Industrial strategy must embrace 'big' employment sectors

A major consideration is how broad or narrow the industrial strategy should be. UK industrial strategy has historically focused mainly on the manufacturing sector while the industrial strategy of 2010-15 also promoted a number of key technologies where the UK had some scientific advantage and a number of sectors identified as having a strategic partnership with government. In the CIPD’s view, an effective and comprehensive industrial strategy needs to be much broader to cover high employment sectors such as hospitality and retail. High and medium-tech manufacturing, for example, while very important, accounts for 2% of employee employment, while the wholesale and retailing sector represents 16% of employee employment.

Secondly, it is hard to devise a consistent set of criteria to justify which sectors are to be favoured over others, and even harder to ensure it remains relevant and up-to-date. Change is driven by the often unpredictable rise and fall of industries responding to global markets and new technologies, and new activities often cut across boundaries, for example, the rise of the gig economy. In particular, automation is in the process of changing the nature of employment and the workplace across the economy. Too narrow a focus would restrict the ability of government to support employers across a wide range of sectors to adapt to such technological changes in a way that complements and enhances the contribution of their employees rather than by diminishing – or even replacing – the skills of the workforce.

The retail industry is a good example of how these changes are affecting long-standing industries. The British Retail Consortium estimates that nearly a million jobs could be lost in the sector by 2025 as a result of new technology changing the face of the retail workplace, the need for greater labour productivity and the shopping habits of consumers.

Thirdly, there is a constant danger that policies which brand certain sectors as strategically important will cross the boundary between legitimate long-term support and national interest concerns to become protectionist and anti-competitive.

Consequently, the CIPD believes that the primary focus of a new industrial strategy should be to develop policies to improve competiveness, productivity and performance across as wide a range of industries as possible. This approach does not exclude the need for sectoral perspectives or for a much stronger focus on boosting growth in regional economies given the greater control local and combined authorities are being given on issues such as skills.

Improving leadership and people management key to successful industrial strategy

The other main focus of the CIPD’s submission to the select committee inquiry into industrial strategy was on skills policy and the workplace. The CIPD believes that there needs to be a much stronger focus on improving leadership and people management capability across the economy in order to boost skills utilisation and workplace productivity.

Evidence from Bank of England research suggests that a significant part of the productivity paradox lies in what is happening in UK workplaces. This view is reinforced by high levels of qualification mismatch and apparent underutilisation of skills within the UK labour market. OECD data finds that 30% of UK workers think they are over-qualified, the second highest level of self-reported over-qualification in the OECD.

This finding is reinforced by data from the most recent (2015) Skills Survey by the UK Commission for Employment and skills which shows that while just 6% of organisations cite any skills shortage vacancies, nearly a third of organisations report under-utilised skills in their existing workforces. Other OECD research concludes that the UK could benefit from a 5% productivity gain if the level of skills mismatch in the economy were reduced to OECD best practice levels.

Taken together the above data strongly suggests the UK’s skills and productivity challenge is as much about improving how skills are utilised in the workplace and boosting investment in skills by employers as it about improving the supply of skills and addressing skills shortages. Past industrial policies have typically had limited direct reach into the workplace, partly because it has proved hard for government to find appropriate levers. Policies have tried more conventional levers with mixed results: for example, we have hugely increased the supply of highly educated labour over the past decade but there are significant concerns that the skills they bring are being poorly used. There is widespread agreement that improving supply has reached the limits of effectiveness, and what is needed is an equally significant focus on the demand for skills and that in turn will have to be workplace-driven.

Encouragingly, the Government has already announced in the Autumn Statement that it is to invest £13m in the How good is your business leadership improvement initiative, which has been led by Sir Charlie Mayfield.

However CIPD believes there are a number of other options the Government should consider as part of a drive to boost leadership and people management practices in the workplace.

Firstly, BEIS could give a stronger emphasis in future developments of support services for SMEs to strengthen people management competencies, especially around the effective use and development of skills. The CIPD has, in partnership with JP Morgan Foundation, been piloting the provision of HR support to SMEs in a number of locations which has produced some valuable insights, including the critical role of local authorities with strong linkages to local businesses working closely with Chambers of Commerce and other local institutions. These linkages create what we have called “supportive skills eco-systems” at the local level. We will be publishing an assessment shortly.

Secondly, the BEIS could revisit the experience of the old DTI’s Partnership Fund to see whether more direct support for partnership working between employers, unions, and employees in order to improve business performance and the quality of work could be developed, drawing on the lessons from previous rounds.

Thirdly, BEIS could give more direct support and encouragement to building recent initiatives. For example, Acas’s Building productivity in the UK identifies seven levers of workplace productivity, including well-designed work, improving the skills of line managers, managing conflict, fairness, employee voice, and high trust and gives practical advice to businesses on how to improve in each of these areas.

Finally, the Government needs to ensure that national policy on improving skills and how skills are utilised is aligned with, and helps to inform, local skills policy agendas, working with key stakeholders such as local authorities and Local Enterprise Partnerships. This does not mean preventing local areas and regions from identifying and responding to local labour market or skills issues, but that there needs to be overall strategic alignment on addressing the areas where the UK has systemic weaknesses.