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Government takes big first step, but many miles left on journey to build Industrial Strategy

27 Nov 2017

WhitehallResponding to the launch of the Government’s Industrial Strategy White Paper, Stephen Martin, Director General of the Institute of Directors, said:

“Business leaders will welcome the Government’s grand ambition to turn around the UK’s woeful productivity performance. The measures in today’s Industrial Strategy could be the beginning of a bold, new approach to the economy, but only if what has been announced today is followed through, not just in this parliament, but over many parliaments to come.

"Now more than ever, the public and private sector need to join forces on this long-term vision that targets all dimensions of the UK economy – people, place and business. In a moment of heightened political volatility, much will depend on whether there will be a guardian of industrial strategy to shield it from the rigours of a short-termist political cycle. If this is to be the new independent industrial strategy council, it must be given the necessary teeth for the task.”

The IoD also published new figures today, showing the scale of the productivity challenge facing the Government:

  • Survey of 700 IoD members shows nearly 8 in 10 (78%) business leaders think the Industrial strategy must be long-term to work, and 6 in 10 (60%) say it must be separated from political pressures
  • Investing in digital (43%) and physical infrastructure (38%) are companies’ top priorities for Government action
  • But business leaders also say they must make better use of technology (54%) in their firms, improve organisational efficiency (52%) and boost skills and training (47%) in order to tackle the productivity challenge

Full survey results below*

On measures in the Industrial Strategy aimed at tackling the productivity puzzle:

  • Increase the National Productivity Investment Fund to £31bn, supporting investments in transport, housing and digital infrastructure (Pg 126)
  • Business environment: Launch a review of the actions in improving the productivity and growth of small and medium-sized businesses (Pg 162)

Tej Parikh, Senior Economist, said:

“The Industrial Strategy makes some important early steps in diagnosing productivity challenges within firms and indeed in the wider business environment – but implementation is another issue.

“It recognises higher productivity growth cannot be achieved by either government or businesses on their own. A recent survey of our members found investing in digital (43%) and physical infrastructure (38%) are the top asks of politicians to overturn a legacy of underinvestment in national connectivity and networks.

“Companies, however, also know they must make better use of technology (54%), improve organisational efficiency (52%) and boost skills and training (47%) in order to tackle the productivity challenge. But there’s a catch-22. Managers want to increase organisational efficiency, but just cannot find the time (40%), skills (38%), and finance (31%) to implement the right adjustments.

“To that end, the White Paper’s call to review the challenges facing the UK’s ‘long-tail’ of low-productivity firms, including through the diffusion of good management practices, is particularly important.”

On education and skills:

  • £406m for maths, digital and technical education, helping to address the shortage of science, technology, engineering and maths (STEM) skills (pg 94):
    • This includes £30m to test the use of AI and innovative education technology (edtech) in online digital skills courses (pg 117)
    • £84m to up-skill 8,000 computer science teachers (pg 100)
    • £10m to design flexible, accessible ways of delivering learning to working adult (pg 116)
    • Create a new National Retraining Scheme that supports people to re-skill, beginning with a £64m investment for digital and construction training (pg 117)

Seamus Nevin, Head of Policy Research, said:

“The Government’s aim to establish a technical education system that rivals the best in the world is very welcome. Last week’s news, however, that there has been a 60% collapse in the number of people taking up apprenticeships is proof that we need structural reforms alongside investment.

“Despite much pessimism, there is no shortage of good jobs available in our economy. The problem is that many people are precluded from entering these professions because they lack the right skills. The UKCES (UK Commission for Employment and Skills) Employer Skills Survey found that 43% of all vacancies for technical jobs went unfilled last year because of the technical skills shortage.

“The root cause of much of Britain’s underperformance in science and maths begins in schools. Alongside the measures in last week’s Budget, the additional £406m for education announced today, which includes the plan to up-skill 8,000 computer science teachers and funds to develop innovative Edtech to address the STEM skills gap, will be a big help.

“For older workers, a National Retraining Scheme is something the IoD has been a leading advocate of for several years, so we look forward to working with the Government to develop these plans further. Embedding a culture of lifelong learning by enabling people to re-enter education in order to re-train or up-skill will be vital to the future success of our economy. Finance is known to be the biggest barrier to adults re-training so it is great to see Government plans to design and test flexible, accessible ways of delivering learning to working adults in a cost effective way. Much of the burden for implementing this programme will rest on local mayors to whom powers will be newly devolved. Employers will have an important role in working with local government and education providers to ensure workers’ skills keep up with the speed of technological change.”

Measures on supporting companies to start up and grow:

  • New capacity being built into the British Business Bank (pgs 179,180)
  • Announcements to bolster the digital skills base (pgs 40,110)

Jamie Kerr, Head of External Affairs, said:

“The strategy builds on a number of announcements made in last week’s Budget and we welcome the new capacity being built into the British Business Bank to drive more finance towards fast growing businesses across the board. A key next step will be to make scaling businesses more aware of the investment vehicles supported by public funding, as recent survey of IoD members revealed that overall awareness of the British Business Bank itself sat at just 21% amongst SMEs.

“Start-ups will also welcome the focus on enhancing the domestic talent pipeline, particularly for digital skills. However, employers in digital sectors also know that technologies evolve quickly over the course of a three or four year degree. In this light, building strong, real-time partnerships between universities/schools and tech businesses will also be important to delivering an effective digital skills base in the UK.

“In the meantime, the short-term reliance within the tech sector on talent from abroad should be at the front of the Home Secretary’s mind as her department develops its post Brexit migration strategy.”

On the Matthew Taylor review (pg 118), Seamus Nevin, Head of Policy Research, said:

“The tentative response in the industrial strategy to Matthew Taylor’s review may well be cautiously welcomed by some in the business community, but it will do little to ease the minds of employers who are desperate to see greater clarity established within employment law. There is a clear need to bring all stakeholders, from employer representatives to trade union leaders together on a vision for safeguarding good work in an increasingly fractured labour market, and we welcome this conversation.

“There are, however, things the Government can do now. HMRC data shows that approximately one-third of people who believe themselves to be self-employed are actually, or also, in contracted employment. In a similar manner, one-third of IoD members report that they are also unsure about the differences between separate employment categories. As a consequence, firms can sometimes be reluctant to invest in training self-employed contractors or helping staff comprehend their entitlements because doing so could risk altering the staff member’s employment status and the employer-staff legal obligations to one another. Providing better information would be a simple and effective solution available to the Government. Improving the understanding people have when choosing to enter work by making self-employment opportunities adverts fair and clear would go some way towards helping individuals to better understand the costs, risks and benefits and make the best decision for themselves.”

*Full survey results:

This survey was conducted between 9 Nov – 23 Nov 2017, with 687 respondents

What would be the best way to increase productivity in your organisation?


Percentage

Investing in new technology

54%

Helping existing staff to work more efficiently (organisational changes)

52%

Investing in human capital (skills/training)

47%

Outsourcing

13%

Increasing hours of work

12%

Boosting employee incentives (pay, benefits, etc.)

10%

Hire more permanent workers

9%

Investing in capital

9%

Other (please specify)

6%

Don’t know

5%

Hire more temporary workers

5%


What is the biggest limitation or barrier to increasing productivity in your organisation?

Time constraints

40%

Skills challenges

38%

Financial resources

31%

Government policy (eg business taxes/regulations)

27%

Limited ability to absorb new technology

18%

Broadband speeds

15%

Recruitment processes

13%

Other (please specify)

9%

Office space

5%

Don’t know

5%


What should the Government prioritise to help increase the economy’s productivity?

Invest in digital infrastructure

43%

Invest in physical infrastructure

38%

Lower the regulatory burden

35%

Support investment in research and development

33%

Improve education

33%

Lower the tax burden

32%

Improve training support

23%

Support for business costs

20%

Improve access to foreign labour

13%

Other (please specify)

6%

Don’t know

1%


What do you think are the biggest barriers in government for raising the economy’s productivity?

Short-termism

78%

Political pressures

60%

Leadership

58%

Expertise

39%

Funding

17%

Risk-taking

17%

Other (please specify)

7%

Don’t know

1%

Contact Press office