Digital skills crisis Contents

2Digital skills and business

Skills for a digital economy

18.The House of Lords Select Committee on Digital Skills highlighted in 2015 that the digital sector alone was worth an estimated £105 billion in gross value added to the UK in 2011.35 The relentless pace of emerging digital technologies has already transformed the way we communicate and work. Research in the Netherlands has shown that employees lose nearly 8% of productive time due to poor IT resources or inadequate digital skills.36 The CBI note that those equipped with the knowledge and tools to engage with digital technologies, however, earn a higher wage, reflecting their greater productivity. Tech City UK calculate that the average advertised salary in digital roles is just under £50,000—36% higher than the national average.37 There is a pressing need for high level specialist skills in data science, cyber-security and data security as a result of high growth rates associated with key emerging technologies in which UK has particular strengths:

19.Tata Consultancy Services note that “the UK’s skills shortages are most severe in emerging technologies”,39 and that without intervention this growth trend will only continue. The Tinder Foundation reported that already almost 90% of new jobs require digital skills, with 72% of employers stating that they are unwilling to interview candidates who do not have basic IT skills.40 Businesses and workers, like our education system, will need to accommodate future trends. Automation is slowly changing the services we use and the jobs we do, from banking to health care to education. A 2014 study by Deloitte and Oxford University concluded that 35% of jobs could become automated over the next 20 years.41 Office and administrative support, transportation, sales and services, construction and manufacturing are most likely to be computerised or automated.42 Jobs paying less than £30,000 will be five times more likely to be automated than jobs paying over £100,000.43 Charlotte Holloway from techUK explained that:

We can see the changing nature of the workforce [ … ] Smaller tasks are made easier or frictionless, and it changes how employees at an individual level can get on with their jobs and play a wider role in different sorts of organisations. We have to acknowledge that the structure of the workforce will be changing as a result.44

20.There are already, however worryingly digital skills gaps in industry. The economic impact of this skills crisis is already clear. Research by O2 showed that the UK would need 745,000 additional workers with digital skills to meet rising demand from employers over the period 2013–2017.45 Failure to fill these vacancies would cost the country between £1.6 billion and £2.4 billion a year.46 TechUK told us that “93% of tech companies surveyed believe that the digital skills gap affects their commercial operations and talent acquisition.”47 Approximately 50% of employers have digital skills gaps which include specialist, technical roles.48 Go ON UK calculated that:

85% of hard-to-fill positions are difficult to recruit because of the lack of specialist, technical skills. These could have a wide range of impacts, restricting economic growth and productivity, unable to develop new areas of business, putting an increased pressure on existing employees to deliver more. 49

21.Nesta told us that many data-driven companies were struggling to find suitable talent. Businesses are constantly generating data based on our shopping, entertainment, business and finance activities. By analysing that data they can identify trends, increase efficiency, personalise services and create opportunities for innovation. However, such data analysis requires a firm foundation of digital skills.50 In a recent report, Skills of the Datavores, Nesta found that data–driven companies are over 10% more productive than ‘dataphobes’—firms that do not exploit their data.51 Nesta found that two-thirds of ‘datavores’ struggled to fill at least one vacancy when trying to recruit analysts over a 12 month period.52

22.In the face of domestic shortages of digital workers, it is start-ups and SMEs who lose out. While larger tech companies are able to recruit globally, sourcing 16% of talent outside the EU, University Alliance and CaSE believed that smaller firms are limited by current immigration policies.53 The Government recently acknowledged that specialist technology roles are in short supply, accepting the Migration Advisory Committee’s recommendations for allowing businesses to recruit specialists outside the EU. The roles added to the ‘Tier 2’ visa ‘shortage occupation’ list include IT product managers, system engineers, data scientists and cyber-security specialists.54 However, only ‘qualifying businesses’ will be able to benefit from these changes—primarily SMEs employing between 20 and 250 employees and those independent of larger companies.55 These new measures, although welcome, would bypass the many tech sector SMEs or start-ups with fewer than 20 employees. Companies more than 25% owned by a larger company will not be ‘qualifying companies’, including those with significant investment from FTSE 100 companies.56

23.In the face of recruitment difficulties, the Wellcome Trust highlighted the need to develop training opportunities and career structures that would ensure a future supply of data scientists to serve academia, industry and the public sector. They believed that:

The UK’s world leading position in science will only be maintained if we can establish an effective pipeline of individuals with specialist skills in data science and coding, and a broader scientific workforce equipped with a firm grounding in mathematics, data analysis and computing.57

24.The CBI’s 2014 Gateway to Growth report found that 61% of surveyed businesses reported weaknesses in IT skills competencies; a 4% increase from 2009.58 According to research recently commissioned by Barclays, businesses are not doing enough to improve their employees’ digital skills. Instead, an estimated 40% of businesses are choosing to hire younger, more digitally knowledgeable employees to address the digital skills gap rather than train up mid-level employees.59 The Tinder Foundation urged employers of low-skilled staff “to make sure they take responsibility to upskill their workforce”.60

25.SMEs, sometimes more than larger businesses, benefit from emerging digital technologies such as social media and online selling and payments. They face particular challenges, however, both in generating the financial capacity to invest in continuous change in digital technologies and in building the capacity to support workplace training in these technologies. Lloyds Banking Group’s most recent Business Digital Index survey showed that a quarter of small businesses lacked digital skills.61 For the voluntary sector, the figure was even higher at 50%.62 Nick Williams from Lloyds explained that “a third [of SMEs] did not have the right skills, a third believed that they had the right skills and did not need to do more, and a third were just not interested”.63 CompTIA told us:

The majority of industry-focused initiatives from government are still far too top heavy in their input from larger firms, such as the Government’s ‘Trailblazer’ initiative on industry-led apprenticeship standards. This means they are often not suited for SMEs and not taken up fully, missing a massive opportunity to boost digital literacy in a large segment of the UK’s population—whose primary source of digital skilling and reskilling will be via work training.64

26.As digital skills increasingly become the foundation of a competitive economy, businesses need to invest in digital training to increase productivity and stimulate innovation, or we risk the UK being left behind. The rapid pace of digital transformation is changing the nature of the UK workplace. We must equip the next generation not just with the skills that we know industry needs today but also with the skills they will need for a future not yet imagined.

27.The Government’s new computing curriculum, which we discuss in Chapter 3, is world leading and, properly taught, has the capacity to transform the digital skills potential of the next generation. It will however take time to impact the workplace. To address immediate gaps, therefore, the Government should put in place coherent strategies to address the shortage of skills of particular strategic importance to the UK economy—including cyber-security, big data, the Internet of Things, mobile technology and e-commerce—and how these capabilities should be introduced in workforce training.

28.The imperative for businesses to develop the digital skills of their employees is now a matter of survival. In order to maximise the opportunities that the digital economy presents, the Government should set out in its forthcoming Digital Strategy a plan for working with businesses to share best practice of, and scale up, existing business-led initiatives to upskill both employees and customers. These plans should include a framework through which the private sector could collaborate with communities and local authorities to raise digital skills in local SMEs and the wider community.

29.In its forthcoming Digital Strategy, the Government needs to establish an effective pipeline of individuals with specialist skills in data science, coding and a broader scientific workforce that is equipped with a firm grounding in mathematics, data analysis and computing. The Strategy should commit the Government to annual dynamic mapping of public sector and industry initiatives and public spending on digital skills against the economic demand for those skills. This would help it assess the effectiveness of measures that are already in place in addressing the digital skills crisis, and create a long term mechanism for investment in and adjustment of the Digital Strategy to maximise its effectiveness.

30.SMEs and start-ups are the wealth creators in the UK and should not be obstructed from hiring the talent they need to become more productive. The Government should review the qualifying requirements for the new IT roles added to the Tier 2 visa ‘shortage occupation list’, making it easier and more flexible for SMEs and start-ups to recruit top talent from outside the EU.

Digital Champions

31.Businesses not only need a digitally skilled workforce but also a digitally literate customer base. Some businesses have developed the concept of ‘digital champions’ to engage with communities by sharing the benefits of the internet with people who are ‘not online’. We heard from Barclays and Lloyds Banking Group about their respective initiatives. As part of its Helping Britain Prosper Plan, Lloyds intends to train 20,000 digital champions to help improve the digital skills and financial capability of its customers by 2017.65 The bank already has 11,000 digital champions and has partnered with the Tinder Foundation to provide access to a network of over 5,000 UK online centres.66

32.Barclays Bank have trained nearly 16,000 volunteers through its Digital Eagles initiative, operating in branches across the country.67 The aim is to help its customers, businesses and the public to understand the benefits of the internet and mobile apps.68 Working in partnership with Age UK and the NHS, it also offers ‘Tea and Teach’ sessions for the elderly and disabled, tackling issues such as fraud and scam awareness and booking and cancelling GP appointments.69 Barclays have also formed a partnership with the Department for Work and Pensions, where the Digital Eagles concept was replicated in Jobcentres and more widely across the Civil Service as part of a Digital Friends initiative.70 The goal is to increase the digital capability of DWP staff, to allow them to support their customers more effectively.71 Go ON UK’s Digital Skills Charter allows businesses to pledge their support to improve basic digital skills. A wide range of businesses have signed the charter, including the Post Office, NHS, Age UK, Shelter, EE and TalkTalk.72

33.Digital Champions are a useful lever to engage with those who are hardest to reach—those with low digital skills which makes them more receptive to face-to-face support. The Government should step up its Digital Friends initiatives to go beyond its cross-government approach by extending it widely across the public sector.

34.Businesses’ ability to deploy a workforce with the required digital skills depends in part on a pipeline of graduates and apprentices with suitable skills, as we discuss below.

Meeting industry needs: higher education

35.Computer science skills are vital to the UK’s economy across the full range of business and industry. However, many young people are leaving education without the skills that employers are looking for and are unable to progress within the labour market.73 According to the Destination Leavers from Higher Education survey for 2014–15, computer science graduates have one of the highest unemployment rates of any degree subject.74 Figures from the National Centre for Universities and Business indicate that 13% of computer science students are still unemployed six months after graduating, compared with an average of 8% across all subjects.75

36.Sheila Flavell from FDM Group (an IT graduate employer) believed that “there is a serious mismatch between what is taught in schools and universities and what businesses require”.76 FDM Group went further, telling us that:

Current teaching in universities is devoid of commercial reality and does not have a strong enough commercial aspect. Graduates are emerging from degrees with a broad knowledge of IT Theory but no in-depth technical understanding of particular disciplines or the professional skills needed for a career in the sector.77

At a recent digital skills seminar, however, a combination of other factors were put forward as possibly contributing to a relatively high unemployment rate for computer science graduates.78 For example, some believed that there has been a tendency for employers to recruit computer science graduates from a small cadre of universities, although they did not present evidence about how this differed from other subjects, or how the high demand in the tech labour market had overcome any such bias.79 Others pointed out that graduates tend to use the advice of their networks of family and friends to seek job opportunities, but the scope for this might be less for still developing sectors compared with longer established ones.80 It was also noted that certain universities have exceptionally high employment rates for computer science graduates compared to other poorer performing institutions. There were examples of innovative solutions being developed by the higher education sector: Birkbeck launched an MSc in Data Science, a conversion course specifically designed for existing graduates to take up Data Science careers,81 and Hewlett Packard partnered with the Tech Partnership to develop Information Technology Management for Business and Software Development degrees.82 Samsung recommended “creating a code conversion course to help graduates from non-computer science backgrounds enter the tech sector with a recognised qualification”, making it easier for tech companies to provide digital skills training.83

37.There is a significant gender disparity within the IT sector, where women are under-represented, making up only 17% of IT professionals.84 This can in part be traced to higher education. Research by the Tech Partnership showed that 16% of new graduates from IT related degree courses were female compared to 44% of new graduates as a whole.85 The situation regarding other aspects of diversity is more complex, as the Royal Society explained:

For mathematics, computer sciences, engineering and technology, men are more likely to be employed in graduate level science occupations than are women. While women are not under-represented in the overall scientific workforce, they are highly under-represented in senior roles. Black and minority ethnic groups are over-represented in the digital/IT sector, as are those with a disability, but under represented at senior levels. Socioeconomic background strongly affects whether an individual enters the scientific workforce.86

The Shadbolt and Wakeham Reviews

38.Part of the problem of the under employment of computer science graduates appears to lie with computer science degrees themselves. These are currently accredited by the British Computer Society and the Institution of Engineering and Technology. While the British Computer Society accredits the vast majority of computing courses, it is difficult for employers to differentiate the strengths of particular IT or computing courses. Some stated that computer science as a degree subject was perceived as too generic by employers, not understanding the course content in which graduates were actually qualified. In addition, university ‘JACS’ codes are not applied consistently, making it very difficult for employers to establish the content of particular courses between different universities when considering CVs.

39.Accredited degrees and curricula are required to meet standards designed by academia and industry to ensure its relevance, but it has been widely accepted across academia, professional bodies and industry that improvements need to be made to the accreditation systems for computer science degrees to ensure that they are future-proofed for emerging technologies. Following its 2014 Science and Innovation Strategy, the Government commissioned two independent reviews.87 The Shadbolt Review considered the employability of computer science graduates, while examining the provision of computer science degrees and how degree accreditation systems might be reformed to keep pace with the needs of the computer science profession.88 The Wakeham Review examined the skills requirements of employers, the relevance of STEM knowledge and skills for industry, and how existing accreditation systems might provide better support to graduates. 89 The Higher Education Funding Council for England summarised the key findings from these reviews:

40.When Ministers gave evidence to us in March 2016, both reviews had not been published. Ed Vaizey told us then that the Digital Strategy (which we discuss in Chapter 4) had already been written.91 As a result of our prompting, he undertook to take account the findings of the Shadbolt Review in the Strategy.92

ELQ Exemptions

41.The Government’s ‘Equivalent and Lower Level Qualifications’ (ELQ) policy stipulates that students already holding a qualification at the same or lower level have to pay full fees if they want to study a further different subject, even for the purposes of reskilling. In the 2015 Spending Review, the Chancellor announced the extension of tuition fee loans to all students studying for a second degree in a STEM subject from 2017–18. However, so far a full list of these ELQ exemptions have not been published creating challenges for university applications and course creation.93 The Open University has also made the case for extending ELQ exemptions to include ‘half-STEM’ degrees such as a BSc in Computing and Business and Conversion Degrees.94 Others have queried the applicability of ELQ exemptions to digital and STEM apprenticeships, especially in the context of the Apprenticeship Levy as a tool for upskilling existing, often graduate, workers.

42.The Government should take into account the recommendations from both the Shadbolt and Wakeham Reviews in the forthcoming Digital Strategy to help deliver the required supply of digital skills for the UK economy. With the opportunity now afforded by the delay in publishing the Digital Strategy, the reviews should be fully embedded in the Strategy.

43.The Strategy should also include a commitment for the Government to work with the Tech Partnership to develop industry-led, vocationally focussed careers advice in universities that prepares the future workforce for the growth in digital.

44.The Government should encourage universities to provide ‘code conversion courses’ to help graduates from non-computer science backgrounds to enter the tech sector with a recognised qualification.

45.We recommend that the Government clarify the full extent of ELQ exemptions for STEM subjects as a matter of urgency. These exemptions should include STEM conversion courses and Digital and STEM Apprenticeships (which we discuss below) to encourage the use of the Apprenticeship Levy to upskill the existing workforce.

Meeting industry needs: Apprenticeships and work placements

46.Apprenticeships provides an important source for meeting employers’ needs, including for digital skills. There are three types of apprenticeship qualification levels—intermediate, advanced and higher/degree apprenticeships. The Richard Review recommended that new apprenticeship standards be developed by employer groups known as ‘Trailblazers’.95 There are currently 140 Trailblazers developing apprenticeship standards, one of which will include core elements of maths and english and, where relevant, digital skills.

47.There are also digital degree apprenticeships. The Tech Partnership calculate that more than 17,000 people started digital degree apprenticeships in 2014–15; a 21% increase from the previous year. Some 30,000 people are now on digital degree apprenticeships, which accounts for 3.1% of all apprentices.96 The Tech Partnership have noted that take up by women has been significantly better than the proportion studying for computer science degree courses.

48.In further developments of digital apprenticeships, the Tech Partnership have worked with industry partners to develop an apprenticeship standard for a ‘digital and technology solutions professional degree apprenticeship’ to meet the tech industry’s needs. These standards will be published shortly and will replace existing IT apprenticeship frameworks.97 Their aim is to help apprentices develop qualifications up to degree level, available for upskilling the existing workforce—a particular pressure point for businesses as well as new staff.98

49.TechUK and other witnesses believed that the current process for apprenticeships generally is too complex and may be too time consuming for some, and that the system can be improved to attract more businesses into apprenticeships. The Government told us in April 2016 that:

Reformed apprenticeships are putting industry in the driving seat to design standards that meet their needs. [ … ] Over 40 employers and 9 universities have collaborated on the new Digital Degree Apprenticeship to provide the right mix of technical and professional skills. There is a ‘data fundamentals’ element in every programme of study, and two universities offer a specialism in data science.99

Ed Vaizey told us: “We want to ensure that apprenticeships going forward have an element of digital skills … basic literacy, basic english, basic maths and basic digital skills.”100 The Government, he told us, is focusing on digital skills in apprenticeships:

We have 17 digital standards we are working through [ … ] and we have already achieved three. I think 90,000 people are doing [STEM] apprenticeships, which is an increase of more than 50% over the last five years.101

50.The Government announced in May 2015 a commitment to have three million apprenticeships by 2020.102 To support that initiative, the Enterprise Act 2016 made provision for an Institute for Apprenticeships—an employer-led independent body to control the content and quality of apprenticeship standards—to be operational from April 2017. The Apprenticeship Levy was announced in the 2015 Autumn Statement to help deliver the 3 million apprenticeships target.103 It is anticipated that the Levy will raise over £3 billion a year by 2019–20. The Levy will be funded two-thirds by government and one third (and an apprenticeship wage) by employers.104 The Levy will be applied across all industries across the UK, replacing the previous apprenticeship funding scheme. Employers with a pay bill exceeding £3 million a year will be charged 0.5% of their pay bill, in excess of an allowance of £15,000.105

51.While many have welcomed the Government’s proposed Apprenticeship Levy scheme, some in industry have raised concerns about the process being “too complex”.106 Samsung was concerned that it could “impose an overly rigid training regime which will be detrimental to the ability to train young people in the skills that businesses need”.107 The Apprenticeship Levy should be seen as an investment, which can be used to retrain existing staff. Hewlett Packard Enterprise wanted the Apprenticeship Levy to enable business “to apply the money they have contributed to train and retrain staff in relevant skills throughout their careers, reflecting the nature of the modern labour market”.108 They told us that:

The focus on a headline number may drive policy decisions, when the nation would be better served if the policy drivers were quality of training and ensuring the qualifications develop skilled, work-ready staff. If this was truly the driver, then questions about whether companies can train partners’ apprentices would be removed. [ … ] Like every other business, we would welcome timely confirmation that all of the levy will be available for the training of apprenticeships.109

52.The Publishing Association recommended a number of principles for the scheme:

53.Complementing apprenticeships, work placements can give students invaluable insights into the technology industry. Placements can provide students with the opportunity to gain skills that are specific to their course of study or choice of industry, as well as employability skills needed for the work place, and allow them to make informed choices about their future career.111 Barclays, for example, told us that:

Students who undertake work experience opportunities are more likely to secure highly skilled graduate jobs. They receive the best of both worlds [ … ] as concepts taught in the classroom are brought to life in a commercial environment, consolidating learning and allowing challenge and insights to be shared.112

54.The Government has promoted vocational skills as an equal-value alternative route for individuals and businesses in developing specialist digital skills. Apprenticeships are critical in ensuring the long-term future of the UK’s digital economy. They are now available up to degree level and offer flexibility for young people to learn work skills while they study and for the established workforce to gain valuable new skills. We welcome the establishment of the industry-led Institute for Apprenticeships. In the period until it is operational in April 2017, the Government needs to work closely with employers, higher education institutions and schools to understand the apprenticeship marketplace, to ensure that education aligns with industry’s requirements needs, and that apprenticeships are delivered in a flexible way to adjust to future changes in the digital sector.

55.The Government should emphasise the need for more digital skills components in all apprenticeships, not just ‘digital apprenticeships’, to gear them to the needs for jobs across the economy. The Government should make digital skills the focus of its 3 million apprenticeship target. It should also work closely with industry, to encourage more women to pursue apprenticeships in the tech industry.

56.The standards for the Government’s ‘Trailblazer’ industry-led apprenticeships reflect closely the input from larger businesses but, as a result, some SMEs may be unable to take advantage of the opportunities offered. The Government should review its Trailblazer initiative, making it more streamlined and accessible for SMEs. The Government should examine the scope for simplifying the scheme’s processes, to encourage business in the technology sector, especially SMEs, to invest in apprenticeships.

57.The Government must also make it easier for industry to partner with universities and colleges to support student teaching. Industry, universities and schools should also collaborate in promoting work placements in an open and transparent way. This will make it easier for all students to have the opportunity to experience a ‘taster’ of the industry that may well lead to permanent employment. One way of facilitating such partnerships and collaborations for businesses would be to allow the cost to be written off against Apprenticeship Levy contributions.

58.The Government should work with the Further Education sector to develop ‘Digital Colleges’ to replicate the National College for Digital Skills model across the country.

35 Lords Select Committee on Digital Skills, Make or break: the UK’s Digital Future (February 2015)

36 CBI, Engineering our future – stepping up the urgency on STEM (March 2014); Tech Partnership (DIG0040) para 3.1

37 TechCity UK and Nesta, Tech Nation 2016 - transforming UK industries (February 2016)

39 Tata Consultancy Services (DIG0016), para 3

43 Ibid

44 Q39

45 O2 and Development Economics, The Future Digital Skills Needs of the UK Economy (2013)

46 Ibid

47 techUK (BIG0086)

48 Q3

49 Go ON UK (DIG0054)

50 Nesta (DIG0048)

51 Ibid

52 Ibid

55 Ibid

56 Ibid

57 Wellcome Trust (DIG0004)

58 Department for Culture Media and Sport (DIG0060), para 4

60 Q6

61 Q11

62 Q2

63 Q11

64 CompTIA (DIG0024)

65 Lloyds Banking Group (DIG0063)

66 Ibid

67 Barclays Bank PLC (DIG0055)

68 Barclays Bank (DIG0055)

69 Ibid

70 Cabinet Office, Government Digital Service, Civil Service ‘Digital Friends’ to help get the UK online (March 2015)

74 Higher Education Statistics Agency, Destination of Leavers from Higher Education 2014–2015 (2015)

75 Higher Education Careers Services Unit, What do graduates do? (September 2014)

76 Q99

77 FDM Group (DIG0005)

79 Ibid

80 Ibid

81 Birkbeck, University of London 2016–17 entry for MSc in Data Science

82 Hewlett Packard Enterprise (DIG0031)

83 Samsung (DIG0007)

84 FDM Group (DIG0005)

85 Tech Partnership, The Women in IT scorecard (2015)

86 The Royal Society (DIG0014)

87 HM Treasury, Department for Business, Innovation & Skills, Our plan for growth: Science and Innovation (December 2014)

88 Ibid

89 Department for Business, Innovation& Skills and Higher Education Funding Council for England, Terms of Reference for The Wakeham Review of STEM Degree Provision and Graduate Employability (February 2015)

90 Higher Education Funding Council for England, Graduate employment and accreditation in STEM (May 2016)

91 Q151

92 Q164

93 Birkbeck, University of London (DIG0075)

94 The Open University (DIG0056), para 21

95 Department for Business, Innovation and Skills, The Richard Review - Apprenticeships (November 2012)

97 Ibid

98 HM Government, The Future of Apprenticeships in England (December 2015)

100 Q165

101 Q159 (90,000 refers to STEM related apprenticeships rather than just digital apprenticeships).

102 Cabinet Office, Queen’s Speech 2015 (May 2015)

103 HM Treasury, Spending Reviewing and Autumn Statement 2015 (November 2015)

104 Department for Culture, Media and Sport (DIG0060)

105 Department for Business, Innovation & Skills, Apprenticeship levy: how will it work? (March 2016)

106 Unite Live, A levy too far? (January 2016)

107 Samsung (DIG0007)

108 Hewlett Packard Enterprise (DIG0031)

109 Ibid

110 The Publishers Association (DIG0047)

111 Professor Tim Wilson for the Department for Business, Innovation & Skills, A review of Business-University Collaboration (February 2012)

112 Barclays Bank (DIG0055)

© Parliamentary copyright 2015

10 June 2016