Government’s Industrial Strategy – seemingly significant shift from 40-year orthodoxy but little evidence of a long-term strategy, say Business Committee

The House of Commons Business, Energy and Industrial Strategy (BEIS) Committee Industrial Strategy First Review has been released today.

The Prime Minister’s talk of a proper industrial strategy, with more active intervention into the activities of the economy, marks a significant shift from the approach taken by previous Governments of the last 40 years but so far there’s little evidence of the strategic framework or the co-ordination across Government necessary to achieve ‘an economy that works for all’, say the Business, Energy and Industrial Strategy (BEIS) Committee in a report published today.

The report finds the Government’s Industrial Strategy Green Paper, is similar to the Productivity Plan in 2015, consists of a long list of policy interventions, but lacks the framework for future decision-making which should be the core of a long-term strategy.

When skills levels remain poor despite significant spending, the BEIS Committee say current Government’s skills proposals are ‘deeply disappointing’, with the Green Paper failing to outline detailed proposals to encourage uptake of STEM subjects, to improve the skills of those of working age, or to set out how parity of esteem will be achieved between technical and academic training. The Committee strongly supports Lord Heseltine’s comments in evidence to the Committee that “industrial strategy starts in primary schools” and wishes to see proper coordination in business and education and skills policies.

One of the committee’s recommendations is that the Government consider establishing a joint unit bringing together civil servants from BEIS, the Treasury, the Department for Communities and Local Government, and the Department for Education to provide an interdepartmental team to develop and implement the industrial strategy.

Here is the full committee report findings on Skills:

Throughout our inquiry we have heard that addressing the UK’s skills base is perhaps the most important factor underpinning a successful industrial strategy. Ed Twiddy, Chief Innovation Office at Atom Bank, and formerly a senior official in both local and central government, said that skills “is truly everything”,¹⁵⁷ and Lord Heseltine told us in no uncertain terms that, “if I could design an industrial strategy, it would start in the primary schools.”¹⁵⁸ However, unless Government funding is reprioritised, the scope to introduce new initiatives to support delivery of industrial strategy in schools will be highly constrained by the fact that mainstream schools in England are expected to make £3 billion of efficiency savings by 2019–20, at a time of rising pupil numbers—effectively, meaning an 8 per cent real-terms reduction in funding per pupil.¹⁵⁹

The Industrial Strategy Green Paper makes a commitment to introducing a “proper system of technical education”.¹⁶⁰ This is something we called for in our inquiry into the Productivity Plan, where we emphasised the need for parity of esteem between vocational and academic training.¹⁶¹ That said, we note that the announcement of £170 million funding for new ‘Institutes of Technology’ is considerably less than the £240 million allocated for Grammar schools expansion in the Autumn Statement 2016.¹⁶² Furthermore, while the funding commitment is new, the policy proposal for Institutes of Technology was actually announced in the Productivity Plan, and the proposals to simplify and streamline the number of qualifications in professional and technical education are also key elements of the Productivity Plan. A “new commitment” to “explore and further encourage the uptake of STEM subjects” is also vague and suggests little by way of a change in direction, as we assume that Government would already have been doing this in light of the emphasis successive Ministers have placed on the importance of STEM.

Many of the specific measures announced relate to school-age education. While a commitment to “explore ambitious new approaches to encouraging lifelong learning” is welcome, it is a shame that the more specific proposals on adult learning were not developed to inform discussions around the Green Paper. This is a significant omission given the OECD’s estimate that 9 million working-age adults in England have low literacy and/or numeracy skills.¹⁶³ In the context of increasing automation and digitalisation of manufacturing and services, our education system needs to be nimble and able to adapt to future skills requirements. A significantly greater emphasis on whole-life reskilling will be essential to support people to stay in or gain meaningful and high productivity employment.

A skilled workforce is an essential foundation of economic success. Given the weaknesses identified by the Government in the UK’s skills base, the proposals contained in the industrial strategy Green Paper leave much to be desired. After six months in development we expected more than a disappointing combination of re-announcements, continuations of existing policy, and vague aspirations. It is deeply disappointing that the Green Paper fails to outline any detailed proposals for discussion in relation to encouraging the uptake of STEM subjects, and improving the skills of those already of working age. These will need to be addressed far more comprehensively in the White Paper. We welcome commitment to a proper system of technical education, linked to local needs, but it is unclear how this actually goes beyond proposals contained in the previous Productivity Plan. The Government needs to set out more detail about how it will achieve parity of esteem between vocational and academic training in practice.

Setting skills priorities at a local level

A number of submissions to our inquiry particularly highlighted the importance of “place” in relation to setting priorities for skills. Although the Green Paper states that it will “take further actions to address differences in skill levels between different areas”,¹⁶⁴ it is unclear how the Government intends to work in partnership with Local Enterprise Partnerships (LEPs) and local authorities to achieve this aim. We heard from one witness that “the current fragmented system can lead to perverse outcomes in post-16 skills, for example with people training for roles in which there are either no jobs, or where supply already outstrips demand, whilst other roles remain vacant”, and that devolution of the 16+ education system could better enable skills support to be linked to local priorities.¹⁶⁵ While proposals for devolving employment and skills are welcome, we also heard frustration that the benefits of this “remain constrained by limitations and caveats set by national government.”¹⁶⁶

We recommend that the Government consider the potential for greater devolution of responsibility and funding for skills to local authorities and Local Enterprise Partnerships, who are well placed to work to identify regional needs and design appropriate solutions.

Skills and freedom of movement

Evidence from a range of sectors expressed concern about the impact of proposals to curtail freedom of movement on the UK’s future economic success. We heard, for instance, that freedom of movement underpins a successful service based economy,¹⁶⁷ that curtailing freedom of movement could have a significant impact on infrastructure and housebuilding projects,¹⁶⁸ and that freedom of movement is important to the success of our universities.¹⁶⁹ This is a clear example of an area in which the Government’s industrial strategy needs to underpin its approach to Brexit negotiations and future immigration policy.

It is also unfortunate that the Government apparently has not previously sought to develop an “authoritative view of the sector specific skills gaps that the UK faces”;¹⁷⁰ particularly in the context of plans to curtail freedom of movement. We question what Home Office “shortage occupation list” for work permits was based on to-date.

Improving workforce skills is a long-term project and, in the interim, Government will not be helping anyone if we starve our businesses of the talent they need to succeed. Any moves to place further limits on free-movement in the near future need to be carried in the context of a clear plan to ensure that the UK has a solid skills-base to meet industry’s current needs.

While for certain low-skilled employment, there may be a case for restrictions on free-movement given that businesses should be able to secure the necessary labour from within the existing UK market, the ability to retain, attract and access skilled workers will be essential to ensuring that we are able to actively attract the best talent to the UK. As a country we need to develop our workforce to be able to compete with the best. In the context of negotiations over free-movement as part of withdrawal from the EU, the Government must ensure that businesses continue to be able to access the skills they need. In its response to our Report, the Government should provide further clarity on how it intends to do this.

We recommend that the Government exclude university students from immigration totals and promote high skilled migration to the UK on an equal “who contributes most” basis to people wishing to invest and innovate in the UK.

^{157 Q379}

^{158 Q64}

^{159 National Audit Office, Financial sustainability of schools (December 2016)}

^{160 H M Government, Building our Industrial Strategy: Green Paper, January 2017, p.47}

^{161 BIS Committee, Second Report of Session 2015–16, The Government’s Productivity Plan}

^{162 Although media reports announced an extra £200 million for Grammar Schools, the detailed tables in Autumn Statement 2016 indicate that has allocated £60 million a year for four years.}

^{163 Building Skills for All: A Review of England, OECD (2016)}

^{164 HM Government, Building our Industrial Strategy: Green Paper, p.48}

^{165 Core Cities (ISG186)}

^{166 Newcastle City Council (PEG049)}

^{167 ICAEW (ISG0183)}

^{168 TUC (ISG112)}

^{169 Q248 [Dr Sarah Main, Dr Celia Caulcott]}

^{170 HM Government, Building our Industrial Strategy: Green Paper, January 2017, p.47}