Importance of skills: Economic and social benefits

On 9 May 2024, the House of Lords is due to debate the following motion:

Lord Aberdare (Crossbench) to move that this House takes note of the importance of skills for the success of the UK economy and for the quality of life for individuals.

1. Skills and the UK economy

There is broad agreement across the political spectrum that skills are important for the economy. When presenting the 2023 autumn statement, the chancellor of the exchequer, Jeremy Hunt, said “no economy can prosper without investing in the potential of its people”.^[1] The Labour Party’s Council of Skills Advisers has argued that “a transformational change in the investment—public and private—in the skills of the British people” would transform the British economy, boosting productivity and economic growth.^[2]

This is based on the idea that the more skilled workers are, the more productive they are likely to be. As explained by the Chartered Institute of Personnel and Development (CIPD), “skills are vital to meeting both current and future business demands”.^[3]

As well as helping businesses succeed, skills and upskilling can have broader economic benefits. A 2015 report by the Organisation for Economic Co-operation and Development (OECD) argued that “the key to achieving inclusive and sustainable development lies in increasing the knowledge and skills of populations”.^[4] Expanded skills, it said, “allow a broader segment of society to contribute to the economy”, which increases productivity while reducing the need for redistribution. Moreover, enhanced skills also help facilitate sustainable economic growth by creating “innovative capacity that allows economic advancement without simultaneously depleting environmental resources”.

Despite the importance of skills, organisations such as the CIPD have identified shortcomings in the way in which skills are developed and utilised in the UK economy:

At a national level, too many UK businesses are built around low-skilled, low value jobs. Employers often design and structure work in a way that limits their staff’s use of skills resulting in skills-to-job mismatches and stagnant productivity. The UK also suffers from poor basic skills, weakness in the vocational education system and low investment in workplace training.^[5]

These issues are increasingly reflected in the prevalence of skill-shortage vacancies (SSVs)—job vacancies that are hard to fill due to a lack of skills, qualifications or experience among applicants. As data from the Department for Education’s employer skills survey shows (table 1), SSVs have been rising as a share of total vacancies, as has the share of organisations with an SSV.

Table 1. Incidence, density and number of skill-shortage vacancies at UK level, 2011–2022

(Department for Education, ‘Employer skills survey 2022’, 29 September 2023)

As well as hampering businesses more generally, skills shortages also jeopardise key government objectives. For example, the House of Lords Science and Technology Committee has suggested that a “shortage of people with the necessary STEM (science, technology, engineering and mathematics) skills” threatens to impede the government’s ambition to make the UK a ‘science and technology superpower’ by 2030.^[6]

It has also been said that the transition to net zero is threatened by a potential shortage of skilled workers. For example, in 2022 Nesta—a charity which supports innovation—estimated that the number of trained heat pump engineers would have to increase from 3,000 to at least 27,000, at a rate of 4,000 to 6,000 per year, if the UK was to meet the government target of installing 600,000 heat pumps per year by 2028.^[7] Similarly, the Social Market Foundation suggested that the electric vehicle (EV) industry is set to face a shortfall of over 25,000 technicians by 2030 required to service and repair EVs.^[8]

A report by the charity WorldSkills UK suggests that the ‘knowledge economy’ (for example, intellectual property, science, financial and professional services) has been a vital source of growth as the UK has deindustrialised, but that:

[…] the unintended consequence of focusing on the knowledge economy alone means we have undervalued the technical skills needed for sectors such as digital, clean tech, advanced manufacturing and life sciences to thrive across the UK, particularly as firms look to bring their supply chains closer to home.^[9]

The report suggests that an increased focus on the ‘skills economy’ and the implementation of a “world-class skills system” is going to be important if the UK is to tackle long-run economic problems, such as low productivity growth and regional inequality. A previous WorldSkills UK report highlighted the role that local skills bases play in attracting foreign investment to regions of the UK outside of London.^[10]

2. Skills and the quality of life of individuals

As well as having broad economic benefits, skills can have significant benefits for the individuals who possess them. As outlined in a 2021 report by the House of Lords Youth Unemployment Committee, skills are vital in helping school-leavers enter the labour market, with the committee identifying skill shortages among school-leavers as a “a major driver of youth unemployment”.^[11] Once in the labour market, skill levels can then play a significant role in determining the level of wages that can be obtained. For example, OECD research from 2015 found wage inequality to be significantly determined by the varying distribution of skill levels.^[12]

Researchers attempting to identify the precise impact of skills on earnings typically break them down into three categories:

• Basic skills. Skills everyone needs like literacy, numeracy and basic digital skills.
• Essential skills. Transferable skills needed for almost any role, such as teamwork and communication.
• Technical skills. Skills that are specific to a sector or role and are not easily transferred.^[13]

Research suggests that possession of skills at all these levels, particularly basic and essential skills, can have a significant impact for individuals, both economically and in terms of general life satisfaction. For example, the OECD survey of adult skills found that “strong proficiency in basic skills not only improves access to better-paying jobs with better working conditions, but is also linked to better health and higher social and political participation”.^[14] It suggested that improving basic literary and numeracy skills can have “positive effects on learner confidence and self-esteem, including in everyday tasks such as cooking and driving”. Solid basic skills, the research suggested, can help individuals upskill and reskill, increasing the resilience of workers in the face of economic shocks.

Research from the Skills Builder Partnership—a not-for-profit social enterprise—on essential skills suggests similarly positive effects, suggesting that the possession of such skills was significantly correlated with life outcomes.^[15] As well as reducing the probability of being out of work or education, increased essential skill levels, the research suggests, lead to “increased wellbeing and higher earnings”.^[16] Regarding earnings, it found an increase in the estimated skills score for an individual from the lower quartile (25th percentile) to the upper quartile (75th percentile) of the sample was associated with a wage premium of between 12% and 18%, or £3,900 to £5,900.^[17] Additionally, the research found a “clear link between higher skill scores and greater life satisfaction”.

The research also suggested that individuals highly value the possession of skills, both inside and outside of the workplace. For example, it found that 89% of individuals “believe essential skills to be important for employment, career progression or success in a recruitment process” and that 86% of individuals believe skills to be “particularly important for overcoming adversity and difficulty in life”.^[18] However, the research also found skill levels to be unequally distributed. For example, it found that “those from more advantaged backgrounds and those who attended independent or selective schools have meaningfully higher levels of essential skills” and that “the North and East of England [report] lower skill levels than London, the South and Midlands”. Regarding age, the research found that estimated skill levels tend to grow from ages 18 to 44 years old, but then decline from 45 to 66, something which, it said, indicated the importance of lifelong learning.

The importance of lifelong learning is also highlighted by research from the independent research body What Works Wellbeing, which found an important role for hobbies and leisure training in increasing life satisfaction.^[19] Indeed, it found that hobbies and leisure training tended to increase life satisfaction more than job-related training. This effect was found to be largest among disadvantaged groups. For example, the life satisfaction of unemployed people and those with no qualifications were found to increase by 8% and 9% respectively as a result of high-intensity hobbies and leisure training.

There are also significant benefits to individuals possessing general ‘life skills’, both early in life and later in life. A 2015 Early Intervention Foundation (EIF) report summarised evidence regarding the former, considering how the tendency for children to possess certain social and emotional attributes—such as self-awareness, self-control, relationship skills, communication skills, resilience and coping—impact their life outcomes.^[20] It found that although children with strong cognitive skills tend to show stronger social and emotional development, “social and emotional measures provide important signals about likely outcomes above and beyond what is picked up by measures of literacy and numeracy”. Comparing them to cognitive skills, the EIF suggested that social and emotional skills:

• matter more for general mental wellbeing (such as greater life satisfaction, mental health and wellbeing)
• matter similarly for health and health-related outcomes (such as lower likelihood of obesity, smoking and drinking, and better self-rated health)
• matter similarly for some socioeconomic and labour market outcomes (such as higher income and wealth, being employed, and not being in social housing)
• matter less for other socioeconomic and labour market outcomes, such as obtaining a degree, having higher wages and being employed in a top job (although there is nonetheless a relationship to these outcomes)^[21]

Separately, UCL-led research from 2017 studied how the possession of five life skills—emotional stability, determination, control, optimism and conscientiousness—impact outcomes for individuals later in life.^[22] It found that people who possess more of these life skills enjoy a range of benefits, such as “greater financial stability, less depression, low social isolation, better health and fewer chronic diseases”. Some of the key findings were as follows:

• The proportion of participants reporting significant depressive symptoms declined from 22.8% among those with low life skills to 3.1% in those with four or five life skills.
• Nearly half the people who reported the highest levels of loneliness had the fewest skills, declining to 10.5% in those with four or five skills.
• Regular volunteering rose from 28.7% to 40% with increasing numbers of life skills.
• In terms of health, the proportion of respondents who rated their health as only fair or poor was 36.7% among those with low life skills, falling to 6% in participants with a higher number of attributes.
• People with more skills walked significantly faster than those with fewer (walking speed is an objective measure predicting future mortality in older population samples).^[23]

Therefore, while the EIF’s findings provide a “robust case for […] supporting the social and emotional development of children and young people”, the UCL research suggests that similar conclusions can be drawn for those later in life too.^[24] Professor Andrew Steptoe, who co-led the research, said it suggests that “fostering and maintaining these skills in adult life may be relevant to health and wellbeing at older ages”. He added that he and his fellow researchers were surprised by the range of processes—economic, social, psychological, biological, and health and disability related—that seemed to be related to the life skills that they studied.

3. Skills policy

Highlighted below are some of the key interventions the government has made regarding skills in recent years, in addition to a summary of the proposals by the Labour Party.

3.1 The Skills and Post-16 Education Act 2022

In January 2021, the government published a white paper, ‘Skills for jobs: Lifelong learning for opportunity and growth’, setting out proposals to reform the post-16 technical education and training system.^[25] The intention of the proposed reforms was to help support people to “get the skills our economy needs throughout their lives, wherever they live in the country”. The white paper suggested this would be done by:

• putting employers at the heart of the system so that education and training leads to jobs that can improve productivity and fill skills gaps
• investing in higher-level technical qualifications that provide a valuable alternative to a university degree
• making sure people can access training and learning flexibly throughout their lives and are well-informed about what is on offer through great careers support
• reforming funding and accountability for providers to simplify how funds are allocated, give providers more autonomy, and ensure an effective accountability regime which delivers value for money
• supporting excellent teaching in further education^[26]

The government has said that the Skills and Post-16 Education Act 2022 “underpins the government’s transformation of post-16 education and skills as set out in the skills for jobs white paper”.^[27] Amongst other measures, the act:

• places a legal requirement on colleges and other providers to work with employers to develop skills plans
• reforms the student loans system so from 2025 learners can access a flexible loan for higher-level education and training at university or college, which they can use at any point in their lives
• introduces new powers to intervene when colleges are failing to deliver good outcomes for the communities they serve^[28]

3.2 The levelling up white paper

In February 2022, the government published a white paper, ‘Levelling up the United Kingdom’.^[29] The government described levelling up as a “moral, social and economic programme for the whole of government” and said the white paper sets out how it would “spread opportunity more equally across the UK”.

The white paper suggested that poor skills were “common among left-behind places” and that “vicious cycles” had been allowed to perpetuate, whereby skills and firms emigrate from low-wage, low-skill areas, causing low investment in innovation and R&D, which diminishes wages and skills further.^[30] As such, the government identified improving skills as a key mechanism for levelling up, with the following ‘mission’ set:

By 2030, the number of people successfully completing high-quality skills training will have significantly increased in every area of the UK. In England, this will lead to 200,000 more people successfully completing high-quality skills training annually, driven by 80,000 more people completing courses in the lowest skilled areas.^[31]

Regarding delivery, the white paper said that skills policy in England has “been marked, in the past, by a plethora of short-lived interventions and a centralised approach”, but that—through the Skills and Post-16 Education Bill and other initiatives—the government had launched a programme of change which “fundamentally shifts the way in which skills policy is formulated and delivered, empowering both local leaders and individuals, and developing new and appropriate accountability mechanisms”.^[32]

3.3 Advanced British Standard

On 4 October 2023, the prime minister, Rishi Sunak, announced the government’s intention to create a new ‘Advanced British Standard’ (ABS) that will “put technical and academic education on an equal footing”.^[33] The ABS would bring together “the best of A levels and T levels into a single new qualification”, with students able to take a mix of technical and academic subjects. A consultation on the ABS was opened on 23 December 2023 and closed on 20 March 2024, with the Department for Education saying that it will publish the results of the consultation and the government’s response to it later in 2024.^[34]

3.4 Opposition policy

The Labour Party has set out five missions which will “drive forward a Labour government”, and improving skills is highlighted by the party as something that will help it achieve its mission to ‘break down barriers to opportunity’.^[35] The key policy document for this mission commits a future Labour government, amongst other things, to the following:

• pushing decisions on skills spending out of Westminster to “ensure local communities are able to join up training and job opportunities, with training routes coordinated between colleges and universities”^[36]
• equipping every school with funding to deliver evidence-based early language interventions, to ensure “every child develops the strong foundation in speech and language development that sets them up to achieve”^[37]
• commissioning a “full, expert-led review of curriculum and assessment” that will seek to deliver a curriculum which is “rich and broad, inclusive and innovative, and which develops children’s knowledge and skills”^[38]
• establishing ‘Skills England’, a new national body that will work across government departments and with both the Industrial Strategy Council and Migration Advisory Committee to “identify skills and labour needs, drive forward training opportunities and ensure that skills policy is aligned with wider needs of the economy”^[39]

4. Read more

• House of Lords Library, ‘Higher education: Contribution to the economy and levelling up’, 22 February 2024
• Economics Observatory, ‘How can education and skills policy in England boost productivity?’, 18 January 2024
• Institute for Fiscal Studies, ‘Green budget 2023: Chapter 9—investment in training and skills’, 12 October 2023
• House of Lords Library, ‘Teaching citizenship and life skills in schools’, 1 September 2023
• Office for National Statistics, ‘Quality of life in the UK: May 2023’, 12 May 2023
• Institute for Government, ‘Levelling up and skills policy: How qualifications and training can help boost regional productivity’, 15 July 2022

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Cover image by Compare Fibre on Unsplash.