Devolve ‘impoverished’ skills strategy to metro level says RSA City Growth Commission

The political debate around the skills agenda remains “impoverished” and it’s unclear how government initiatives add up to an overall strategy that contributes towards wider economic growth, according to a report published by the RSA City Growth Commission, with support from the Joseph Rowntree Foundation (JRF).

In its second report, Human Capitals: Driving UK Metro Growth through Workforce Investment the Commission concluded that economic growth is best supported by addressing skills mismatches in the labour market at a metro level – with local administrations in cities having the power to control government spending on skills and set local labour market policy at the scale at which the labour market operates.

View the Human Capitals: Driving UK Metro Growth through Workforce Investment report

The Commission concluded that currently, public investment in skills is uncoordinated and often insensitive to local demand, with initiatives becoming confused with approaches designed to address headline unemployment.

The report found that the UK has persistently failed to shape the labour market and skills system to create a culture of life-long learning and progression in work. As a result, workers stuck in low-skilled, low-wage jobs are a source of untapped potential and could be better supported to progress, driving higher productivity and growth within cities and across the UK as a whole.

Addressing the skills mismatch: Metro leadership

Business and sector experts rate the UK’s quality of vocational education and training as low by international standards. The UK’s attractiveness to international investment based on its trained and skilled workforce has declined over the last decade.

The Commission concludes that economic growth is best supported by addressing skills mismatches in the labour market at a metro scale. Simply increasing the skill levels of the local labour force will not create economic growth - there needs to be a match between the skills available and the skills needed by local employers.

Devolving power to a metro level would enable more strategic and coherent decision-making for cities and their wider regions, improving efficiency and outcomes. The report recommends:

• Scale so that there is greater alignment between decision-making, resourcing and functional labour markets. Combined Authorities would administer these budgets with reference to evidence-based skills strategies and other advice prepared by the Local Enterprise Partnership and other stakeholders.

• A statutory framework for metro minimum wage. Local authorities could apply to the Low Pay Commission to review and recommend to Parliament that Metro Minimum Wage be introduced, covering a specific geography.

In work progression: National Incentives for workforce development

Nationally, 50 percent of workers are in a job unrelated to their field of study – the highest proportion in the OECD, and rates of ‘severe’ under-qualification are twice the OECD average. Forty-three percent of UK workers report that they have “the skills to cope with more demanding duties at work”.

Currently, employers’ investment in training runs at £43bn per year and reaches almost 20 million people. This dwarfs government’s provision of FE and training, which reaches 3 million learners annually, at a cost of £4.1bn in 2013/14.

But few employers have adopted high-performance working practices, which are vital to business growth. With 90 percent of the 2020 workforce already in work now this is where the UK’s growth potential predominantly lies. The Commission concluded that the breadth of skills strategies must extend to raising inclusion and progression of the labour force. The report recommends:

• Piloting Workforce Development Personal Budgets for individuals in employment. Rather than borrow money upfront from the government to cover the costs of study or training, adults would repay WDPBs through an earnings-linked tax. Employers would be able to top-up WDPBs based on contributions which are reimbursed by extended Employer Allowances on National Insurance contributions. 

• A redundancy retraining voucher scheme. Government should provide matched training vouchers, if employers and employees agree to training vouchers being included as a substitute for equivalent cash in the redundancy package.

Smarter approaches to targeted investment

The report concluded that the location of jobs, and the availability of transport and housing, is a key barrier to entry for those in low-skilled and low-paid work. Household economics, support networks and welfare system incentives all have a bearing on whether workers take on a new role or additional responsibilities at work.

Women are disproportionally represented in low-skilled, low-paid part-time work and experience difficulties in progressing. Women, who pursue part-time work after having children, tend to find that the roles on offer are low-skilled; over half of women in part-time work are estimated to have previously worked with higher pay or greater responsibility. Being a male immigrant is also associated with a 10.7 percent greater probability of skills under-utilisation than being UK born, the Commission notes. The report recommended that:

• Funding Information, Advice and Guidance through a 1 per cent levy, ring-fencing all public funding for adult skills provision. This would provide £40m across England. Adults claiming in-work benefits under Universal Credit for at least 12 months would be offered the opportunity to receive IAG on development and progression. 

• Labour market integration programmes for international arrivals. Metro areas with relatively high levels of immigration should support the integration of internationally trained immigrants into the labour market to minimise skill under-utilisation and maximise tax contributions. The costs of the English language courses are recouped from the migrant when they are successful in becoming professionally certified or are hired by an employer participating in the scheme.

Commenting on the report, Commission Chair, Jim O Neill said:

“To make better, lasting inroads into the dynamics of the labour market we believe that some devolution of responsibility for skills training to well-run and focussed metro areas is necessary. How can someone in Whitehall have the knowledge as to what is required for one region of the country compared to those locally responsible? We believe they don’t, and while we reserve our major recommendations until our final report in October, this specific report gives a strong flavour of the ideas we have developed from listening to experts in research as well as local businesses and policymakers around the nation.”

Commenting on the report, RSA Senior Researcher, Jonathan Schifferes said:

“Addressing the twin challenges of skills mismatch and strengthening in-work progression requires wider vision from policymakers. Currently, the UK skills system is too slow to adapt to changes in the UK economy, and to employers’ demand for not only new skills, but also new ways of working and communicating. We found that the government’s design of policy interventions around skills is hampered by a lack of understanding of the factors that influence the labour market and workers’ choice of where to locate. It’s vital that we get up to speed as quickly as possible in this area - as in work progression is important for alleviating poverty and reducing long-term pressure on the public finances.”

The report notes that:

• Nearly half of UK employers (48 percent) report skills under-use, and 4.3 million workers (16 percent of the workforce) are reported as being over-skilled and over-qualified for the jobs they are currently doing. 

• Over 594,000 of 1.65m workers who are in temporary employment could not find permanent employment, and 1.42m of 8.02m part-time workers want full-time work but can’t find it.

• 58 percent of workers in low-skilled, low-wage are underemployed – working fewer hours than they would like. 

• Across England, over 1.1 million workers have skills gaps. This means that 5 percent of the workforce lack the skills for their current role. 

View the Human Capitals: Driving UK Metro Growth through Workforce Investment report

Notes to editors

For more information contact RSA Head of Media Luke Robinson on 020 7451 6893 or 07799 737 970 or email [email protected]