Economy risks £3.3 billion of lost output if government does not invest to close the skills gap

The UK’s future economic success is in jeopardy, warns the Association of Colleges, as latest forecasting ‘Skills shortages and funding gaps: an analysis of the costs of under-investment in skills‘ highlights the impact of not closing the country’s skills gap.

The Government’s Industrial Strategy is likely to be significantly weakened, with skills shortages increasing and output reducing by at least £3.3 billion over the next five years, leaving young people much worse off, unless swift action is taken.

The Government’s recent Employer Skills Survey showed an increase in the density of vacancies that are hard to fill – rising from 16 percent of all vacancies to 22 per cent, between 2011 and 2017 – whilst a recent survey of SMEs showed that 51 percent are finding it more difficult to recruit employees with the right skills, compared to five years ago, and almost 6 in 10 say that finding skilled candidates is the biggest concern about the future of their business.

Uncertainty around Brexit and potential changes to visa rules mean that the number of skilled migrant workers employed in the UK is reducing, whilst those retiring and leaving the jobs market continues to grow.

Some of the worst hit sectors will be productivity-enhancing STEM related sectors, such as engineering, construction, health science and digital. If things are left as they are, we predict there will be approximately 30,000 unmet childcare vacancies and 300,000 unmet construction vacancies.

The Government has recognised this challenge with a flurry of policy initiatives to address the skills gaps; T levels, Higher Technical Qualifications, and the National Retraining Scheme are all being developed. However, the colleges tasked with delivering the ‘biggest reforms to technical education in a generation’ have warned that unless government increases funding, they are unlikely to succeed.

Each of the Government’s reforms calls for more individualised training in smaller classes, world class facilities, and staff with up-to-date sector expertise – all of which come at a cost. The Association of Colleges’ analysis shows that even when performing at maximum efficiency (full classes and fully utilised teachers), delivery of the Government’s flagship T Levels programme – and all current 16-19 study programmes – is not viable at the current level of funding.

The additional £500 million allocated to T Levels in the spring budget of 2017 will fund a 50 percent increase in programme hours and will bring our technical programmes system in line with other international systems in terms of contact hours per week. It will not address the deep and structural under-funding of the further education sector as it is based on the current rate of funding on a per head and per hour basis.

Colleges are calling for an increase of £1000 to the 16-19 education base rate. Without it, colleges cannot afford to specialise, access resources and attract the best staff. If they can’t do that, they cannot deliver on the government’s promise to build the technical education system that is required to equip workers with the skills employers need.

David Hughes, Chief Executive of the Association of Colleges says:

“The government has recognised how vital it is to improve the skills system and has set out an ambitious plan. Sadly, that plan is doomed to fail until the ambition is matched by investment.

As more people retire, and uncertainty, demography and migration controls reduce the numbers joining the workforce, it’s vital that we get this right. The government is pinning its hopes on its flagship policy, T Levels, but as our analysis shows, it is impossible to deliver them, even at maximum efficiencies. Government needs to listen to those it is asking to deliver them. Colleges are saying clearly that as much as they want to deliver them, they cannot.

As the Chancellor well knows, there is a cost to not investing in skills – our conservative estimate is that cost amounts to at least £3.3 billion over the next five years – as well as the intangible costs to individuals and communities.”

A survey conducted by Mortar London in October 2018 showed that 51% of SMEs are finding it more difficult to find employees with the right skills compared with five years ago – and for almost six in ten, finding skilled candidates is the biggest concern about the future of their business.