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Employment on merit - the skills deficit in manufacturing

    The British manufacturing sector’s contribution on a global and national level has been in steady decline since the 70’s. Under Prime Minister Edward Heath, manufacturing contributed to 30% (Gross Value Added) of Britain’s economic output, and by 2014 this had slipped to just 9.7%. When compared globally, Britain is the 9th largest manufacturing nation in terms of global output (3%), sitting below our European counterparts in Germany, France and Italy.

    The latest statistics from the ONS on the value of the UK’s manufacturers’ product sales show that there was only a 0.2% increase from 2014 to 2015, the slowest rate of growth since the 2008 financial crisis, as the figure below illustrates.

    Isolating causes for the decline can be difficult, but the rise of the BRIC economies since 2000 is considered widely as one of the main reasons for the UK’s fall on the global manufacturing output table. To understand what is lacking at the national level, reports published by British manufacturing organisations are a good place to start.

    The EEF’s 2016 industry report on skills in the UK’s manufacturing sector gives data from an executive survey on manufacturing companies and their evaluation on the industries performance. Overall, the report finds that there are not enough adequately skilled people in the UK’s labour force, illustrated by the fact that 67% of employers believe that a lack of technical skills among applicants is the main driver behind recruitment difficulties for manufacturers.

    The Manufacturer, a premier industry publication, found similar results on their survey of manufacturing employers. Their 2016 report found that 84% of manufacturing companies believe not enough is being done to make manufacturing an attractive career choice. Moreover, over 70% of employers found that school leavers, college leavers and university graduates hired over the past 2-3 years were prepared poorly for work in manufacturing.

    These statistics show that there is a disconnection between the skills given by the labour market and what the UK’s manufacturing industry requires. The final details of the Governments big response to this skills deficit, the Post-16 Skills plan and the Apprenticeship Levy, have not yet been disclosed, and they are vital to the rival of the British manufacturing industry.

    The Post-16 Skills plan seeks to provide a better technical traineeship route to employment for school leavers, instead of an academic one through university graduation. Employers will converse with Government to explain what skills are needed and in turn what technical traineeships will be made available under the plan. Sound logic.

    However, a key element of the proposed structure is a work place entitlement for all 16-18 year olds who finish the two year technical program, suggesting a £500 cost per placement. Simply awarding work placement entitlements for anyone completing the program is frivolous, impractical and difficult to accommodate. Work placements should be given to technical program graduates by employers on the same basis as university graduates: merit.

    The Apprenticeship Levy will charge 0.5% of the gross pay bill of all employers earning more than £3 million a year (paying only the proportion of the pay bill above the threshold) to fund apprenticeships. The aim is to have the funds made accessible to employers through the “digital apprenticeship service”. However, the flip side is that the cost of these new apprenticeships will eventually be borne by employees, facing a reduced cumulative wage growth by 2020 of 0.7%, according to the Office for Budget Responsibility. In addition, this forces companies to spend on apprenticeship programs that might not yield results.

    In light of this, when the Government announces the eligibility details of the Levy, in October 2016, employers must be given a large degree of manoeuvrability within the spending criteria of the funds raised by the Levy.  This will ensure that manufacturing employers are able to tailor spending on apprenticeships to the specific needs of their company, by giving them adequate control over the investment the Levy will force them to make on future employees.

    Both policies have the potential to help provide the manufacturing industry with a much needed skills boost in the labor market. However, they should be fine-tuned to provide companies with a platform to save for future employees that match their particular traineeship and skills requirement, focusing on merit alone. To achieve this, recruitment must not be distorted by arbitrary work placement entitlements or a strict spending criteria.

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