John Hutton – 2006 Speech at CBI/Real Finance Human Capital Awards

Below is the text of the speech made by John Hutton, the then Secretary of State for Work and Pensions, to the CBI/Real Finance Human Capital Awards on 19th October 2006.

I’m grateful to the CBI and Real Finance Magazine for the opportunity to join you this evening and to offer my support for these – the inaugural – Human Capital Awards.

The calibre of nominations and breadth of organisations supporting these awards tonight, show clearly just how important good people management is to Britain’s top companies. Important, because investing in people leads directly to tangible results for business. To higher productivity. Better performance. More employment. More wealth creation.

As a nation, our future economic competitiveness rests crucially on the productivity of our workforce. Government and business have a shared ambition to ensure our people have the skills and aptitude needed for British business to thrive in the face of increasing global competition. For British workers to be able to compete in a truly global labour market.

Emerging economies accounted for well over half the increase in global output last year. Twenty years ago they produced just 10% of manufactured goods – by 2020 it will be 50%.

As China, India and the former Soviet Union are making significant strides towards a market economy, the global labour force has in effect doubled.

All these changes bring new challenges for our economy and society; for business and for Government. They prompt new questions about how our businesses can adapt; and the best way to help UK citizens compete successfully in today’s labour market.

The Government has asked Lord Leitch to report later this year on the UK’s optimal skills mix to maximise economic growth, productivity and social justice.

In his preliminary report last year, he found that 20% of the productivity gap with our competitors can be explained by poor skills. And that tackling low skills, by upskilling an additional 3.5 million adults, could deliver an average annual net benefit of 0.3% of GDP.

We know that a lack of skills can be a significant barrier to employment. But we also know that the lack of skills alone is not preventing people from getting jobs. Around 1 million low qualified people flow onto Jobseeker’s Allowance every year, of whom about 400,000 leave the benefit within the first 13 weeks of their claim. Additionally, each year around 470,000 low-skilled people move from inactivity to employment. But within three months of getting a job, over a fifth of all these people moving into work return to benefit.

In fact, 70% of all new Jobseeker’s Allowance claims are made by people who have claimed before. Of these, nearly a quarter have no qualifications and 1 in 6 report literacy or numeracy problems. Of course, many of those returning to JSA do so only briefly – they are simply moving between jobs – a sign of a healthy and diverse labour market. But about half of those repeat claimants are spending more time on benefit than in work. So there’s clear evidence that many low-skilled workers are having difficulty in sustaining employment.

Through Jobcentre Plus and our wider welfare to work strategy – we have invested heavily in helping people find work. But it’s clear that our future success will hinge not simply on getting people into work – it will depend on supporting them to stay there. In today’s labour market, the typical worker changes jobs seven times during a working life. We need to make sure that our welfare delivery system doesn’t pull up the drawbridge of support too quickly. Too often we think the job is done as soon as someone has entered the labour market. But helping individuals to acquire the skills, confidence and ambition to progress through the workplace has to be a core ambition of a dynamic welfare system. This is the new challenge. Getting people into work is only the start. Keeping them in work and helping them to progress though the labour market must be our objective as a Government that believes in promoting social mobility and ending poverty.

Achieving this, I believe, requires a new approach to skills. One that seeks a much closer alignment between skills and employment needs. That’s based on a simpler, clearer and more coherent system of delivery – that meets the needs of both businesses and individuals.

Emerging evidence around the impact of adult learning on employment chances suggests that the most effective provision is a package of support involving work experience or labour market contact – that is individually tailored and geared towards local opportunities.

As we are reforming delivery in health and education, with a clearer more explicit link between funding and the patient or pupil, I believe we need to empower individuals and employers to take responsibility for driving demand in the system and shaping their skills needs. Skills provision must be focused on our economic mission. A demand led system of learning which provides employers with the skills their employees need. That enables employers to be competitive a world market and individuals to get jobs and stay in jobs – meeting individual need at the right point in time.

As we consider the future of skills and employment support in the UK, I believe that it must be based on two characteristics.

First, future provision must involve a more integrated employment and skills gateway for customers. Focussed on the needs of the individual and equipped to broker the right opportunities to help people get into and progress through the labour market.

Second, the creation of a more responsive and integrated system of skills and employment support must be based on a more dynamic market in the provision of skills. We cannot expect business in our economy to compete effectively in ever-more intense domestic, European and global markets, if the market for skills provision is not dynamic and competitive. And it is clear from Sandy Leitch’s first report, that with only 2% of discretionary employer skills spending going to FE colleges, the Government was right to publish its recent White Paper on raising skills in Further Education – which set out the role of further education, its economic mission and the need to be much more responsive to both employers and individuals.

But all of this hinges on the alignment between skills and employment needs. On the way Government understands employer needs and the dynamics of a competitive economy. And the way employers invest in their people.

We know that workplace learning increases average job tenure with a consistent and significant impact on earnings and productivity – and more so than adult learning or Government provided training programmes.

Too often in the past, HR has been left to exist in a separate bubble. It’s been about processes; organising terms and conditions; supporting integration or restructuring programmes. The message coming from these awards tonight is clear. Business must burst that old HR bubble – and fully integrate investment in people at the heart of its corporate objectives.

In-work training is heavily skewed towards those who already have qualifications. Government has to ensure that workers have a minimum level of competency. We need to build on demand-led programmes like our Adult Learning Option pilot which offers benefit recipients access to training courses focused on local labour market needs. And the Train to Gain service which supports employers in identifying the skills needs of their businesses, matching this with available provision and contributing to the costs of training to help many previously unqualified workers to develop and progress into more sustainable, productive employment.

Like all developed countries in today’s ever more global market place, the UK faces a skills challenge. But crucially, I believe, it’s also an employment challenge. One that our flexible and dynamic labour market is well placed to meet.

If Government can shape skills support so it is focused on business and employment needs; And if our businesses can build on the best practice that we will see showcased tonight; Then I believe we can look forward with confidence to a Britain of ever greater prosperity. Where British business can not only compete but thrive in the world marketplace. And where we can combine a strong economy with a fair society, and in the process, help British companies not only meet the challenge of globalisation, but prosper from it.