Conservative Home article about labour market reform:
Growth remains sluggish, core inflation is proving to be more stubborn to shake than first anticipated and high interest rates mean Number 11 will want to consider what levers it can deploy to instil greater confidence in the economy.
The route to establishing a sustained pattern of stronger growth calls for labour market reform.
Recent labour market statistics show employment numbers increased to what the Office for National Statistics has said is a record high. Economic inactivity, which has been a cause for concern in Whitehall for some time, with previous quarter-on-quarter increases, is coming down too. The overarching numbers look good, but there are still challenges to overcome. Long-term sickness numbers have hit a record high and the employment rate still sits below pre-pandemic levels.
The Government’s focus on skills development across generations, and an increasing shift towards a more employer-led system, is providing the right foundations to boost labour market participation. Building a larger pipeline of upskilling and reskilling opportunities will help strengthen the competitiveness of the national workforce, but that change will take time to embed. Global competition is fierce. The UK lags behind Denmark, Germany and Sweden in terms of adults with the highest education level in vocational training, according to the OECD, so there is a pressing need to catch up. It will be interesting to see what recommendations Sir Michael Barber advances to knit together the delivery of the Government’s reform programme as the global skills race intensifies.
There are positive signs in the economy – growth was seen in the last quarter. In recent months, the future outlook for the labour market has improved with the Governor of the Bank of England suggesting there are signs that worker supply is recovering. The issue is that employers are still saying that the labour market remains tight and that it is challenging to recruit to certain skilled roles, compounded by the housing market in some locations.
The Chancellor’s new Productivity Taskforce is, in my view, a vehicle to take forward ideas that can deliver a far more ambitious set of corrective actions if it is empowered to proceed with a wider remit. It would be better to commit to a cross-sector approach upfront, rather than weighting the focus on the public sector first. In his speech to the Centre for Policy Studies, the Chancellor did talk about the need for the Treasury to ‘enable reform’ as the path to boosting private sector productivity. What could stand in the way is the expected disruption in the labour market from artificial intelligence (AI) automating a significant number of blue- and white-collar roles. Ministers need to look carefully at how to speed up the reskilling of literally millions of workers that will be impacted by the pace of AI advances. The Prime Minister is right in saying that AI could lead to better-paid jobs. Being cautious about the pace of change is necessary, too, so developing guardrails to regulate AI growth is a sensible move and one that the Prime Minister is showing leadership on. Although technological change can increase and diversify employment opportunities, the pace of changes associated with AI is setting us on a course for a pretty significant adjustment in the labour market. The country cannot afford a cliff-edge where mainstay jobs that people rely on today to earn a living are no longer available tomorrow.
These are some suggested policy ideas and funding changes that could make a difference:
Whilst the Government focuses on higher level and technical qualifications, a broader package of interventions is needed to prepare the workforce of the future. Core employment skills, including budget management, negotiation, emotional intelligence and leadership need to feature more prominently in the national curriculum. To deliver an improved national skills base, drawing experience from the Skills Injection Fund and its pump priming of Higher Technical Qualifications, more investment is needed to deliver a larger scale programme that transitions communities into a position where they can take advantage of the jobs of the future.
Mel Stride’s decision to abolish the Work Capability Assessment was an important step forward to help disabled people or those with a health condition pursue work opportunities without impacting the benefits they receive. There must be more scope to refresh the Disability Confident campaign, set a new target to continue closing the disability employment gap and further bolster Access to Work. Encouraging a more diverse labour market, open to all the talents, is the right approach.
In-work progression is another route to support improved levels of growth. This will aid productivity gains, whilst providing better financial security for those wanting to increase their earning potential.
The Treasury and the Department for Business and Trade could, also, consider the development of individual sector resilience plans that provide the public policy roadmap, in collaboration with industry leaders, to access new markets and enable job creation.
Despite the work already undertaken to address economic inactivity, the Government cannot take its eye off the underlying issue. There is a generational employment divide. The Government could consider, as part of the Productivity Taskforce, the development of policies that look to sustain labour market participation, encouraging employers to recognise the benefits of retaining more experienced members of their workforce for longer. Promoting a workplace that has the right balance between experience and youth is good for retention and aids succession planning.
Further targeted devolution can help stimulate employment growth. Mayoral Combined Authorities already have increased powers over local skills interventions, particularly through the devolution of adult education budget funding, but there is scope to do more. The creation of specialist health and disability hubs aimed at helping those furthest away from employment into work, and Government funding targeted at Growth Hubs to improve sector resilience, are potential options to enhance the role of top tier local authorities.
The Government has a window to press ahead with targeted changes if it chooses to, but time is running out to build a policy platform that moves with the labour market. It is about stimulating growth through a more highly-skilled workforce that is sufficiently agile to meet the changing face of working life. Ministers do recognise the labour market is changing, but it will require the whole Whitehall machine to confront with confidence the future of work and equip the domestic labour market to better withstand tech-driven shocks.
