APPENDIX 14
Memorandum submitted by the Department
of Trade & Industry
THE FUTURE OF MANUFACTURING INDUSTRY IN THE
UK: SKILL SHORTAGES
INTRODUCTION
The Department welcomes this inquiry. The importance
of skills is recognised in our vision of creating the conditions
for business success and helping the UK respond to the challenge
of globalisation. Working closely with colleagues across Government,
we are committed to encouraging participation and the development
of skills in the workplace. As co-signatories of the Government's
Skills Strategy and through the Skills Alliance, we fully support
the reform of learning and skills provision and recognise the
vital importance of ensuring that provision, qualifications and
access routes to training meet employer needs.
THE UK SKILLS
BASE
The Government commissioned the Leitch Review
to identify the UK's optimal skills mix in 2020 in order to maximise
economic growth, productivity and social justice, and to consider
the policy implications of achieving the level of change required.
The first stage of the Review, the analysis, was published alongside
the PBR on 5 December 2005.
In this interim report Lord Leitch pointed out
that whilst the UK is the fourth largest economy in the world
and has the highest employment rate in the G7 group of industrialised
nations it faces significant economic challenges over the next
20 years or so.
This is demonstrated in the following chart,
which points out that despite some recent improvements, the UK
continues to have relatively poor productivity performance which
still trails some of the UK's main comparator nations. Output
per hour worked is almost 30% higher in France and more than 10%
higher in Germany and the USA than it is in the UK.
INTERNATIONAL COMPARISONS OF PRODUCTIVITY
Note: Data for 2004 is
provisional; output per hour worked is experimental.
Source: ONS, HM Treasury.
A significant contributory factor to this relatively
poor productivity performance is the UKs low overall level of
skills when compared to other competitor countries. This is summarised
in the following chart.
INTERNATIONAL COMPARISONS OF QUALIFICATION
PROFILES
Base: Adult population
aged 25-64.
Source: OECD Education
at a glance, 2005.
But is perhaps more starkly appreciated when
we note that:
— The proportion of adults in the UK
without a basic school-leaving qualification is double that of
Canada and Germany.
— Over five million people of working
age in the UK have no qualifications at all.
— One in six adults do not have the
literacy skills expected of an 11 year old. Almost half do not
have these levels of functional numeracy and only half of adults
who lack these functional skills are in work.
— Although the position in higher-level
skills is better, with over one quarter of adults in the UK holding
a degree-level qualification, other countries such as USA, Japan
and Canada are still in a superior position.
However this situation will change with the
current projections suggesting that:
— By 2020, the proportion of working
age adults without any qualifications will fall to 4%.
— The proportion without qualifications
at the equivalent level to five good GCSEs will halve from 31%
today to 16% in 2020; and
— The proportion holding a degree or
better will increase from 27% to 38% of the working age population.
PROJECTED QUALIFICATIONS IN UK WORKING AGE
POPULATION 2005-06
Note: Level 2: equivalent
to five GCSEs at grades A*-C; Level 3: equivalent to two A levels;
and Level 4: equivalent to a degree.
Colums may not sum to 100 due to rounding.
Source: Leitch Review
qualifications projections model.
Despite this improving picture, this will not
be sufficient to respond to the increasing pressure being placed
on the UK's competitive position as the nature of employment changes
to reflect globalisation and increased demand for more highly
skilled occupations, such as managers and professional occupations.
Leitch suggests that by 2014 two-thirds of jobs will be filled
by those with at least intermediate level skills and by 2020,
more than 40% of jobs could be filled by graduates, up from 30%
in 2004, whilst lower and some intermediate-skilled occupations
account for a falling share of employment.
Leitch also points to the important demographic
factors that will come into play over the next 15 years that will
in particularly affect areas of the economy (such as manufacturing)
which require skilled trades. As older workers retire and the
flow of young people, (which in the past has met this demand)
declines, workers will have to retrain and the proportion of older
people and the length of working lives will of necessity increase.
CURRENT SITUATION
IN THE
MANUFACTURING SECTOR
The National Employers Skill Survey (NESS) is
one of the key sources of evidence relating to skill deficiencies.
The most recent survey was completed by the Learning and Skills
Council in 2005 and interviewed 74,000 employers across England.
The size of the sample enables robust findings to be presented
by Sector Skills Councils (SSCs) occupational groupings. The results
were published in June 2006 and showed that:
— the number of employers reporting
skills gaps is down;
— the proportion reporting skills shortages
continues to be low; and
— the number of employers investing
in training is up.
However we must not be complacent. We need employers
to recognise that investment in skills and the achievement of
higher-level qualifications will lead to significant benefits.
There are two main measures of skill deficiencies
measured by the survey.
Skill shortage vacancies (SSVs)
Employers are asked to identify whether they
have any vacancies that are hard to fill. If these vacancies are
hard to fill because of a low number of applicants with the appropriate
skills, qualifications or experience, a skill shortage vacancy
is recorded.
Across all employers and sectors in England,
there are seven skill shortage vacancies per 1,000 people employed.
Overall in 2005 there were 143,000 job vacancies that employers
were having difficulty filling, at least partly because of applicants
lacking the appropriate qualifications, experience or skills.
The highest rates of SSVs are observed for Summit Skills (Building
Services Engineering Sector) (13) and Construction Skills (12).
Data for the five SSCs most closely related to manufacturing is
presented in the chart below. These are: SEMTA (Science, Engineering,
Manufacturing Technologies Alliance); Cogent—Chemicals,
oil & gas, nuclear, petroleum, polymers; Proskills—process
and manufacturing industries including coatings, extractives,
building products and printing industries; Skillfast—Apparel,
footwear and textiles and Improve—food and drink manufacturing
and processing. It may be seen that SSVs as a proportion of employment
are lower in each of the five SSCs than for the figure across
all sectors in England.
Source: NESS 2005
NESS also collects data on the impact of SSVs
on business. Results are not presented by sector, but across all
employers with SSVs the main implications are: increased workload
for other employees, customer service difficulties, loss of business
or orders to competitors, delays in developing new products, increased
operating costs, difficulties meeting quality standards, and difficulties
introducing new working practices.[38]
SKILL GAPS
The survey also asks employers to assess the
proficiency of their existing workforce. Skill gaps are defined
in terms of employees not being fully proficient in their jobs.
Overall, 20% of employers report having some skill gaps, with
6% of employees recorded as not being fully proficient. Skill
gaps are relatively high for sectors covered by Cogent and Improve,
with 8% of employees having a skill gap.
Source: NESS 2005
Source: NESS 2005
The nature of the manufacturing sector is changing
as new industries and products replace older ones. Increasing
global competition means that innovation and productivity improvement
will continue to be necessary. This in turn places improvements
in the manufacturing sector's skills base at the heart of the
discussion on the future of the UK's skills base.
Going forward the key skill requirements for
a successful manufacturing sector will therefore need to include:
1. Upskilling and extending the Technician
Workforce, including
— Moving the base level of the workforce
from Level 2 to Level 3.
— Improving craft supply at Level 3
through recruitment and upskilling of current workforce.
— Improving the supply of technicians
at Level 4 (Technician Engineers).
2. Tackling graduate skills deficits and
increasing the graduate population Within the workforce to meet
high value added requirements.
3. Improving Management and Leadership with
the aim of improving:
— Productivity and Competitiveness.
— Better Supply Chain Development.
— Continuous Process Improvement.
— Reduction in New Product and Process
Implementation (NPPDI) Time.
The goal of the Government's Skills Strategy
is to develop a genuinely employer driven training system. In
its Manufacturing Strategy the Government recognizes the key role
globally competitive skills play in closing the productivity gap
with key competitors. This led to the Government's manifesto commitment
to establish a National Skills Academy for manufacturing. This
challenge was picked up by the Manufacturing Forum who worked
with SEMTA and key industry representative bodies to create the
original proposal which led to the Learning and Skills Council
(LSC) supporting a 6 month planning process led by business. A
business plan was submitted to the LSC in July that, at the time
of writing is being considered by an independent approval panel.
An announcement is expected this autumn.
If approved, the National Skills Academy for
Manufacturing's (NSAM) mission is to raise UK productivity and
competitiveness through the provision of globally competitive,
generic skills to manufacturing companies of all sizes. It will
be based on a "hub and spoke" model with product development,
leadership and liaison with national skills bodies dealt with
by the hub, and management of delivery partnerships with local
networks and industry by its spokes, to be hosted and funded by
the Regional Development Agencies (RDAs).
The NSAM will seek to raise the quality of course
content, teaching and assessment in the UK, working with the best
skills providers in each region. It will build on the investment
already made by Government and industry in the Industry Forum
organisation (for content), Centres of Vocational Excellence (for
provision) and Automotive Academy and other innovative but proven
models (of skills delivery) in the sector. NSAM's initial product
offering will focus on shop floor skills (e.g. business improvement
techniques and engineering technician skills) but it will, over
its first 3 years, develop a full range of products, including
management and leadership.
As a result of a further request for expressions
of interest in setting up National Skills Academies in March 2006
, proposals are currently being assessed with a view to Academies
beginning operation from the autumn of 2007. An expression of
interest from Cogent focusing on the Process Industries is under
consideration
DIALOGUE ACROSS
GOVERNMENT AND
WITH PARTNERS
DTI and DfES work together closely on delivering
the Skills Strategy. The Secretary of State for Education and
Skills and the Secretary of State for Trade Industry jointly lead
the National Skills Alliance—comprising the CBI, TUC, Small
Business Service and a range of partner organisations. Government
is committed to balancing the contributions of adults, employers
and the state to the costs of learning. There are regular bilateral
meetings between the Secretaries of State and Ministers. The two
Departments' Permanent Secretaries also regularly meet to discuss
skills, as do the relevant Director Generals. There has also been
a joint DfES-DTI Board Meeting on skills and these will now occur
regularly.
Through our lead sponsorship of RDAs, we are
committed to getting the regional economic development agenda
working properly with the demand-led skills agenda. We also look
to the Regional Skills Partnerships to achieve integration and
simplification of business and skills advice and access to high
quality, flexible local support, which addresses regional and
sectoral priorities.
THE WIDER
PICTURE
Business simplification
We recognise that the skills landscape is complex
(see Annex 1). To some extent this complexity is inevitable given
that we are seeking to address the needs of employers of all sizes
in 25 sectors and nine regions. However, we are working to improve
and simplify the services employers interact with. Our objective
is that individual employers do not need to grapple with the underlying
detail and complexity. As part of the wider business support simplification
programme, we are working with DfES to achieve a simple interface
for business to engage with the publicly funded skills infrastructure
since this is the key to getting better business engagement. Our
aim is to establish a "no wrong door' approach so employers
know who to turn to for all of the help they need. The work of
business link, local LSCs and JobCentrePlus will be aligned. It
is particularly important that the generalist Business Link brokerage
service is effectively integrated with the specialist Train to
Gain skills brokers and there is a simple customer journey for
employers. We fully support the Train to Gain approach in targeting
hard to reach employers and taking the employers' business objectives
as the starting point to diagnose skills needs.
Information, advice and guidance
Through our relationship with business, key
sectors and business representative bodies, our relationship with
employees and trade unions, we use our direct contacts to promote
and challenge on skills investment, promoting best practice in
workforce development, employment and work practices and iimproving
access to information about skills opportunities for those hardest
to reach in the workforce. We particularly support the Investors
in People Standard in delivering business improvement through
people development and ensuring best use of skills within an organisation.
Skills messages are prominent within the Department's external
communications.
We are building on the success of BusinessLink.gov
to provide access to information and advice on skills and employment.
Our results are impressive for the "employing people"
theme, which is consistently among the top three most popular
areas of the website attracting about 100,000 unique visitors
every month. There are also very encouraging results for the new
personal development plan tool. We believe there is more potential
to develop the site in particular through links to improved local
training information.
Finally in the specific context of manufacturing,
we should not forget the work carried out by the Manufacturing
Advisory Service—as the flagship programme offering advice
on a rang of issues including skills
Skills for Business Network
We fully support the objective of raising employer
demand for skills and recognise that achieving a culture change
by employers and individuals is essential. We also welcome the
progress being made in the essential reform of learning and skills
to ensure that employers' needs and priorities are fully reflected
in the planning and delivery of training.
Business interests look to DTI to exert influence
across Government on the skills agenda which meets employer's
expressed needs. As co-sponsors (with DfES and devolved administrations)
of the Skills for Business Network, we recognise the importance
of the role of Sectors Skills Councils (SSCs) in delivering skills
and qualifications strategies and the potential of National Skills
Academies in raising the quality of training. It is essential
that SSCs have the capability to truly represent the interests
of their employers and this remains a key challenge, particularly
if their role in raising employer demand is to be maximised. We
have been giving business a strong message to get involved in
the demand[en rule]led skills agenda and to engage with the Skills
for Business Network (see Annex 1). Through our work with key
sectors and business generally, we will continue to urge the effective
involvement of employers and ensure their voice is strongly heard
in the reform of the learning and skills system, for example through
the Skills for Business Network, the Regional Skills Partnerships
and the planning of regional and local supply through the Learning
and Skills Council which meets employer's needs. We will also
continue to promote the demand-led approach of Train to Gain.
SKILLS FOR
THE FUTURE
We are driving forward, either directly or through
our partners, the actions set out in the ten-year Science and
Innovation Investment Framework towards achieving a step change
in teaching and learning and the level of STEM (science, technology,
engineering and mathematics) skills employed in the UK economy,
including building on the 2002 Roberts Review. We are working
with partners to address the key priority for higher level technical
skills and skills for innovation.
We encourage the provision of enterprise education
at school, FE and HE level, to equip young people to think innovatively
and creatively at times of change, and gain strong communication
and risk-management skills and encouraging individuals to focus
on their own skills development and expect more from employers.
Lord Leitch will be making his recommendations
on the UK optimum skills mix in the late Autumn. DTI stands ready
to play its part in working with employers and the rest of the
skills infrastructure to meet the challenges of the next decade.
38 NESS 2003 data. Back
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