The Government's Productivity Plan Contents

Conclusions and Recommendations

Implementation of the Productivity Plan

1.The Government is right to be concerned by the lack of productivity growth in the United Kingdom and the Committee welcomes the Government’s focus on this issue. We endorse the analysis of the problem in the Plan. However, we question whether the document has sufficient focus and clear, measurable objectives to be called a ‘plan’. This broad and expansive document represents more of an assortment of largely existing policies collected together in one place than a new plan for ambitious productivity growth. (Paragraph 6)

2.While the Productivity Plan holds many commitments for future actions, there are few clear timelines. Greater certainty could be achieved if these policies had clear milestones for implementation and success. We therefore recommend that the Government produces a clear supplementary document outlining the proposed implementation and measure of success of each policy in the Productivity Plan, regularly updated with progress against key milestones and dates. We note that of the 16 chapters of policy areas in the Plan, very few have usable measures of performance. Only once the Government publishes quantifiable metrics of success and a roadmap to implementation of the policies contained within the Plan, will Parliament be able to hold Ministers to account. (Paragraph 10)

3.Our conversations with the Ministers and subsequent analysis has led us to conclude that the ministerial engagement in the implementation of the Productivity Plan is far too weak. We are concerned that the cross-departmental implementation work for what is meant to be a key part of government economic policy has been left to officials holding periodic meetings. Effective coordination, ministerial direction and political leadership all need to be much clearer and stronger. We are concerned that, without the discipline of regular cross-departmental ministerial accountability, there is insufficient ministerial focus on the implementation of the Productivity Plan. (Pargraph 14)

Policies in the Productivity Plan

4.Given the raft of existing metrics on basic skills, we recommend that the Government outlines what policies particularly in terms of improving productivity it will introduce to improve the basic skills of the workforce and clearly states how it will measure the success of these policies, which will also assist Parliament’s scrutiny of this crucial area. (Paragraph 17)

5.There are differing views on where the line should be as well as a lack of clarity between ‘basic’ and ‘employability’ skills but it is clear that the Government should be involved. We therefore recommend that the BIS Department works across the Government to enhance the employability skills that are acquired by school pupils, college and university students by looking to give work experience greater prominence in schools as part of a proper policy on information, advice and guidance. We particularly note and support the positive impact that enterprise initiatives can have in schools, such as the activities of the charity Young Enterprise. Again, it should publish a clear and quantifiable measure of success for this policy, against which it can be held to account. (Paragraph 19)

6.The Government has indicated that it is for businesses—not Government—to drive skills policy through demand. It is counterintuitive for the Government to set a quantitative target on the industry to provide three million apprenticeships while suggesting that the provision of skills must be employer-led. We support the principle of increasing the number of apprenticeships, but the target is something of a blunt and arbitrary tool. Given that apprentices are employed by firms, we recommend that the Government, in its response to this Report, sets out the rationale—and publishes the evidence base—for it setting a target of three million apprentice starts when that may run against what businesses actually require. (Paragraph 21)

7.There could be a policy trade-off between the Government achieving the three million apprenticeships target and the maintenance of apprenticeship quality. We believe that the Government is right to resist this temptation and will continue to keep a close eye on this part of skills policy. (Paragraph 23)

8.Within the three million new apprenticeships there are no numerical targets for apprenticeships at particular levels but only on the total quantity. Much of the evidence that we received suggested that there remained a skills gap in the UK, which advanced and higher (level 3 and 4) apprenticeships could contribute to fill. We recommend that the Government works with businesses and individual sectors to make a preliminary assessment of how the three million apprenticeships will be broken down by level and publishes the result of this work. While we accept that the Secretary of State did not want to be too prescriptive, the lack of this analysis reinforces the view that Ministers have not given enough thought to how different types of apprenticeships can best fill the skills gaps that exist. (Paragraph 25)

9.The design of the apprenticeship levy must recognise that some businesses invest heavily in training and development but have a smaller proportion of apprentices because of a smaller need in that business. It is for each employer to determine what is required, based upon their assessment of their sector. We recommend that the Government consults with industry to ensure that the apprenticeship levy is implemented in such a way as to allow sectors to invest in skills through different qualifications and training methods applicable to their specific needs. We further recommend that the Government publishes the result of these consultations. (Paragraph 28)

10.The Government’s funding of Further Education and Higher Education does not indicate a parity of esteem. We recommend that the Government does more to balance the perception of the benefits of College and vocational education against those of higher education, and should do more to promote both as attractive career paths and as good drivers of productivity. Vocational education is key to improving productivity and we recommend that the Government clearly outlines how it will ensure that this is recognised in terms of policy priority and funding streams. Achieving this will help to close the skills gap and the Government should publish a clear business-plan to achieve this. This plan should include tangible policies and measurable indicators of success. (Paragraph 30)

11.We recommend that the Government does not allow migration pressures to influence student or post-study visa decisions. Specifically, it should relax the post-study visa restrictions. It is illogical to educate foreign students to one of the highest standards in the world only for them to leave before they have had an opportunity to contribute to the UK economy. (Paragraph 32)

12.We have heard strong evidence throughout our inquiry into the Productivity Plan that public spending on R&D draws in private spending on R&D. This is a model operated around the world by the UK’s major competitors. We fully agree with the Science and Technology Committee’s recommendations on maintaining good R&D investment in the UK and echo that, if the Government is serious about productivity and competitiveness, it needs to commit to a total level of public and private R&D investment in the United Kingdom of three per cent of Gross Domestic Product. We therefore recommend that the Government produces a ‘roadmap’ for increasing the total level of public and private R&D investment in the United Kingdom to three per cent of Gross Domestic Product. (Paragraph 34)

13.The Government has announced a clear shift from R&D grants for private investors from a system of ‘R&D grants’ to a system of ‘R&D loans’. We heard anecdotal testimony of the Minister that businesses she had spoken to had stated that they would prefer to take out a loan (that they have to pay back) rather than be given a grant (that they do not).63 We struggle to accept that the majority of rational businesses in the UK share that view. We therefore recommend that the Government provides:

(1)The clear rationale for moving R&D grants to loans.

(2)The modelling done with a clear statement that the Government expects this to result in more/same/less private investment in R&D.

(3)What proportion of current public investment in R&D it will convert R&D to loans from previous R&D grants.

(4)What proportion of R&D loans it expects to be repaid (i.e. the equivalent RAB charge64 in relation to student loans). (Paragraph 36)

14.We welcome the certainty provided for aerospace and automotive sectors in maintaining grants and pushing them out until 2025. This will create certainty for the long-term which is likely to consolidate the United Kingdom’s competitive advantage in these important sectors. However, we look to the Government to provide such certainty across the economy and we recommend that the Government provides the rationale behind selecting these two sectors and explains why not others. (Paragraph 38)

15.The changing nature of the economy means that the new generation of entrepreneurs are still struggling with appropriate access to finance. We have heard that investors still struggle to understand the development of new business models and intangible assets. This means that too little capital is provided, often at too high a price. The United Kingdom is at the centre of global financial markets and is well placed to ensure that this failure is addressed. We are concerned that competing financial markets around the world have the potential to steal the march on us with the subsequent detrimental impact upon this country’s growth and productivity potential. The Government should provide more clarity than is in its Productivity Plan as to how it plans to address this market failure helping to match growth funding to firms with high growth and productivity potential. (Paragraph 41)

16.We recommend that the Government provides more specific detail on that increased funding and outlines how it will support them to maximise the benefits to businesses and the engagement with research centres and the collaborative benefits that catapult centres can have. (Paragraph 43)

17.Given that one quarter of the productivity gap between the UK and the US is associated with poor management we recommend that the Government does much more to address the management gaps in the economy among companies. To that extent, we welcome the new degree-level apprenticeship in professional management and we recommend that the Government provides detail about the content and expected number of apprenticeships that will be provided. However, this is such a significant issue that the solution will not be found in one new course and we recommend that the Government, in its response to this Report, outlines what further steps it will take to raise the management capability within the economy. (Paragraph 45)

18.We broadly welcome the introduction of the National Infrastructure Commission and believe that transparency is crucial for it to be effective at attracting private investment, especially for the long-term. The National Infrastructure Commission is independent and must therefore be accountable to Parliament. We will monitor the work of the Commission. In particular, successful interaction between the Commission and Government is crucial to ensuring infrastructure projects are properly resourced and effectively implemented to the benefit of the UK economy. (Paragraph 47)

19.We strongly welcome the certainty created by securing the Annual Investment Allowance and praise the Government for introducing this measure. This is an example of a specific and tangible policy that provides the certainty that allows and encourages investment for the long term which we believe will have a positive impact on boosting productivity. We will continue to monitor government policies designed to encourage and incentivise a healthy balance between public and private investment in the economy. (Paragraph 49)

20.While we have not reported in detail on this topic here, the evidence that we received will feed into our parallel inquiry into the ‘Digital Economy’. We are also aware that our inquiry complements the Culture, Media and Sport Committee’s inquiry into ‘establishing world-class connectivity throughout the UK’ and we have published all evidence received so that it may be used to inform Parliament more widely. (Paragraph 51)

63 Q168

64 The Resource Accounting and Budgeting (RAB) charge is the estimated cost to Government of borrowing to support the student finance system. It is based on future loan write-offs and interest subsidies in net present value terms.

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Prepared 28 January 2016