Skills are important contributors to the improvement of productivity. With new skills, there are associated higher wages and better living standards. However, implementing a better agenda for skill improvement in policy can prove extremely challenging. There are several layers of skills and their applications that need to be considered at different levels of distribution. Professor Andy Westwood explores these dilemmas with reference to their implementation in the UK.

• The biggest policy problem here is that the educational allotment is extremely varied across the UK.
• It is not enough to produce more qualified and skilled people. There needs to be a co-ordinated effort to produce and retain skilled people, to attract others and to make sure that they are then deployed appropriately in firms, public services or in new businesses.
• New processes and institutions such as ‘Local Skills Improvement Plans’ (LSIPs) and Institutes of Technology need a stronger focus on boosting local and regional productivity as well as on skill utilisation and firm level performance.

Human capital – or skills – are one important driver for improving productivity. They are also an important way people can benefit from productivity growth, if new skills are used and mean higher wages and better living standards. So far, so good. But tricky questions quickly arise when we turn to policy detail. Which skills are most valuable? When and where are they best acquired? Who should pay? And what role does the state – either locally or nationally – play?

The UK skills gap

Applying these dilemmas to England and to Greater Manchester (GM) today turns the theoretical to the practical. As a whole the UK is suffering from low productivity growth compared to other countries, with a particular slowdown since the financial crisis just over a decade ago. A big part of this problem has been the relative inequality between and within different cities and regions. London and much of the south-east have high levels of growth and productivity that compare well with other regions in Europe and beyond. Greater Manchester, together with other English cities and regions does not, and underperforms both against the UK average and those of similar places across the world. In 2016, Greater Manchester’s productivity was 89% of the UK average, falling from 92.2% in 1998.

This is a dimension of the government’s plan not just to transition to ‘a high skills, high productivity economy’ but also to ‘level up’ underperforming areas of the country too. To improve Greater Manchester’s productivity performance, it’s likely that increasing the skills of the people that live or work here will be key. This is also relevant within different parts of the city region, as weaker local economies tend to have significantly lower levels of skilled people. ONS data shows that Oldham, for example, has just over half the number of people with high skills as Trafford (28% compared to 51%) and twice as many adults without any qualifications at all.

Adopting policies that take into account regional differences

So, what exactly should governments, both at the UK and regional levels, be doing about it? Firstly, our education institutions need to be effective and well-funded, with good teachers and leaders. Furthermore, because having high levels of skilled people isn’t the only driver of economic growth and higher productivity, this should be aligned with other interventions that will also contribute to economic change. That might include things like better infrastructure and more regionally focussed R&D spending.

However, the vast majority of these policies (and funding) are controlled from Whitehall. Only the relatively small Adult Education Budget (AEB) is devolved to city region mayors such as Andy Burnham in Greater Manchester or Andy Street in the West Midlands. Everything else is delivered through national systems that pay relatively little attention to these big differences between places. This reduces the ability to adapt services to suit local areas and increases the likelihood that centralised policy decisions come in a ‘one size fits all’ approach.

The case of higher education

We see this in national debates about graduates, with some politicians and commentators bemoaning the numbers of young people going to university. However, the differences between regions and local areas remains stark. According to Baroness Alison Wolf, ‘among young people in their late 20s, over half of the London-schooled went to university’, but ‘under 30% in the north-east and the south-west’. Across the north-west this figure is around 35%. Within GM, researchers at The University of Manchester found that by the age of 19, 50% of those in state-funded schools in Trafford had entered university, compared with 31% in Tameside and 33% in Salford. Within Manchester itself, participation rates for electoral wards ranged from 8% in Benchill to 55% in Didsbury.

The policy problem – if it is one at all – is that the situation varies dramatically across the country. For graduates the regional policy problem is likely to be less about numbers in the system overall and more about lower progression to higher education and lower numbers of adult residents with higher level qualifications. Lower numbers including low levels of graduate retention is a much bigger issue in the local and regional economies that the government is targeting in its ‘levelling up’ agenda. So too are the lower wages in both the public and private sectors that impact on repayments to the various loan schemes that underpin our system. A national policy agenda aimed at scaling back ‘low value’ courses is also likely to undermine local and regional institutions and the overall stocks of local human capital, potentially constraining growth and making inequalities worse.

Current policy reforms in FE could also create problems. DFE ministers have been particularly keen to develop new Level Four and Five qualifications. The Augar Review believed that this is key to addressing ‘the UK’s weak productivity performance’ and better than further expansion of university degrees. The ‘Skills For Jobs’ white paper focuses on ‘Local Skills Improvement Plans’ (LSIPs) and Institutes of Technology offering similar promises to boost productivity and employment outcomes. However, the success of both will depend not just on meeting the existing needs of local employers but on how they push firms to adopt new practices and technologies and becoming more innovative and productive.

The importance of local circumstances

So, returning to our initial theory, to gain benefits from higher skills of whatever type, organisations, firms and places need to better utilise them. Otherwise, education policy continues to risk supplying increasingly skilled workers to firms that don’t use those skills. Then the data will show over-qualification, lower levels of pay and a continuing underperformance in productivity. Worse still will likely be the continuing regional and local inequalities, described as the ‘geography of discontent’.

Skills or broader economic policy shouldn’t just stop at supplying education to the labour market or to the economy. It isn’t enough to produce more qualified or skilled people in a given population and expect improved productivity to follow. What is needed is a co-ordinated effort to produce and retain skilled people, to attract others and to make sure that they are then deployed appropriately in firms, public services or in new businesses. That’s just as true in places like Oldham, Rochdale and Bolton as it is in Manchester City Centre. It’s what already happens in the strongest, most productive places. If the government wants to ‘level up’ and ‘transition to a high productivity economy’, it has to enable places to shape more of the skills system according to their own particular needs. That must apply to both supply and demand sides as well as to better co-ordination with other policy interventions and investment. This can’t be effectively managed from Whitehall, and in England at least, it hasn’t been.

So a government that wants to ‘level up’ has to be better at joining up. That doesn’t just involve more devolution and improved coordination between national and local institutions but also more capacity and flexibility for public and private organisations to work together in towns, cities and regions. Improvements in productivity will depend on that at least as much as on a succession of constantly changing strategies and policies designed in Whitehall.

Policy recommendations

• New processes and institutions such as ‘Local Skills Improvement Plans’ (LSIPs) and Institutes of Technology need a stronger focus on boosting local and regional productivity as well as on skill utilisation and firm level performance.
• However, to gain any benefits from higher skills of whatever type, organisations and firms (and places) need to better utilise them and become more productive.
• A national policy agenda aimed at scaling back ‘low value’ courses is also likely to undermine local and regional institutions and the overall stocks of local human capital, potentially constraining growth and making inequalities worse.

This article was originally published in On Productivity, a collection of thought leadership pieces and expert analysis addressing the gaps in economic performance across the UK, published by Policy@Manchester.

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