The government’s industrial strategy – made more urgent by Brexit – must prioritise technical skills, argues Thomas Aubrey

The decision to effectively end the freedom of movement of labour will require the government to urgently address the issue of technical skills provision. Even with access to the European Union’s pool of labour, firms in the United Kingdom struggled to fill nearly half a million technical roles last year. Unless this is the top priority for the government’s industrial strategy, Britain’s long standing crisis in technical skills will result in serious consequences for British business.

In 1940, Reginald Jones, the air ministry’s chief scientific adviser, led a team that was trying to jam a new and innovative radar beam for German bombers to fly along. The team had correctly identified that it should be able to detect the beams on frequencies between 66.5 and 75 megacycles. Unfortunately, the British equipment struggled to detect it because it had not been manufactured to German standards of precision.

Despite being the first country to industrialise, by 1914 Britain was already a long way behind Germany and the United States on the training of technical skills and productivity in manufacturing. Britain’s post 1945 attempts to improve the situation have largely been a failure. By 1960, the average number of school years completed by adults in the UK was just 6.7, well below West Germany at 9.6 and the US at 10.6.

Indeed, the failure of the UK to develop a system of technical education explains much of why it has a higher share of adults with low levels of education and lower productivity overall. Today, Organisation for Economic Co-operation and Development data show that 21 per cent of working age adults have an education below upper secondary level – more than twice the level of the US. The UK is ranked a poor 26^th out of 33 OECD countries for the share of adults with an upper secondary education, with just over a third (36 per cent) of British adults having achieved this level of education.

This failure of public policy has a real direct impact on the ability of firms to recruit the people they need to expand, as well as the ability of workers to acquire well-paid jobs. According to the Commission for Employment and Skills’ 2015 Employer Skills Survey, 43 per cent of all vacancies for technical skills were difficult to fill due to the employer not being able to find applicants with the appropriate skills, qualifications or experience. This is significantly more than for other types of vacancies.

Over the past year, the Centre for Progressive Capitalism estimates that in total there were 462,200 technical job vacancies in the UK that were difficult to fill due to skills shortages, and this includes firms having access to the pan-European visa-free labour market. Given the expectation that the freedom of movement of labour into the UK from the EU will be curtailed as a result of Brexit, then resolving this issue should be the government’s number one priority.

Tackling this shortfall for technical skills could have huge benefits for the economy – through increased productivity – as well as working people with raised living standards. The Centre for Progressive Capitalism estimates that if the UK addressed these shortages then in aggregate workers would get a wage increase of £8bn. For individuals the returns could be massive – as chart one shows the average salary for these advertised technical roles is £30,400 versus a living wage of £13,100.

Above all, plugging the gap for technical skills would particularly help UK manufacturers since they are disproportionately affected by the lack of technical ability. As shown in chart two, more than three out of four technical job vacancies in the manufacturing sector were proving difficult to fill due to skills shortages. This was a higher share than any other sector and far higher than the UK average of 44 per cent. Both the construction and financial services sectors – traditionally well-paid areas of the economy – were also heavily affected by the lack of technical skills.

The overwhelming issue for British industry is that there is a lack of education and training in the technical occupations most in demand and too much provision of courses with little demand from employers.

Using big data mapping techniques developed in the financial technology sector, the Centre for Progressive Capitalism is now able to provide a detailed mismatch for the supply and demand for technical skills for every local economy. This analysis has already highlighted some major issues for the wider economy if it is to adjust.

For example, one region has a significant shortfall for vehicle maintenance staff but further education courses are only providing around a fifth of the demand. Conversely there remains a sevenfold oversupply of fitness instructors. Another area had nearly a fivefold undersupply of IT technicians preventing firms from expanding. In several areas there is between a five and tenfold under supply of electricians.

Crucially, one local economy which still has a manufacturing base had a shortfall of nearly 4,000 technical roles with an undersupply of the relevant courses between seven and tenfold. Again there remains an oversupply of courses in areas such as sports and fitness instructors as well as beauticians.

One major challenge is that the demand for courses from school leavers that lead to well-paid jobs is plagued by information and coordination failures. This too often results in school leavers opting for courses that do not lead to well-paid jobs or a viable career. The distinct lack of careers advisers makes this worse. Another issue is that technical courses tend to be more expensive so without any additional funding it is unlikely that FE colleges would be able to cater for the numbers that firms require if the demand was there.

The result of this mismatch between supply and demand for workers with technical training across the UK means that firms are unable to expand thereby increasing productivity. Moreover, it is also preventing hundreds of thousands of workers from seeing a substantial jump in pay, which in turn would have numerous other economic benefits.

The Brexit vote has raised expectations that leaving the EU will somehow resolve Britain’s wage disparity and woeful productivity record. But an economy that works for everyone can only be developed if the government prioritises resolving the skills mismatch issue. To do so requires central government to support the development of local institutions and to resource them effectively. Every local enterprise partnership and devolved region needs to be able to ascertain its mismatch between the supply and demand for specific technical skills by sector and occupation. Each LEP also needs to be able to measure how well it is doing to resolve these shortfalls. Local labour markets can change substantially through time, and therefore there needs to be sufficient coordination between LEPs and FE colleges to be able to adapt to local conditions. The dearth of careers advice needs to be filled with LEPs connecting directly with school leavers to inform them about the opportunities available. Crucially, it will require areas to have the capability to determine the courses and capacity that local FE colleges are providing, which in turn will need more investment as technical courses tend to be more expensive.

It is only by ensuring that school leavers are able to access specific technical training will firms be able take advantage of the opportunities to expand. And it is only by ensuring that school leavers have the sufficient information to make the appropriate career decisions will the UK see the inclusive growth that has been so elusive for so long.

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Thomas Aubrey is director of Centre of Progressive Capitalism and founder of Credit Capital Advisory. He tweets at @ThomasAubreyCCA

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