Matthew Hancock – 2014 Speech at UKCES/Work Foundation Skills Conference

Below is the text of the speech made by Matthew Hancock, the Minister of State for Skills and Enterprise, at Deloitte in London on 3rd March 2014.

Thank you Ian, it’s a pleasure to be here.

I want to talk today about the link between employment and skills. To argue employers can’t find the skilled staff they need, because our skills system lacked rigour and responsiveness.

And I want to explain our response – about how we can tackle this gap – and suggest that we have a once in a generation opportunity to get there.

Growing importance of skills

We all know that an effective skills system is an economic necessity.

What’s new, though – and what’s interesting – is that it’s becoming more important than ever.

You may have seen the other week that Whatsapp, a messaging service, was bought by Facebook for $19 billion.

That’s about the same value as the clothes shop, Gap.

Gap has 135,000 employees.

Whatsapp has 55.

And that’s a sign of the times: because technology and globalisation are changing the shape of our labour market.

And as the number of jobs grows, we need to ensure our young people can get those jobs. We can be a highly educated nation that wins those jobs.

At the moment, something wrong.

At the moment, though, something is wrong.

Youth unemployment has come down – dropping by almost 50,000 in the last 3 months of 2013.

But it remains too high.

Yet at the same time, we have employers saying they can’t get the skills they need.

A recent study by McKinsey, for example, found that around a quarter of employers had left entry-level vacancies unfilled.

A third had lost out on business opportunities because they couldn’t find recruits with the right skills.

Why is this?

How can we simultaneously have young people out of work – and employers that can’t get the right workers?

What’s going on?

It could be the lingering effect of the 2008 crash – an extended economic hangover.

But look at the long-term trend.

From 1992 to the late 1990s, youth unemployment was on a gradual downwards curve.

Then in the early 2000s, it started to rise again. Even as GDP grew, at no point since 1997 did youth unemployment drop beneath 10%.

So what is the problem?

It could be regulation: employment law making it harder for businesses to create jobs – protecting existing workers to the exclusion of others, especially young, entry-level workers.

That’s certainly the pattern we see in southern Europe – regulation strangling new businesses, punishing those trying to break into work – workers’ rights trumping the right to work.

So in Britain, we’re reducing unnecessary red tape – offered strong incentives to hire, removing barriers, like making it 2 years before an employee can go to a tribunal.

Some people say it’s spending on training.

But spending went up over the past 10 years – and as we’ve seen, so did youth unemployment.

So spending alone clearly isn’t enough.

If we’re trying, then, to explain why have both youth unemployment – and employer demand for work – we can see:

– it’s not just about a short-term response to recession

– nor is it simply a matter of money

So what is it?

Problem is poor skills.

There’s a clue in the OECD’s latest adult skills survey. In most countries, younger adults have better literacy and numeracy than older generations.

That’s because they improved their education systems over time – keeping pace with a more competitive world.

But in the UK, overall, our young adults did no better than their grandparents.

I’m sure you saw the report when it came out. But it’s worth stressing just how astonishing it is that the generation that grew up with Twiggy did better than the generation that grew up with Twitter.

We stagnated. And too many of our youngest generation are leaving education without essential skills.

And not skills employers need.

But just as important, too often our young people have the wrong skills.

And to understand why, we have to look at the recent history of further education.

In 1992, colleges were freed by Kenneth Baker – taken out of local authority control.

But from the late 1990s, central control gradually grew.

Governments produced confident predictions of what jobs we would have.

A vast skills bureaucracy took those predictions, ran them through a magic number machine – and came out with skills and training requirements.

They then passed them on to further education providers: dictating what courses they could offer, at what level, and for whom.

It didn’t work.

Because the idea that bureaucrats sitting with a computer and calculator issuing edicts would create the workforce with the right skills was – at best – naïve.

So what do we do?

So if the question is why we have youth unemployment at the same time as employer demand – the answer is the structure of our skills system.

If it produces young people with low skills and the wrong skills – we shouldn’t be surprised if employers can’t get the right people.

We’ve got to fix it.

And we’re doing that in 3 ways. You might call them the 3 Rs:

We’re bringing in responsiveness, rigour – and we want a revolution in attitudes.

Responsiveness

First, responsiveness.

In the past, governments responded to skills gaps by creating more complexity.

When their predictions didn’t work out, they invented new sector bodies, quangos, or intermediaries – all purporting to ‘speak for business’.

Instead, we’re giving genuine power to employers to shape vocational education.

Look at apprenticeships.

Instead of being designed by committee, using complex frameworks – we want clearer, better standards, written by employers.

Our first 8 trailblazers are already helping us prepare reformed apprenticeships.

Designed by employers for employers.

They’re household names in sectors from finance to food, aerospace to auto engineering – and are all committed to developing higher-quality apprenticeships that are more closely linked to their needs.

We’re promoting employer ownership of skills – giving them direct control over skills budgets.

We’re encouraging colleges to look out to their community – and build better links with business – and a month ago, announced new elite colleges driven by real demand in nuclear, rail and advanced manufacturing.

All of these things make the system more responsive to the needs of business.

Rigour

Our second aim is rigour.

Rigour means expecting high standards of everyone. Everyone.

Employers expect GCSE maths and English as a minimum: and as the OECD makes clear, at the moment, it is the most basic skills that some of our young people lack.

So now, we’re making sure that all students will keep studying maths and English to 18 – at to at least a C at GCSE – whether they’re in a school, college or workplace training.

And we know that some young people aren’t quite ready for a full apprenticeship or job.

So we created traineeships – to ease that transition to work.

Because we are determined to get to a position where employers no longer say – we can’t find young people who can count or spell or have the right attitude for the job.

Rigour means improving qualifications, too.

We’ve stopped the system of funding per qualification passed – giving a perverse incentive to chase the certificates that students can pass more easily. Now, we provide funding per learner.

And Alison Wolf’s review found that somewhere between a quarter and a third of young people – some 350,000 teenagers – were on poor-quality qualifications.

So last year we filtered out poor-value qualifications for 14 to16 year olds – removing more than 3,000 courses.

We’ve done the same for 16 to 19 year olds this year – removing 3,403 courses.

And more than 1800 adult-age courses were removed from funding, too.

Instead of these reams of poor-value qualifications, we are focussing on those that really represent achievement.

From 2016, a new set of approved qualifications will be taught – with only those winning the support of universities and employers included in performance tables.

These include new tech level qualifications, the core of the TechBacc programmes, which will be taught from this autumn – giving a high-quality alternative to A levels. Each 1 endorsed by employers.

And I am delighted today to announce new TechBacc trailblazers.

Just like our apprenticeships trailblazers we have 8 post 16 schools and colleges who have agreed to develop their technical subjects with local employers. We’re funding them to explore how their courses can reflect the real world of work – and raise quality even further.

All of this means employers can trust qualifications – and that students are more likely to enter into training that leads to a good job.

Culture

So we are bringing responsiveness and rigour to the system.

In time – those 2 principles can lead what I hope is an even bigger change.

A change in attitudes towards training.

An under-performing skills system has 1 big problem: it builds its own momentum.

After all, in response to skills shortages, employers have options.

They can train up people themselves.

They can hire abroad – or find immigrant labour.

They can poach trained staff from competitors.

Or they can rifle through their supply chain, and poach from there.

So what does each boss and business do?

Who would be the first business to train – the first to risk them losing their trained staff?

Why train if no-one else in your sector does?

There is an alternative.

Look at countries like Germany. They have the opposite culture.

An employer seeking staff has the same set of options: train, import, or poach.

But because most companies assume their role is to train their staff – there is no penalty in training.

And that, in turn, makes training more likely. Ultimately training is good for business.

That’s the culture we must inculcate.

Our reforms – rigour and responsiveness – aim to break out of a low-training culture – and into 1 where there is a comparative advantage in training.

Because if qualifications are meaningful and high-quality, we make training a better, more reliable investment – more likely to help the bottom line.

If every young person entering the world of work has essential literacy and numeracy, employers no longer think of training as remedial – making up for failings of others – but can see it as something of higher value.

And if the system is responsive to employers’ needs – if enough heads of HR and CEOs and CFOs see they’re getting the people they need – then apprentice by apprentice, course by course, business by business we will hammer away at a low-training culture until eventually we can sound its death knell, and bring the high training culture we need

Conclusion

And there’s never been a better time to do it.

Turning the economy round is no easy task. We have much more to do. But things are moving the right direction.

And combine that promise of growth with everything else.

A global economy that rewards skills as never before.

Comprehensive reform of our vocational education based on rigour and responsiveness.

Put all those things together – and we have a once in a generation chance to crack it – to fix the system.

A once in a generation opportunity to get vocational education doing what it’s supposed to do – give students real, valued training – and give employers the skilled people they need.

That, to me, is a very good reason to look forward to our future.