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Domestic Reform Needed to Tackle Manufacturing and Construction Skill Shortage

    This week’s published figures on the health of the UK’s manufacturing and construction sectors make for worrying reading. Output in construction is down 1.1% and manufacturing output is down by 1.2%. Moreover, the manufacturing sector’s output remains 6.1% below its pre-downturn peak, according to the Office for National Statistics. This will undoubtedly concern the Government, which has pledged to re-balance the economy away from the services sector.

    Of course, the decline in the share of UK manufacturing is not necessarily undesirable. There is evidence, for example, that UK manufacturing has become more specialised in high-tech sectors, where the UK is likely to have a competitive advantage. However, there are signs that the productivity of UK manufacturing could be significantly improved. Manufacturing has made a smaller contribution to aggregate productivity growth than would be expected, according to the Government Office for Science.

    It is vital the UK boosts output and productivity in the manufacturing and construction sectors. Manufacturing growth provides huge potential to boost exports and close the UK’s record current account deficit. UK manufacturing currently contributes to 10% of UK output, but it produces 44% of UK exports. And, of course, a thriving construction sector is needed for the Government is to achieve its aims on infrastructure and housing.

    A major impediment holding these industries back is a skills shortage. EngineeringUK, for example, estimates that there is a shortfall of 55,000 people with engineering skills, and the construction industry complains of a shortage of brickwork, joinery and other specialists. Some argue that a loosening of immigration policy is the answer to these problems. However, given net immigration is already at a record 336,000 per annum, high levels of migration are clearly not providing an effective solution to this problem. 

    Domestic reforms could provide a more sustainable solution to these skills shortages. The UK currently performs well in higher skills after a huge increase in the numbers going to university, increasing by 13 percentage points over a decade. However, intermediate practical, technical and occupational skills that affect the manufacturing and construction industries are of more concern.

    The problem starts at school. Compared to an OECD average of 44 per cent, only 37 per cent of UK adults finish education at a level equivalent to A Level. This leaves many youngsters lacking basic skills. The problem is then compounded by an apprenticeship programme that does not appear fit for purpose. Data from the House of Commons Library confirms the lack of progress in boosting apprenticeships in non-service sectors of the economy. Engineering and manufacturing apprenticeships increased by just 23,000 over three years, whereas apprenticeships in business, administration and law grew by 83,000.

    To address skills shortages in the manufacturing and construction industries, the Government should engage in a renewed focus on tackling these domestic issues.

    Daniel joined the Centre for Policy Studies as Head of Economic Research in November 2015. He was promoted to Deputy Director in March 2017. Prior to joining the CPS, he worked in research roles for a number of parliamentarians.

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