European Union: Investing In Future Skills: The Antidote To UK's Productivity Woes?

Last Updated: 7 December 2017
Article by David Sproul

UK growth rates have slowed, productivity underperformance is now in its sixth year and forecasts for both are muted. Add to that the possibility that the UK could leave the EU without a trade deal and it's little wonder that business has looked to the government to give it cause for optimism.

The Budget and yesterday's Industrial Strategy were an important opportunity for our political leaders to take bold action and provide reasons to be confident in the UK's post-Brexit future. And while it would be hard to argue with the government's priorities of skills, industries and infrastructure, the proof will be whether they truly make Britain "fit for the future"?

Action not analysis

There's been plenty of explanation for what's gone wrong with UK productivity. From low interest rates allowing weaker firms to survive to companies using employees to build capacity, rather than through investing. With labour costs now rising due to policies such as the apprenticeship levy and the National Living Wage, not to mention the likely future curtailment on the movement of talent, companies will be increasingly incentivised to make productivity-enhancing investments.

Various Chancellors, from the left and right, have long-recognised the productivity problem, but successive Budgets have tried and failed to solve it. I believe yesterday's announcement contains the proposals that can help the UK retain its competitiveness, strength in innovation and contribute to sustainable growth.

Investing in future skills: the antidote to weak productivity

In my view, the government's focus on digital skills can have a positive impact on productivity and living standards. Our research on the future of work has made clear that support is needed to help people retrain throughout their careers. The creation of a National Retraining Scheme alongside the TUC and CBI to help people adapt to the changing world of work is a great example of how government and business can collaborate to address some of the country's most critical economic and social issues. The scheme will initially target those sectors with skills shortages, such as construction and digital, including artificial intelligence (AI).

Our recent study into the UK's digital technologies and the view of digital leaders showed that, of all of the digital technologies, AI will have the biggest impact on organisations. Yet most companies continue to face significant challenges in recruiting and retaining the skills needed to deliver their digital strategies. Put simply, current education curriculums are not delivering what businesses need.

It's therefore encouraging to see the government plans to reform technical education. This includes a commitment to 15 new technical education routes and £500m of funding for new T levels, which, critically, will be designed by employers.

Start-up to scale up

Whether it's AI or other disruptive technologies, the UK is sometimes criticised for not being able to commercialise its innovative ideas. The government's new £2.5 billion investment fund, which will finance growth in innovative firms, should help more start-ups to scale up and export. There's also plans to allow UK pension funds the regulatory freedom to invest in assets supporting innovative companies.

The government is creating a range of strategic, long-term partnerships with industry to increase sector productivity, with the first deals in life sciences, construction, AI and automotive. Such public-private collaboration should mean new techniques and technologies being shared across sectors and provide the funding and support many companies need to move from start-up to scale up.

Fit for a post-Brexit future?

I believe it's important that the bearish official view on productivity and growth doesn't become self-fulfilling. Government policy can substantially influence economic success. But, equally, we need to be realistic about the impact uncertainty is having on business investment. Our recent European CFO survey showed finance leaders in the UK have the highest perceptions of uncertainty and the least likely to embark on hiring in the next year. Brexit, unsurprisingly, is seen as the biggest risk and the major factor hitting investment.

While there were plenty of positives in both the Budget and Industrial Strategy, business urgently needs clarity about the UK's future relationship with the EU. This will allow business leaders to shift their attention to the longer-term solutions of our productivity issues, such as skills and digital, and focus their efforts on building an economy fit for our post-Brexit future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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