Growth is still eluding the UK economy, as it has for over a decade. Very sluggish performance and challenges in the gilts market present the government with a much tighter fiscal environment than the one envisaged just a few months ago. Without growth we cannot drive up living standards and improve public services. And we cannot get growth without a skilled UK workforce that can grasp the opportunities of AI and other new technologies, allowing it to compete in global markets and move to a net zero economy.
During the general election, Labour made much of its plans to stimulate economic growth, which it said was critical to achieving its missions. There are three main ingredients for sustained high economic growth. Investment in advanced technologies and AI, investment in strategic infrastructure, and investment in the UK workforce, ensuring a labour market with an internationally competitive skills mix.
Historically, we’ve failed to get to grips with the skills challenge. That has resulted in critical skills gaps and flatlining productivity. In addition, we can see that both government and employers’ investment levels in skills have declined over the last ten years. We are going in the wrong direction and have to try and turn this around in difficult circumstances.
We also confuse skills, which are an essential ingredient for driving economic growth, with education. Skills policies do not necessarily fit neatly into an education environment even though there are clear links. Skills are about knowledge, experience and behaviours that make competitive and productive members of the UK’s workforce. Upskilling people to be up to date with the changing technologies is key. In contrast, education is the knowledge and attributes we need to give our young people and entrants to successfully go into that workforce.
So what type of policy mechanisms are needed to support the development of the skilled workforce to grow the UK economy? A critical mechanism is the level of investment funding and the achievement of the greatest return.
Many countries implement employer levies as a means to fund the investment in their workforce’s skills. These levies are typically charges as a percentage of payroll, which is then allocated to training and skill development programmes. Countries such as Australia, France, Canada and Singapore have, for example, established systems where employers contribute to skill development funds.
An OECD report on the use of skills levies has highlighted the growing importance of investing in workforce skills to enhance productivity and growth. It emphasises that skills levies can play a crucial role in addressing skills shortages and improving the overall quality of the workforce. The OECD, which represents 38 developed economies and democratic member states, found that countries that have implemented skills levies have seen positive outcomes in training participation rates among employees.
Since the mid-1960s there has been formal levy arrangements for certain sectors within the UK. These have supported apprenticeships, upskilling, employability, health and safety, and management development. They have been (and in some cases still are) governed and controlled by employers and employee representatives with the ability to shape the levy arrangements as they require.
More recently, an Apprenticeship Levy was introduced in England by Theresa May’s government in 2017. It is a one-size-fits-all levy for all sectors and is controlled and administered by government, not employers.
Since its introduction there have been calls for more flexibility and a reduction in the bureaucratic hurdles involved in administering the levy. Many have reported that the complexity and rigidity leads to many employers simply not engaging. Small and medium-sized enterprises in particular, which a decade ago were a major provider of apprenticeship places, have been progressively pulling back.
Recognising this challenge, the government has started to consult on how a new Growth & Skills Levy might work. It is the right direction to take. But if we’re to achieve economic growth then levies must be sector-based and managed by employers and employees, not by Department for Education or Skills England officials. Taking the latter route risks the processes becoming even more complex than the present arrangements. Skills policy mustn’t be based around a one-size-fits-all, central government-run levy.
There is an alternative model that we need to fully develop and properly consider. This starts by utilising existing employer and employee bodies to establish around 15 core sector leadership councils (SLCs) for the whole economy. These would have skills as one pillar within their broader role of driving the sector’s industry strategy for growth and international competitiveness. Some sectors have a basis from which this model could be built already.
SLCs would be licensed to run a growth and skills levy in their industry, for perhaps a five-year period, allowing them to agree the flexibility needed to deliver the workforce they require. It would put decision-making in the hands of those best placed to shape the way forward and assess how to capture the benefits of AI and new technologies. This is not unlike the levies of the 1960s.
The licence model would include establishing and keeping up-to-date occupation standards and competency frameworks to match international standards. It would facilitate adaptation and dynamism that matches ever-changing technologies in a way that a Whitehall mandarin could never achieve. The model could include the development of accredited programmes, technical qualifications and micro-credentialling. These could be recorded, where appropriate, in a digital skills passport to provide evidence to stakeholders that the person has the right skills for the job. Such an approach could underpin consumer confidence in the goods and services they are buying.
These are the kinds of ideas that are key to the workforce of tomorrow, and key to growth. The government should give them serious consideration.
This article first appeared in our Spotlight Skills supplement of 7 February 2025.
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