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Tackling skills gaps is the missing piece of the Autumn Statement

Source: PSE Dec/Jan 17

Alexandra Jones, Centre for Cities CEO, explains why failing to address skills gaps is the missing piece of the chancellor’s recent Autumn Statement productivity plan.

In Theresa May’s first weeks as prime minister, she outlined her ambition to address the economic divides suggested by the EU Referendum result by building “an economy that works for everyone”. 

This mantra has been repeated ad infinitum by government ministers in the months since, and so it was no surprise then it was also at the heart of the recent Autumn Statement, in which chancellor Phillip Hammond pledged to address what he described as the “damaging imbalance” in economic growth and prosperity across the country. 

In particular, Hammond set out his vision for tackling the UK’s productivity gap, quipping that “even France” is out performing the UK on this front. Indeed, recent work by the Centre for Cities looking at the productivity of the UK cities compared to European counterparts illustrates the size of the challenge – with only six UK cities more productive than the European urban average, compared to 19 in Germany and 15 in France. 

The chancellor’s plans for addressing this issue include the launch of a £23bn ‘productivity investment fund’ focused on innovation, broadband and transport infrastructure – which, if tailored to the needs and challenges faced by different places, could make a difference in addressing the UK’s ongoing productivity problem. 

Other announcements demonstrated a much-needed focus by the chancellor on the varying economic challenges that different places face – including the launch of a new Northern Powerhouse strategy and £1.8bn for Local Enterprise Partnerships, and investment for housing in areas where it is most needed. Hammond also reaffirmed the government’s continuing commitment to devolution in major English cities by announcing new powers and funding for London, and enhanced borrowing powers for the metro-mayors taking office next year. 

But while these measures reflect a welcome recognition of the need for a place-based approach to boosting growth and productivity across the country, the chancellor’s speech missed out one key issue which will have a critical bearing on whether or not the government realises it economic ambitions – the urgent need to improve skills levels across the country. 

Indeed, the main thing holding many cities and city-regions in the north and Midlands back isn’t infrastructure, it is low skills levels. As Centre for Cities research shows, only three northern cities are in the UK top 20 in terms of the number of residents educated to degree level, and the vast majority fall below the European average for high-skilled residents. 

Improving skills at all levels – from early years to GCSE attainment, further education and technical qualifications – will be vital for boosting jobs, wages and opportunities for people living in cities and their surrounding areas across the country. But while this was acknowledged in the new Powerhouse strategy, there was no mention of skills investment in the chancellor’s statement.

Another big challenge for the chancellor will be resolving the tension between boosting growth and rebalancing it across the country. For example, the places where infrastructure is most needed – particularly in terms of dealing with severe transport congestion and spiralling house prices – are largely in London and the south east. Government investment to reduce the costs of growth in these cities will make them more attractive to firms and people from elsewhere in the UK – and so while boosting national productivity, it could also exacerbate the imbalanced nature of the country’s economy. 

As the government develops its new economic and industrial strategy, it will need to find the right balance in managing these competing concerns. It also needs to make addressing skills gaps across the country a top priority if it is to succeed in solving the UK’s productivity puzzle.



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Hugh Small   21/12/2016 at 13:11

Too much emphasis is being placed on improving productivity in industries, sectors, regions, and firms which show low productivity. It would be preferable to study how to enable workers to get out of a low productivity industry into a higher-productivity one. Subsidised Adult Education is one obvious way. George Osborne cancelled the Adult Ed budget, even for English as a Second Language (ESOL) while we received a million immigrants. Working as a car-wash jockey you don’t pick up enough English to enrol on a bookkeeping course. Austerity doctrine (Theory X) holds that a subsidy for Adult Ed is’something for nothing’ and therefore bad for the motivation. Theory Y holds that it is a way of catalysing what Adam Smith believed to be the only driving force behind the economy: each worker’s desire to improve his or her condition. Outside academia and government, the usual way to increase one’s personal GDP per capita is to move to a higher-productivity job, often in a different industry or region.

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