The UK is facing skills shortages and productivity issues. The key driver of this stagnation is declining state and private sector investment in skills. In addition to state cuts in adult education spending during the austerity era, total employer investment in skills per employee fell by 19% in real terms between 2011 and 2022, with large businesses (-35%), primary schools (-44%) The decline is even greater. , public (-38%) services, and the North East (-27%) and South West (-32%) of England. While support has been reduced for workers looking to upskill, the wider economic context makes participation more difficult. The high cost of living, coupled with the proliferation of low-security jobs, means that few workers can afford the risks of mid-career upskilling. An under-equipped workforce has led to businesses relying heavily on immigrants to fill rising skills shortages.
In the face of fierce international competition in emerging green industries and the urgent need to decarbonise the economy, we have identified two key areas where the UK is lagging behind its international rivals in supporting large-scale skills upgrading. First, provide workers with sufficient support to raise the survival cost of skills and provide enough upskilling to persuade workers with financial and caregiving responsibilities to participate. Second, provide incentives to reduce the risk of corporate skills investment in the context of frequent job-hopping.
The Government is at a critical stage in designing the next generation of upskilling support: the right to lifelong learning. There is currently a process underway to reform the student financial system to more closely resemble an individual/individual study account. In this working paper we propose the introduction of new overarching principles for government upskilling programmes, and seek feedback. The proposed framework is based on a simple commitment to the National Skills Wage (NSW). NSW will provide workers and businesses with the financial stability and confidence to commit to (re)training, which is important both for its message and its potential to boost productivity. We recommend that New South Wales support government support for skills upskilling through two core reforms to support upskilling for both working and unemployed people:
- Shifting state support from corporate tax breaks to payroll tax credits for state skills wages. Current corporate tax breaks for investments in training should be scrapped. It is aimless, profit-conditioned, and opaque by design, favoring big businesses in training already highly skilled workers and failing to meet the needs of current skills challenges. Instead, we propose that NSW pay all employers a new flat rate for every hour workers spend on approved training courses. The payment would take the form of a tax credit, similar to the concept of a human capital tax credit proposed by others, but through payroll taxes rather than corporate taxes. The credit will increase the level of state support for upskilling, allow for additional incentives to be targeted at courses in critical skills shortages, increase incentives for businesses to upskill low-paid workers and extend support to all employers regardless of profitability (including charities and other non-profit organizations).
- Reform student finance into individual learning accounts paying the national skills wage. Student finance is set to undergo major reforms as new lifelong learning rights are designed and rolled out. In its current design, the Student Maintenance Loan does not adequately incentivize mid-career workers and workers with financial and caring responsibilities to undertake independent upskilling during the cost of living crisis. The Personal Learning Account model, which provides simple withdrawal facilities throughout a learner's career, should expand adoption, but most importantly, the account should pay NSW on an hourly basis for each total qualification study time. Hourly rate, at least equivalent to actual living wage for approved qualifications.
A key priority of the policies we propose is to reduce the risk of investing in skills for businesses and individuals. This should include individuals who are unemployed and/or receiving means-tested benefits. New South Wales should also benefit this group, but further work is needed to understand how these reforms will interact with the welfare system.
In addition to the reforms we propose, we also consider state costs and revenue increases. We first consider the possibility that the government will impose an additional charge on the employer's national insurance in the months following the completion of the training course. The fee represents 50% of the total hourly tax credit and could mean businesses partially repay the state support they receive. We are also considering options to increase revenue, such as extending the use of the Apprenticeship Levy Fund, corporation tax relief to replace investment in skills, and recouping productivity gains from increased investment in skills through corporation tax.
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