To capitalise on the opportunities of Brexit, Britain must first solve its skills crisis
As those tasked with negotiating Brexit will not doubt be discovering, the complications of disentangling the UK and EU economies are immense. This is especially true when it comes to trade, with roughly 44% of the UK’s exported goods and services going to EU countries in 2016. But the issue isn’t simply that we sell a lot to the EU, rather that the things we sell often have supply chains that rival even the most adventurous summer Interrail routes.
The automotive industry, as Peter Campbell and Michael Pooler recently pointed out in the Financial Times, is a case in point. While 1.7m cars were built in the UK last year, more than half of the components used to make them were imported. As just one example of the intricacy of the modern automotive supply chain, it has been found that the crankshaft in the BMW Mini crosses the English Channel three times – from France to England to Germany and back again – before it finally enters the car on the production line in Oxford.
UK car makers therefore face a double whammy of potential tariffs following Brexit if a free trade agreement is not in place. This includes tariffs on imported parts used to make the car, in addition to tariffs on exporting the final product back into the European single market. Many fear that the former could be just as destructive for the British automotive industry as the latter, particularly given that the UK’s supply chain is significantly less domestic than those of comparable EU countries. According to a government report published in 2015, UK car makers source around 40 per cent of their parts from domestic suppliers, compared to 60 per cent in France and Germany.
It is thus clear that if car makers are to remain in the UK post-Brexit and have any hope of staying competitive when tariff free access to the EU single market is potentially whisked away, they will have to be able to source more of their parts domestically. The British government will sense an opportunity here. The attraction of an automotive industry with larger domestic supply chains for a country on the verge of withdrawing from the world’s largest trading bloc is clear. At the very least, it could militate against a catastrophic exodus of car makers across the Channel.
To this effect, as Campbell and Pooler explain, the government – under considerable pressure from car exporters committed to remaining in the UK in the short to medium term – has put substantial effort into persuading car parts makers into moving their operations to the UK. Yet, while much of the discussion has centred on infrastructure and capital investment to entice component suppliers across the channel and strengthen those already here, success will to a large extent also depend on the ability of suppliers to source the necessary technical skills from the domestic British workforce.
The signs are worrying on this front as the UK’s technical skills shortages have reached chronic levels. Analysis completed by the Centre for Progressive Capitalism suggests that employers across the country struggle to fill 43% of skilled trades roles – which include many jobs in the automotive industry – due to skills shortages. Looking at the manufacturing sector as a whole, the situation is even worse. An estimated 76% of job vacancies in the sector were difficult to fill due to skills shortages in 2015/16.
In total, the Centre estimates that there were nearly half a million vacancies for technical roles in the UK that employers were unable to fill due to skills shortages in 2015/16. With the end of the free movement of labour into the UK, these shortages look set to get worse before they get better. Put simply, as things currently stand Britain does not have the skills base to incorporate additional sections of the automotive supply chain.
Much of what has been said so far of the automotive industry applies equally to any business based in the UK with suppliers in the EU. As an indication of the scale of the challenge, a recent survey by the Chartered Institute of Procurement & Supply found that a third of UK businesses that use EU suppliers are looking for British replacements.
Encouragingly, the government has identified boosting technical skills as a priority and has instigated significant reform of the further education sector, with Justine Greening, the education secretary, calling for a ‘skills revolution’. The revolution will be delivered, it is hoped, principally via a new apprenticeships levy and the planned introduction of T-levels. The Conservative Party’s election manifesto also promised to double the Immigration Skills Charge to £2,000 to help finance the transition from importing labour to a sort of skills autarky.
The presence of strong political will to boost skills is important, but cracks in the proposals are starting to show. Many have been critical of the quality over quantity approach taken by the government on apprenticeships, and there are already signs that the T-level agenda is in trouble, with their introduction now delayed until 2020.
To build a skills system capable of taking advantage of the opportunities of Brexit requires thorough knowledge of where it is currently failing. Part of this challenge lies in understanding how further education (FE) provision can be improved, particularly in the types of courses and apprenticeships being offered and completed. Critically, this provision needs to be better aligned with local demand
Analysis conducted by the Centre with a number of Local Enterprise Partnerships (LEPs) suggests that significant mismatches exist between the types of courses and apprenticeships being completed and the demands of local labour markets. For example, in one LEP area in 2015/16, there were 7,200 more vacancies for IT engineers and technicians than there were completions of related courses in local FE colleges. At the same time, there were a number of occupations with far fewer vacancies than related courses completions. For instance, there were 1,200 fewer sports and fitness instructor vacancies than course completions in this one LEP alone.
It is vital that these mismatches are understood in detail, yet very little of this kind of data exists for FE courses and related jobs at the local level. This must be rectified as data on employment prospects in technical roles and potential salaries – which are often higher than for many graduate roles – could also be fed into the careers advisory ecosystem in order to help young people make more informed choices. Too often it seems, young people are not aware of the exciting opportunities available to them, and so choose technical courses for which there is little demand leading to significantly lower lifetime earnings potential. Empowering local institutions to identify and combat skills mismatches in their local economies would go a long way towards building a stronger, more agile, skills system.
Whatever happens with the Brexit negotiations, to take the British skills system from a situation where it is desperately struggling to fill existing technical roles, to one where it is able to fulfil the increased demands of reshored supply chains requires time and patience. Both are in short supply at present. Unless an adequate transition deal is secured, it seems certain that the skills system will not be ready in time to allow Britain to capitalise on the opportunities that Brexit may bring.
Photo credit: Bansky via Duncan Hull / CC BY 2.0