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Sluggish firms are stalling growth - trade unions could help

A ResPublica report claims that unions have untapped potential to increase the nation's productivity. 

In 2008, the productivity engine in our economy fell out. Ten years of austerity, the Northern Powerhouse, and the Industrial Strategy still hasn’t put it back. Our workers take five days to make what the French finish in four.

The evidence increasingly points to Britain’s “long tail” of middling businesses, whose managers stick to outdated technologies and inefficient working practices. While adopting new techniques might improve national productivity, many bosses prefer to stick with what they know. The public sector could play a bigger role - but the level of knowledge of the individual businesses, and the personalised engagement required with each worker, are beyond the ability of the state.

Trade unions have both in spades, and more productive work would mean better conditions for their members. So we need to ask whether their current role allows them to do all that they could. This is the subject of ResPublica’s recent report calling for a “New Bargain” between business, workers and government.  

In high-productivity countries, unions are central in developing the workforce each sector needs. In Norway, researchers found that a 1 per cent increase in union density raises that business’s productivity by 1.7-1.8 per cent. Even in the US, Gallup found that engaged workforces outperform less engaged workforces by over 20 per cent on profitability and productivity. And in the UK, Acas found that unionised employees were much more likely to use a higher number of more effective working practices.

Despite this, the perception among some policymakers and leaders has been that unions are mainly a faction of the left, using industrial means for political ends. In the economic sphere, Conservatives have, with some exceptions, seen unions as at best negotiators in a zero-sum game, and at worst impediments to growth and political authority through producer capture. The reach, influence and membership of unions has consequently been much diminished.

There is an alternative. Beyond picking up the pieces for workers once things go wrong, unions also need a role where they can improve processes, shape strategy and take the tough decisions to create sustainable firms. That is what our competitor countries do, and it will mean a big shift for some.

First, we urgently need to renew the idea of collective bargaining. Employers are exploiting their power to hold down wages, and the scales need rebalancing.

Second, with reskilling more important than ever, the TUC/CBI National Retraining Scheme needs to become a real lifelong learning bank that follows workers throughout their career.

Third, unions are well-placed to improve the productivity of occupations like care and retail - the “everyday economy”. We would like to see dedicated funds in the Industrial Strategy for consortia of business and unions bidding to do this.

Fourth, the Living Wage Campaign has shown how effective certification marks can be in nudging behaviour. We’d like to see a similar scheme for best practice in employee engagement.

Fifth, we need a safety valve to prevent avoidable disasters where employees have serious concerns about strategic decisions. We are calling for a “Workforce Red Card” to management, just as profit warnings alert shareholders.

Increasing productivity by 1 per cent per year would add £250 to the average annual pay packet, and £3.5bn to annual profits. If this is a battle that has to be fought firm-by-firm, enlisting those on the ground would be a very good place to start.

 

The authors wish to thank Jake Sumner for developing the ideas in this article in the report A New Bargain: People, Productivity and Prosperity, for ResPublica.

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Why the apprenticeship levy must be devolved

Local authorities are best placed to understand the demands of regional employers and learners alike. 

“Like something out of Yes, Minister”, is how the current apprenticeship levy operation has been described by the chief executive of one of the UK’s biggest companies. The stinging criticism came from Leo Quinn, who heads up Balfour Beatty, the multinational infrastructure group. The government should take note. The statement encapsulates where we currently stand in how to enhance the human potential of our economy and how far we have to go to equip people with the skills they need to work in the 21st century. It is also symptomatic of a government that has ignored an issue now banging at the door.

Across our country, we face an enormous challenge in ensuring we have the skills we need to operate the economy and that people can secure such skills. In facing down this challenge we must confront our centralised skills system, because the situation as it stands is dire: an estimated 628,000 Londoners are not in work but would like to be – enough people to fill the city of Nottingham twice over – and youth unemployment is high. In 2016, 9.4 per cent of 16 to 24 year-olds in London were unemployed, compared with 3.6 per cent of 25 to 64 year-olds. Pause to reflect on that huge waste of human potential.

The problem is very unevenly spread across London, a city of 8m people; there are constituencies where very high numbers of young people face larger problems from unemployment and a lack of skills. Almost a quarter of all vacancies in London – 23 per cent – are due to a lack of applicants with the right skills.

Almost half of firms – 42 per cent – are not confident they will be able to recruit people with the high-level skills that their organisation needs over the next five years. In the London borough of Haringey, where my constituency is located, 35 per cent of 19 year-olds do not have a level three qualification, yet London is an increasingly highly skilled economy.

There is a clear skills mismatch. Many people are in low-paid and insecure employment and areas such as Bristol, where there has been a sharp increase in the population of under-30s, are at particular risk. Other people, once in work, fail to progress in their chosen field. In a recent debate in the Commons, which I secured, the MP for Bristol South, Karin Smyth, said that in her constituency they “send the lowest number of young people on to higher education in the country, despite having two universities in the city, as well as Bath and Exeter nearby. It is critical that the further education sector pick up such youngsters and support them in their skills and education, not just in London but in places like Bristol”.

The unfortunate elephant in the room is that much of our population nationally is too low-skilled to take advantage of the numerous jobs that industry is currently creating and is forecasted to create in the future.

The apprenticeship levy provides a microcosm of policy that needs to be changed; the government should consider full devolution of it, as has happened in Scotland and Wales.The skills system more generally suffers the same problem: it is extremely centralised, leaving London, Birmingham, Manchester and a host of other cities and regions ill-equipped to cope with issues facing them. The system simply does not respond well enough to our growing cities’ needs and priorities.

Coventry, for example, is in a part of the country that is seeing greater economic growth, although that is coming from a lower base. Our skills system is not matching that growth and is falling behind. At present, England is below the OECD average in the provision of technical education, ranked 16th out of the top 20. The OECD predicts that without significant improvement, the UK will fall to 28th out of 33 OECD countries for intermediate skills by 2020. That would see the UK overtaken by Ireland, Israel and Belgium.

These issues are compounded by context: a rapidly rising population, an over-reliance on migrant labour, skills gaps in various sectors, low apprenticeships, patchy careers guidance, and a poor match-up between skills spending and outcomes.

The forthcoming devolution of the adult education budget represents an important first step in creating a more efficient skills system, but the government must be bolder and go further and faster on skills devolution to have the impact needed. Devolving greater powers on skills to London and the metro mayors would enable cities to create a system that meets employer need, not just learner demand. Business must have a voice.

As with all policy, Brexit is also having an impact. Businesses that have relied on importing skills via immigration are worried they will no longer have the access they need. Nearly one in three of London’s workforce is non-UK born, and 90 per cent of London’s businesses recruit EU citizens across a huge number of sectors. Losing this may hamper economic growth not just in London, but across other regions – especially as London starts recruiting more heavily from other parts of the UK, leading to a brain drain from fellow regions. This won’t help rebalance the economy.

The London government and the metro mayoralties need the ability to take a strategic, all-age, whole systems approach to skills. There should be greater engagement with employers and better access to, and use of, data. The system should allow a more localised approach that works at two levels. In the capital, for example, we should tackle pan-London issues while also having more targeted activity at a sub-regional level to take into account the variations of skills, needs and demand across cities.

The government should consider devolving all 16-18 provisions to combined authorities in other parts of England and should provide commissioning freedom and the ability to set outcomes and incentives for the whole skills system. That would better serve the progression and economic priorities of different areas in England.

The central government should also give London government control over all vocational capital investments, such as 14-19 capital provision and institutes of technology, alongside existing further education capital responsibilities. That would capitalise on local ambition, expertise and intelligence, and align adult education and 14-19 capital investment.

Careers funding streams should be devolved to the London government so that it can build a seamless, single, integrated careers service. The capital’s future share of the UK’s shared prosperity fund should be devolved to London government and ensure that future skills funding settlements take into account each area’s unique needs.

These proposals may seem radical, but the UK’s major cities are in the midst of a severe skills crisis that is only getting worse and will be exacerbated by Brexit. The challenge is an urgent one, and if ignored, could hamper both people’s life chances and economic growth. The government needs to act now to deliver a skills system that is fit for purpose.