Tackling Britain’s skills and worker shortages

Britain’s near-record low unemployment belies a deep problem with the labor market: the country has a severe shortage of skills and workers. Employment remains below pre-pandemic levels, unlike G7 peers. Vacancies are still over 300,000 more than at the start of 2020. Early retirement, illness and changing immigration rules after Brexit are all to blame. Meanwhile, the UK performs averagely in international education rankings and its employers spend only half the EU average per employee on training. As this and future governments try to fix UK plc’s growth problems, tackling its staffing problem is a priority.

Access to the right talent helps economies grow, innovate and raise wages sustainably. Britain needs to develop a dynamic education and training system that will increase skills and productivity with the evolving demands of the labor market. It must also reduce labor force inactivity — which remains more than 500,000 higher than before Covid-19 — and fix obstacles to the new immigration system. A multi-pronged approach is vital as Britain faces slowing population growth.

Education is a starting point. Total UK education spending fell sharply in real terms in the 2010s. The government started to increase school spending per pupil again. However, there are still teacher shortages and curricula also need to become more flexible, with more emphasis on digital, numeracy and financial literacy skills. Meanwhile, although UK universities compete well globally, vocational, technical and lifelong learning options are lacking. Further education and adult budgets need a boost after years of squeeze. Proposals to develop higher level technical skills qualifications and financial incentives for continued learning beyond the age of 18 and beyond a degree are needed.

Improving on-the-job training and retraining opportunities will also be crucial. England’s apprenticeship levy — a tax on businesses to fund apprenticeship training — needs reform. It fails to deliver training for the lower skilled and young, but it is also very rigid, with limited access to a range of courses. Better tax incentives for spending on training would help, particularly for green skills and the right courses to tackle poor management skills, which limit the productivity of UK businesses.

Getting inactive workers back to work is important, as skills and confidence atrophy over time out of the workforce. Training for in-demand and sector-specific skills can support older workers. Childcare costs are also among the highest in the OECD: one estimate suggests that poor access to affordable childcare prevented some 1.7 million women from taking on more hours of work. Easing costs such as business rates could help more nurseries stay open. The health and well-being of employees is also key. Small businesses in particular will benefit from subsidies for the provision of occupational health services.

Britain’s post-Brexit immigration system has meanwhile delivered strong inflows of highly skilled workers from around the world, but has left a number of shortages in less skilled sectors. Targeted training and expanding short-term visas for youth mobility to more countries could be one way to bridge the gap. Above all, reducing visa processing times and fees involved in hiring workers from abroad, especially for SMEs, would help make the new system more efficient. Relaxing requirements under special visas for entrepreneurs and top graduates would also help attract the brightest talent.

These reforms are urgent: the Learning and Work Institute, a think-tank, predicts that skills shortages will cost the UK £120bn by 2030. Britain’s growth will continue to stutter if it lacks people and skills to offer it.

This is the second in a series of publications on measures to boost UK economic growth. The first, regarding business investment, can be found here.

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