programme of building skills is a worthwhile aim for any government, as it will have beneficial long-term effects on the economy. It also has beneficial effects for the individuals concerned.

Research by Christine Greenhalgh, Mary Gregory and Ben Zissimos, presented to the Royal Economic Society's annual conference in April, suggested that growing use of technology in industry had produced a big drop in the demand for unskilled workers, while increasing relative demand for the skilled and professionals, including managers.

In the modern-day labour market, you need skills merely to survive. And if you do survive, you really can prosper. For how long is more or less up to you. In a labour market where skills are likely to become obsolete more quickly, establishing a training mentality, and a more open mind towards career shifts, is essential for all employees.

So how is the Labour Government, which has made much of its commitment to building the skills base of the economy, doing after just over a year in office? Before the election, to the relief of most people in business, New Labour had abandoned its earlier interventionist approach to training, under which employers deemed not to be training sufficiently could have found themselves hit with a training levy based on a percentage of their payroll. Instead, the Government has adopted a more softly-softly approach and has, as in so many areas, established a task force to help tackle the problem.

The Skills Task Force is headed by Chris Humphries, head of the TEC (Training and Enterprise Council) National Council and director-general elect of the British Chambers of Commerce, and includes among its membership Gary Allen, chairman of IMI, Llew Avis, personnel director of Siemens in Newcastle, Rita Britton of the Pollyanna fashion firm in Barnsley, and three trade unionists - Tony Dubbins, general secretary of the GPMU, John Edmonds of the GMB and Ken Jackson of the AEEU. The role of the Skills Task Force is vital to our economic future, according to David Blunkett, the education and employment secretary. 'They will provide detailed advice to help co-ordinated action by government and industry to meet our future skill needs and avoid the sort of inflationary pressures to which shortages could so easily contribute.'

The Skills Task Force is charged not only with identifying the degree of skill shortages, and their geographical and industrial pattern, but will also advise on practical measures to ease skills and recruitment difficulties. Most significantly it aims to predict likely changes in the long-term skills needs of the economy and to assess whether or not these are likely to be met on the basis of existing trends. Links with education are also part of its remit, as it will examine the education and training system and advise on how best to ensure it responds effectively to current and future skills needs.

This is a big agenda, perhaps too big. In this, and the Government's commitment to lifelong learning, set out in a White Paper published in the spring, the risk is that while the intentions are worthy, they will be so broadbrush as to be of little practical use. Fortunately, the Government is also trying to tackle the problem with something more specific. In March, Blunkett announced £90 million of extra funding directed at ameliorating skills shortages, notably in information and communications technology.

Under the plan, 40 centres of excellence, dotted all around the country are being set up by the end of the year with the specific aim of helping small firms and individuals bring themselves up-to-date with current technology.

The centres of excellence, which will specialise in IT and communications, will form part of Gordon Brown's so-called University for Industry, itself the beneficiary of £10 million of separate funding. The £90 million of extra funding also includes training provision, in the form of grants worth around £1,300 a head, for the training of 20,000 people to help deal with the millennium bug.

Blunkett also announced the establishment of a Skills Challenge Fund, which will provide cash help for people not currently in training to gain or update skills in key shortage areas. As well as the £90 million of funding, which was announced in Brown's March Budget, the Government has obtained £160 million under Objective 4 of the European Social Fund. This is aimed at employees in businesses with fewer than 250 staff, particularly those at risk of redundancy or with no, or very few, skills.

The other big element of the Government's approach is, of course, the New Deal. By including a training element as part of the programme, ministers are trying to avoid the charge that this is just another make-work scheme to massage the unemployment figures lower, or that New Deal participants will merely provide a source of cheap, subsidised labour for firms. Already, however, there have been some examples of firms not using the New Deal in the spirit it is intended, while in some areas, even the subsidy is not providing enough genuine employment opportunities.

Even so, Allied Domecq, British Airways, BT, the Rover Group, Securicor, Tate & Lyle and Tesco are among those to have signed up. Given that surveys have suggested that the hotel and catering industry has consistently reported skill shortages, one of the most interesting developments has been the agreement between Radisson Edwardian hotels, the British Hospitality Association and the Government, to provide around 40,000 New Deal employment opportunities in the hotel industry. While the training element will be monitored for all New Deal participants, ministers argue that, in the case of the main target group, 18-24 year olds who have been unemployed for more than six months, the experience of working will itself amount to an operation in skilling.

So does all this add up to a coherent exercise in addressing the skills needs of Britain's economy, and addressing current and future skill shortages?

And how does it tie in with what business is doing off its own bat? In one sense, it's early days yet. The Skills Task Force only came into operation in the spring. The New Deal only went national in April, so the first set of six-month placements will not be coming out of it until September, slightly earlier for those in the pilot areas. Much of the extra funding for skills was only announced in March, and will take time to feed through.

Even so, we can already draw a few conclusions. The Government's attempts to concentrate its efforts on small firms and the unskilled is very sensible. The pay-off from giving someone who is completely unskilled, say, basic computer skills, is likely to be considerable higher than refining the skills of the already able. It is for the unskilled that there is most likely to be an identified 'market failure' of the sort that governments should try to solve. The unskilled tend to be either stuck in jobs for which there is no available training escape route or, if they are unemployed, do not have the resources to provide themselves with skills.

Small businesses also tend to face a resource problem when it comes to skills training. This can be a lack of funds or, more typically, lack of time on the part of the already-skilled or managers to train people. Paradoxically, the more successful the business, and the more that people are working flat out to achieve delivery times, the more such training gaps can exist.

Government-provided training assistance, such as the centres of excellence currently being established, can therefore be invaluable.

That said, most smaller businesses tend to train, not in the abstract but in response to specific needs. Caithness Glass, a recipient of one of the Government's National Training Awards, did so after receiving a big order, only to find that it did not have the employees to complete it. Only one skilled glass-blower was available so, with the help of Caithness and Sutherland Enterprise, it trained seven glass-blowers and seven replacements over a period of only two months. Skilling, like other aspects of business, can be more of a rush job than a textbook approach would imply. The National Training Awards also demonstrate, which is their purpose, that even very small firms can generate significant cost savings by training. This comes, not only through reducing staff turnover - and the accompanying recruitment and replacement costs - but also by improving service.

Larger businesses can also generate significant savings. RJB mining is saving £1 million a year as a direct result of a training programme for its supervisors, which enabled them to more adequately identify cost control opportunities and other efficiency gains. But larger firms should have less of a training problem than small firms. They have the resources to establish separate training units within their organisations and to plan for their own long-term skills needs. Any big company which does not have such a plan probably does not deserve to survive.

Of course, firms need the raw material to work with if they are to produce the right numbers of skilled people. Here the signs are encouraging. A recent survey by Executives on Assignment, the interim management company, suggested that most chief executives do not agree with the general view that school and university leavers are either poorly-educated or have the wrong sort of education to be of use in business.

If this relatively optimistic assessment is indeed true, it still begs the question of why, in many areas, skills levels in Britain appear to lag behind those of competitor countries.

Either the education system is lacking in some respect, the critics say, or firms are not training sufficiently. Some bemoan the collapse of the old apprenticeship system in the 1980s, although Britain's international skills shortcomings existed even alongside that system, which, in any case, so many saw as little more than a trade union restrictive practice.

Overall, the Government has made a start on its declared aim of making Britain a country which can hold its head up high when it comes to the skills of its workforce. The process, however, will be a long one, and there remains the question of whether the individual measures so far unveiled are too piece-meal to make a significant difference. It will be at this stage of the next economic cycle when we shall really be able to tell.

Fact and Fiction

How to spot a genuine skills gap

It is important to clarify what we mean when we refer to skills shortages. As a number of economists have pointed out, the confusion surrounding their definition occurs mainly - and understandably - in the minds of employers between skill shortages and recruitment problems of a far more general nature.

Some companies may simply be unable to recruit the staff they need because they are offering unattractive pay, or unattractive jobs, rather than because the skills they require are in genuinely short supply.

Peter Robinson, chief economist at the Institute for Public Policy Research, for example, is sceptical about claims of widespread skills shortages in the catering industry. Recruitment difficulties in sectors such as this, he says, tend to be because firms offer low pay, long hours and poor working conditions, not because there are not enough people with the right skills.

He and other economists, including those at the CBI, believe that one notable feature of the present business cycle is that skills shortages have not been more pronounced than they have been in the past.

Unemployment has fallen to a lower level than in the late-1980s boom and yet skill shortages, and the resultant upward pressure on earnings, are less severe. John Cridland, head of employment affairs at the CBI, says that there is no epidemic of skill shortages and that the problem has, in fact, tended to ease with each successive cycle, rather than worsening. Things will look very different, he adds, when the economy slows and unemployment once again begins to rise.

Even in information technology, everybody's favourite example of a sector beset with skills shortages, and where the acceleration in salary increases as a result has been most notable, some caveats need to be applied. The kind of skills required to deal with the millennium computer bug, of checking and amending line after line of programme code, are fairly routine 'clerking' skills, not those of rocket scientists.

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Some argue that skills shortages would be significantly reduced if employers were willing to use the wider range of skills we already have at our disposal. One often-neglected source of supply is older 'economically inactive' people - particularly 55-64-year-old men, less than 60% of whom are now in work.

'Business has long realised the power of the grey pound but companies have tended to neglect the experienced labour market,' says Helen Garner, campaign director of the Employers' Forum on Age. Garner believes that a radical new approach to recruiting and training is called for to utilise the potential out there.

The EFA points to demographic change that will result in a drop of 21% in the number of 25-34 year olds by the year 2006. It cites the record of its own members, who include BT, B & Q, British Airways, Littlewoods, Marks & Spencer and Unigate who have found that a mixed-age workforce can be highly advantageous.

Littlewoods, for example, regularly recruits people in their sixties for its call centre in Sunderland. 'They have an excellent commitment to the job which has enhanced the whole business,' said a Littlewoods spokesperson. A sentiment echoed by the American company, Wal-Mart which actively seeks to employ staff in their sixties and seventies.

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