Why the next government must borrow to invest in skills

So the political party conference season has ended for another year. Having been an inveterate attender for too many years to mention what struck me about this year’s events was how little real discussion there was around skills. Normally fringe programmes offer a cornucopia of choice on what should be done to improve the UK’s skills system, provision; choices and standards. This year fringes dedicated to skills per se were rarer than the proverbial hen’s teeth.

What was not much discussed anywhere was how to invest more in skills after the next election by a government that will face the ongoing legacy of 2008’s global financial failure. Continuing austerity policies when growth has returned creates a degree of cognitive dissonance in the electorate at large. The question of the balance between spending cuts and tax increases for example is pertinent. It seems that the 80/20 rule (public spending cuts versus tax increases) remains the preferred calculation for both the current coalition parties, though judging by George Osborne’s rhetoric in his speech one could be forgiven for believing that the book balancing will be achieved entirely through public sector spending cuts. Alternatively, Labour seems to be trying to ignore the deficit question and would certainly tax more and cut less.

Which brings me on to my central argument that it is imperative that the next government invests more in skills. Skills are as important as education and health to the wellbeing of the nation. Indeed any economy is built upon the skills of its people. Now for the more technical bit. Skills should be viewed as an investment not an expenditure. Skills spending should be treated as we might treat capital investment. Skills are the intangible factor of production.

As the International Monetary Fund (IMF) said in its recently published World Economic Outlook the developed world needs to increase public spending on infrastructure as a route to higher levels of growth and lower levels of unemployment. The report argues that this investment has greater stimulative impact if paid for through borrowing rather than through cutting public spending in other areas or through tax hikes. The IMF claims that for every $ borrowed in this way the return in increased output is $3 – a 300% return on investment. Why should this be the case? Well more people in work means more income and other tax paid and the return on public infrastructure investment – even at low rates – means another form of economic gain through the tax paid on that return. Investment in skills works in a similar way.

In the sort of economy all political parties are committed to growing in order to win the global race – a knowledge-based economy – skills development is at its heart. Yet we have cut spending on lower level skills development and paid insufficient attention to intermediate level skills development as well. Education spending whether primary, secondary or higher has been largely protected from the vicissitudes of austerity policy. This makes no sense at all. Human Capital management theory tends to focus on returns to the individual and the literature is compelling that the more qualified and educated the individual the greater their economic returns tend to be. What has been more difficult to ascertain is the impact at a whole economy level of investing in education and skills. But this may be due to the fact we focus on education to the detriment of skills.

The rebirth of industrial strategy has woken everyone up to the fact that technical skills formation at levels 3 and 4 is not strong enough, hence the calls for national colleges, Institutes of Technical Excellence and variants on that theme. Alongside this realisation has been the policy hope that employers and individuals, incentivised in different ways, will ride to the rescue and spend more of their money on skills, but the jury is out over whether the scale of investment required is actually happening.

The next government should grab the bull by the horns and treat skills investment as they might capital investment. Let’s build more national colleges; let’s invest in professionalising the skills delivery workforce; let’s put our money where the economy most needs it. If the government fails to do this then we are less likely to win the global race. Indeed we would be in danger of tripping over before the race is half-run.

Nick Isles is deputy principal of Milton Keynes College – follow him on Twitter at @dpmkcollege