UK Skills Crisis – We need change… Now
The UK Skills Crisis is probably the biggest challenge the UK Recruitment Industry has faced this century.
Whilst the crisis has been brewing for years and repeated governments have sought to address the issue with minor interventions to our education systems, our adult training and the UK corporation and personal tax incentives have had minimal impact.
The pandemic has highlighted the issues to the public in healthcare, supply-chains, and education where the provision of services has been massively impacted. Elsewhere emerging technologies are accelerating at such a pace, businesses are experiencing perpetual skills gaps that are causing “hyper-demand” in certain professional sectors.
We need fundamental changes. And, we need them now.
Supply Dynamics
In the past twelve months as the UK and the industrialised world started to shake off the challenges of the Covid-19 Pandemic demand for skilled staff exploded and the pressures on the UK and global reserves of skilled labour ran dry.
Whilst in G7 economies it is true that many workers were displaced when aggregate demand declined at the start of the pandemic and were sustained through furlough schemes, particularly in the UK and Europe. The overwhelming majority of these were not individuals in those sectors where skill shortages have reached crisis such as:
- Logistics and Supply chain
- Healthcare
- Education
- Engineering
- Technology
- Life Sciences
- Construction
Those individuals that were displaced in these sectors were very quickly reemployed in the spring of 2021 if not before.
These sector-specific shortages have resulted in spiralling rates of pay.
It is true that in the UK these global skill shortages have been further exacerbated by a series of challenges unique to the UK some of which have been self-inflicted. These include (but not limited to):
- Brexit
- IR35 Legislation
- Immigration controls
- Apprenticeship Levy operation
- UK Demographics
The HGV driver shortage in the autumn of 2021 saw significant rises in pay rates and bonuses. These skill-gaps have been common-knowledge for years. But… successive governments have failed to address the national shortage instead relying on EU workers to plug the gap. Brexit and IR35 legislation as well as the ageing workforce have further exacerbated the issue.
It’s a similar story across most professional sectors, finance, banking, accountancy, engineering, and construction. The skills gaps have been there for decades, as I have mentioned in numerous blogs going back to 2013. Can you win the Global Talent War?
To illustrate this: Only last month Robert Walters made national headlines when they announced that top graduate lawyers were starting with London firms on salaries as high as £150,000 . Also “15% is the minimum pay rise we’re seeing, but some are increasing their salaries by up to 50%,” Alan Bannatyne CFO at Robert Walters.
The ageing workforce in engineering sectors such as construction, rail, aerospace, nuclear and energy with the ‘baby-boomers’ exiting the workplace and the lack of newly qualified staff entering the market is also seeing 15-20% pay rises right across the professional services sector.
In healthcare the issues are well-known. And for decades again successive UK Governments have considered it acceptable to recruit doctors and nursing staff from the developing world rather than create a sustainable and credible solution to grow our own.
This is becoming further exacerbated by the working conditions of newly qualified UK doctors who are increasingly choosing to relocate to Europe, Australia, and Canada. As my children are of this generation, I know only too well how serious this issue is becoming.
In technology and life sciences the same demographic pressures and the rigorous application of IR35 is seeing the ‘baby-boomer’ generations leaving the above industries in droves. Here there is a regular supply of newly graduated individuals helping to stem this tide but with rapidly changing technology and spiralling demand for more and more technology in the workplace means these new recruits are nowhere near enough to stem the breach.
As a result, wages are spiralling and increasingly projects are being moved away from the UK.
This is the worry for UK PLC.
If the UK skills crisis is not addressed soon then global businesses will start shifting projects and development centres abroad. These highly paid skilled sectors which should be the lifeline of the new Global Britain economy will drift away.
Solutions
These skill shortage issues have been here for over a decade. However, in many sectors, they have been masked using foreign, sometimes EU, labour to plug the skills gaps. With Brexit, new immigration rules and the shifting exchange rates this route is less attractive for the workers.
The forces of the market are NOT remedying the problems fast enough. The levels of economic uncertainty and change are such that we are no nearer solutions today than we were a decade ago.
Only government intervention can remove the blockages and distortions in the market that have been created by the benefits system, the personal and corporate tax system, the education and university funding systems.
For me there are essentially THREE main routes to solving the skills crisis:
- The economically inactive
- Education & Training
- Technology
The Economically Inactive
For several years it has been observed that there are roughly as many people in the UK and Europe who are ‘economically inactive’ as there are skills gaps in the UK and European jobs market.
Clearly you cannot take someone off the unemployment register and turn them into a Cyber-Security expert or an A&E Doctor. These roles take years of training but by bringing larger numbers of people into employment off the unemployment register for example, into semi-skilled or basic apprenticeship roles, you release others with these basic skills to equally retrain to higher skilled roles within their industries. By replicating this across the workforce you slowly but surely, upskill the UK workforce and start to fix the skills crisis from the bottom up.
But training alone is not the answer otherwise this would be happening. We must provide greater incentives and rewards to individuals and employers to undertake the retraining, take on greater responsibility and commitment to their careers.
I regret also, employers do not always see the immediate financial returns from their trainees either. In my experience, it can take eighteen months to two years for this to happen, by which time employees can move on and economic conditions have changed so much that employers don’t see the rewards.
For the unemployed and those on benefits the poverty trap is well-known and documented. As a result, we need to make work and study rewarding for people.
It’s not just the unemployed. There are numerous individuals who have chosen to leave employment, who have meaningful contributions to make. Many disabled persons see the loss of benefits and the risk and stress not worth the rewards. The retired see limited benefit due to the tax system hence why the IR35 changes have seen a great many baby-boomers leave employment.
The 50% rate of income tax and loss of pension rights may in theory mean those that “can pay” do. But, in reality, in GP Practice the net effect after two years of the 50% tax was to see the average GP reduce their working week between 4-5 days down to 3-4. Roughly a 20-25% reduction in hours worked which brought in limited funds to the exchequer, but saw the skills shortages increased and the cost of replacing the lost hours to our NHS rise.
In my experience, once people are taking home less than 50% of what they are earning they choose to work less. For economists, it’s a well-known fact that if you reduce percentage marginal rates of tax, you increase tax receipts.
Education & Training
The apprenticeship schemes and levy are a great concept which has improved the plight of those leaving school and provided them an alternative route to university. As a father of four children, it’s fair to say that my son who completed his entire apprenticeship ‘working-from-home’ really enjoyed and valued the experience. It has worked for him and thousands of others.
Sadly, working with employers however, they find it restrictive and cumbersome and doesn’t actually meet their business needs.
Often, employers’ levy pots also cannot be used to deliver the specific training they require as its’ too prescriptive and generic. This needs addressing as the concept is sound but it does not work as effectively as it could.
Universities now offer a phenomenal range of courses and the number of students taking up degrees is at an all-time high but sadly the degree subjects taught are not a match for the needs of business and industry. Too many take media studies and traditional degrees which are not valued by employers and not enough the numerate STEM (Science Technology Engineering and Maths) subjects.
In addition, as these subjects are harder to study and the rewards at the end often do not make the effort worthwhile. As a result, we do not grow enough engineers, technology professionals and medical practitioners for our country’s needs. Once again, the tax and education funding systems need looking at as this distorts the market.
Technology
Finally, technology is a solution to the skills crisis, but it may have huge unintended consequences. For those of you who know me I have been speaking at conferences now for 5-6 years about how technology is changing the Future of Work leading to Workplace Transformation through the two principal drivers of automation and augmentation.
Automation is increasingly happening in a huge number of sectors from medicine to car production, to the jobs of bookkeepers and paralegals to even heart-surgeons which increasingly tasks are being performed by robots. This trend will continue and increasingly this means these jobs can be transferred anywhere. Even offshore.
With augmentation this is where a human’s performance is augmented by technology increasing their skill, performance, and productivity. Thus, allowing a human plus machine to perform the work of previously 3-4 humans.
Overall, these two effects reduce the need for human workers and as such close the skills gaps.
They also allow the roles to be performed by a different group of humans, not necessarily in the UK.
So, this latter category is a warning that unless we solve the UK skills crisis today ultimately, we could be faced with a more serious crisis of a reducing UK GDP as jobs and business move abroad.
If you agree with our synopsis then you might like to take part in the APSCo, QX Global and Talence sponsored survey which is being used to inform government of our concerns and the depth and scale of these issues.
