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Skills Base

My Lords, I thank my noble friend Lord Leitch for securing this important debate. He has produced such a lot of data that it would take a final-year undergraduate to analyse it and come to some conclusions. I declare an interest as director of the Warwick Manufacturing Group and, more importantly, as a former apprentice. I wonder how many members of your Lordships’ House have served an apprenticeship. I suspect not many. Perhaps we should form an exclusive club. My apprenticeship was the foundation of my career. What was amazing was that there were apprenticeships at every level then, from school leavers to graduates and postgraduates. My apprenticeship made me understand the gap between what I had learnt as a student and the reality of industry. There is no point in forcing industry to invest in skills or in leadership. It has to want to do it. All too often, it has not. This is short-sighted because a quality workforce and strong management are vital for sustained increases in productivity. Although the gap has narrowed, productivity in the US and Germany is around 15 per cent higher than here. That has not happened simply because of a skills shortage; other things contribute to that. But if business is not investing in skills, we have to think very carefully about why society should take up the burden. We do not know what a particular skill will be worth to society in the future. A generation ago, we also had a skills gap, but the skills were utterly different. That teaches us that predicting manpower needs is not likely to produce success. So we need to ask what we should invest in and, most importantly, who should pay. Government resources have to go on what gives the most benefit for society as a whole, so the first priority is to give those at the bottom of the skills ladder stronger education and training, as the Government have repeatedly articulated. Over the past decade the number of people with no qualifications has fallen by a third, yet 45 per cent of British workers still have low or no skills. That is twice as many as in Germany and three times the number in the United States. We should invest to make sure people leaving education have the skills to find and retain a job. We should invest to make sure people in the job market are able to continue their education. That means stronger basic education and more apprenticeships. I believe that the bulk of state funding should go on supplying a decent education and skills base for all, ending the tragedy of wasted potential. However, transforming our skills is not just about improving the abilities of those at the bottom; it is vital to deepen our intellectual capacity, too. We have to increase investment in the top end of the skills sector to drive growth. We rightly think of skills as a key way to increase productivity, but successful economies have found that the path to increased productivity also requires increased ability to find technical solutions to tough problems. For example, American productivity growth has been driven by firms exploiting advances in technology. The mechanisation and automation of the automotive industry has allowed unskilled and semi-skilled workers to have an increased growth in competitiveness because technical advances allowed them to do that. Technology has automated many industrial processes, so the American economy now needs fewer craft skills, but requires people with intermediate qualifications and post-graduate knowledge. The fastest growing developing countries now have a tremendous skill shortage because they are going up the value chain. They do not have the skills required at the upper end of that chain, so enormous efforts are being made in China and India to close the skills gap that they are now finding and they are recruiting people from the West. To achieve success in the UK, investment in mass higher education at post-graduate level is critical. There is a strong case for increased skills funding at graduate level to build our capacity for applied research. At the top end of our skills base, the private sector should contribute a greater share. We must encourage companies to invest in solving the most complex technical problems: one of the reasons our pharmaceutical industry is so competitive is because of that. Today, we have dozens of business schools but rarely produce strong technical managers. It is a paradox: we have the best business schools in the world and we have problems of productivity and competitiveness. Our economy therefore faces two great challenges. The first is ensuring strong basic skills for all. We can do that by investing in schools, further education and apprenticeships, including academies. In this area, it is an advantage to involve the private sector. We also need to drive forward innovation at the very top. We can deliver high-end skills by using the fiscal system to encourage partnership and give more support to post-graduate apprenticeships. However, thinking that we will improve our skills base by a voluntary code will never work. We must have some regulation.