Getting back to work

Cameron Tait

The case for a universal skills allowance

With little time to prepare a manifesto, Labour’s election campaign is in desperate need of flagship policies that can capture the public imagination. A universal skills allowance could be the big progressive idea of the 2017 campaign.

A £1,000 ‘use it or lose it’ annual allowance to support vocational skills development would offer aspiration, security and control to every person of working age in Britain. By pledging direct financial support to spend on courses designed to boost skills, productivity and employability, Labour can revisit its founding purpose as the party of workers. And in doing so, it can move away from small-beer policy tweaks to big picture changes.

The idea behind a skills allowance has a political pedigree. Labour’s 1997 manifesto included plans for modest individual learning accounts (including £150 cash contributions to courses) but there was insufficient interest to overcome teething problems in its delivery. At a time of rising employment and wages, the policy focus was on those in ‘education, education, education’, rather than those already in work.

The skills allowance was, however, an idea before its time. Twenty years later, sluggish productivity has led to a decade of stagnant pay growth, industrial change has created growing feelings of insecurity, and many members of Britain’s ageing workforce are anxious about how they can prolong their careers. Add to this the growing uncertainty surrounding Brexit, and you are past the threshold for policy intervention and into the territory of urgently required reform.

A properly funded universal skills allowance would give security to people working in declining industries and professions, and the control to take their futures into their own hands. It would reward the aspiration of those workers who want to upskill and progress their careers by helping them into better paying, more productive jobs. And it would give older workers a share of the proceeds of technological advances that have previously left them feeling threatened.

The Labour party has rightly continued to exercise caution about big spending commitments in the pursuit of economic credibility (despite tendencies towards looser fiscal policy from the current leadership). But economic competence is not just about knowing when to hold back, it is also about picking investment opportunities wisely. And as we prepare to go it alone on the world stage, it would only be prudent to ensure we have the skills to compete in a rapidly changing global economy.

A £1,000 annual skills allowance for all UK citizens aged between 25 and 64, regardless of employment status or income, would cost around £1.8 billion in the first year. The cost would rise up to £5.9 billion in the fourth year if by then one in five eligible people were enrolled on a supported course (see table below).

The allowance could initially be funded by the expenditure currently earmarked for the controversial apprenticeship levy, which exceeds the skills allowance spend over the first three years. The apprenticeship levy will raise around £3 billion a year but the apprenticeships programme it supports has been criticised for its focus on quantity over quality, with employers expressing doubts about its ability to support lifelong learning and career development.

Under the skills allowance policy, the accreditation of eligible courses provides government with a better opportunity to fill skills gaps and boost labour productivity, while also giving people more control over their futures. The economic benefits of the skills allowance (a higher skilled and more economically active workforce) would likely be having a positive impact on growth figures and tax receipts by 2020, at which point over 7 million people would be enrolled on skills-boosting courses.

The case for investing in adult skills is strengthened by the speed at which other countries are getting their acts together. Singapore is in the second year of its skills allowance programme, which has seen one in fifteen people sign up to new courses and has contributed to an upwards revision of the country’s future growth prospects. The German Ministry for Labour and Social Affairs has recently published plans for personal worker accounts to support re-skilling, and the Social Democratic Party leader Martin Schulz has placed skills support at the front of his election campaign.

With Theresa May’s snap election skewering Matthew Taylor’s modern employment review weeks before it was due to report, Labour has been presented with an opportunity to rediscover its founding purpose by getting back to work. Boosting wages, lowering insecurity and giving older workers the means to save for their retirement is well worth the investment. A universal skills allowance is exactly the sort of big idea the Labour party is looking for.

Methodology: take-up target is the proportion of eligible people (everybody aged 25 to 64 regardless of income or economic activity) expected to take up the allowance. The 2017 / 2018 target is set at the level of take-up in a similar scheme in Singapore, with subsequent years rising incrementally to 20 per cent of those eligible. The cost calculations assume the average actual spend of each allowance is 80 per cent of the total allowance, as has been the case in the equivalent scheme in Singapore.     
 
Cameron Tait is senior research fellow and head of the Changing Work Centre. This project does not form part of the Centre’s work programme. 
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