Government productivity plan is built on sand

By Mark Beatson, CIPD Chief Economist, @MarkBeatson1

The government's productivity plan was published the Friday after the Budget.  Its title, “Fixing the foundations: creating a more prosperous nation”, is presumably a nod to the Chancellor’s insistence on “fixing the roof while the sun is shining”.

Rather worryingly, though, the productivity plan itself seems to have been built on sand, largely ignoring or pay lip service to the need to address some of the UK’s biggest skills challenges which lie at the heart of the UK’s productivity problem.

The plan is not without its good points.  For example, the foreword states that “A nation flourishes when it uses the full skills of all its people in all parts of that nation”.  We couldn’t agree more.

Our immediate response to the productivity plan focused on the weakness of its skills strategy.  There are chapters on apprenticeships and universities.  In both cases, the government intends to put additional money into the system.  In the case of apprenticeships, this will be through a levy on employers.  In the case of universities, it is by placing more of the cost onto students (albeit recouped via loans rather than paid for up front).  The government is probably right that more investment is needed in these areas – especially apprenticeships – if quantity is to be maintained or expanded without this being at the expense of quality.  However, the effectiveness of these policies will depend on how they are implemented.  For example, if large employers are required to pay an apprenticeship levy, what will stop them rebadging existing training as “apprenticeships” in order to get something back from what they have paid in?  And will an apprenticeship levy have a knock-on effect on firms’ internal training?

The focus on apprenticeships and universities means the plan has little to say about how to increase the productivity of the existing workforce or, indeed, about how the graduates of universities and apprenticeship schemes will maintain and enhance their skills during the next forty to fifty years of their working lives.  However, the decision to highlight further and higher education as sources of in-year cuts in the BIS budget, announced before the Budget, raises fears that other forms of vocational education and training will face a challenging Spending Review.

Tucked away in a section on long-term investment, there is a commitment to publish a National Infrastructure Plan for Skills this summer.  This is potentially a very good idea.  Indeed, in our Manifesto for Work, published shortly before the election, we said “There needs to be both a change in culture and the construction of a learning infrastructure that enables it [lifelong learning] to happen” (the building metaphor is clearly contagious).  However, the timescale allowed for its preparation and publication of the plan seems very short for the presumed task.  The changing nature of work, technological change and an ageing population raise important questions about what types of learning infrastructure do we need now in the future?  Until there has been a wide-ranging, evidence-based and inclusive discussion of this question, plans for specific pieces of infrastructure – what, how many, where, managed by who? – could be premature. This could be a case where lack of specific detail and commitments could be a strength rather than a weakness.

Unlike some previous growth and productivity plans, management and leadership does get a mention.  The plan says that forthcoming plans for introducing income-contingent loans for postgraduate courses will be available to “contribute to the costs of an MBA” – a hint there may be an upper limit on loan payments.  The commitment to introduce an apprenticeship degree in leadership and management may be something with broader appeal for firms wishing to improve the quality of line management. On the other hand scepticism exists in some quarters whether it should be possible to have an apprenticeship of any form based just on leadership and management.  And this should not preclude management and leadership being made integral to all higher level apprenticeships.

The changes announced in the Budget to in-work benefits and the introduction of a National Living Wage get chapters of their own.  This would be entirely sensible if this was a plan for output growth – along the lines of the plan published by the Coalition government (and then quietly consigned to the dustbin) – but it is not obvious why these feature in a productivity plan.  Increasing the financial incentives to find paid employment, together with stronger pressure on benefit recipients, increases the labour supply but does nothing by itself to increase the productivity of jobs.  The National Living Wage could increase average labour productivity simply by pricing some low-paid workers out of low-productivity jobs.  This is where joined-up thinking is required: looking how government can enable businesses to create more high-value jobs rather than more of the same.

Although this is a “fifteen-point plan” for productivity, the plan has sixteen chapters!  The public sector appears as an afterthought, which is ironic given that its productivity grew faster in 2011 and 2012 than in any year since 1998, the starting point of the time series (the latest data is for 2012).  It appears that reductions in budgets and staffing were not been reflected in the outcomes that determine how public sector productivity is measured.  It’s a pity there is no analysis here.  Cutting out waste and duplication increases productivity - as does working public sector employees harder - but adoption of “smarter”, outcome-focused ways of working also improves productivity.  Key outputs that feature in the productivity statistics may have been prioritised, with output losses in other areas not showing up in the statistics.  In addition, it is unclear whether these productivity improvements are sustainable – has government been investing enough in technology and workforce skills?

Skills are the cement that underpins the foundations of the UK’s economy. Considerably more thought needs to be spent on getting this mix right if we are to see sustainable increases to the UK’s productivity performance.

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