Skills and Labour Shortages

Theresa Villiers Excerpts

Thursday 12th January 2023 Westminster Hall

[Patricia Gibson]

I absolutely agree with the hon. Lady. She tempts me to get into that particular area before I am ready to do so, but I will say more about it in a moment.

I extend my thanks to the Association of Colleges, the Chartered Management Institute, the Heart of London Business Alliance, the House of Commons Library, the Open University and several others for the helpful and informative briefings that they have provided for this debate.

The shortage of skills and labour affects, to a greater or lesser degree, every single sector of our economy and every area of our lives. It affects our productivity and our public services. We see it in areas such as health and social care. There are shortages right across our NHS —in radiology, audiology and that is not to mention doctors and nurses. The Nuffield Trust estimates that in England alone, the shortage of doctors in the NHS could be as high as 12,000, and the shortage of nurses could be over 50,000.

There are also shortages in food processing, agriculture, transport, haulage, construction, butchery, tourism, manufacturing, veterinary medicine, information and cybersecurity and hospitality. Pressures on supply chains have helped to increase the cost of goods and services, which we see particularly in the soaring cost of food.

As the title of the debate indicates, there is a shortage of labour and required skills in a range of areas. That matters. The Open University’s 2022 business barometer estimated that 78% of UK organisations suffered a decline in output, profitability and growth as a consequence of a lack of available skills. The Recruitment and Employment Confederation estimates that if labour shortages are not addressed, the UK economy will be £39 billion worse off each year from 2024. The Chartered Management Institute found that overall, 71% of managers said that their organisations experienced ongoing difficulties in recruiting the skilled staff they need.

The cost is huge. Research, again from the Open University, found that 72% of businesses had increased the workload on other staff because of staff shortages, and 78% reported that those shortages were causing a reduction in activity, service delivery, profitability and long-term growth plans. Significant strains are consequently placed on service levels and supply chains, and members of existing workforces leave due to the impact on their own wellbeing of prolonged staff shortages. According to the Federation of Small Businesses, 80% of small firms face difficulty recruiting applicants with suitable skills.

The number of vacancies unfilled across the UK is now slightly higher than the number of people registered as unemployed. Managers are doing all they can to recruit the staff they need. They may be doing so through the old-fashioned method of word-of-mouth recommendations, by engaging recruitment agencies, by use of social media and print media, by distributing leaflets and flyers advertising vacancies, by offering introductory pay bonuses, by paying more competitive salaries, and by revising their wider employment practices and policies to attract and retain those with the skills they need—such as offering flexible working hours where possible—but despite those best efforts, the challenges remain.

There are several reasons for the shortage of labour and skills across our economy. We know that the demand for labour has recovered faster than the labour supply since the pandemic; indeed, the labour demand is above pre-pandemic levels, while the labour supply is below pre-pandemic levels. When the pandemic hit, older workers responded to the initial reduction in labour demand by no longer looking for work, so they went from being unemployed to being inactive. Since the pandemic, the number of people unable to work due to health reasons seems to have increased. However, in October 2022, the Institute for Fiscal Studies’ longitudinal data showed that many among the older population who are economically inactive because of long-term illness left the labour market before they became ill—they left because they decided to retire. Indeed, with the advent of remote working, many older workers found that they quite enjoyed spending time at home and did not wish to return to the workplace, and they took the opportunity to retire as a result.

The other driver of the labour and skills shortages we face, which poses the real threat to our economic recovery and potential prosperity, is—as everyone in this Chamber and outside it knows—Brexit. Even a House of Lords report last month pointed to an increase in early retirement and changes to migrant worker patterns since the Brexit referendum as exacerbating the main drivers of those shortages. It found that

“Over the last few years many EU workers, who filled these roles, have left the UK.”

There is no dispute about the fact that before the EU referendum and the pandemic, free movement from the EU was a major source of labour in the UK. By 2020, an estimated 55% of foreign-born workers who said that they originally moved to the UK for work-related reasons were born in EU countries. Now, many have left the UK since the UK left the EU—years that coincidentally saw a pandemic, as well. Even if those workers who have left want to return to the UK, many will find themselves unable to do so because of the UK’s restrictive post-Brexit immigration policies. That is despite the fact that our economy—our labour market—needs them to fill the gaps that we are suffering, which are acting as a drag on our economy and our current and future prosperity.

[Theresa Villiers (Chipping Barnet) (Con)]

I am sure that the hon. Member will have noted that the most recent figures for net migration are around half a million, which demonstrates that this country still has a pretty liberal immigration policy that is focused on the needs of the economy and business.

[Patricia Gibson]

I plan to touch on that. However, migration is not enough; it does not fill the range of gaps, including skill gaps, and needs in our economy. I will say something about that in just a moment.

Between Brexit and the start of the pandemic, the number of national insurance numbers issued to people from the EU fell by 24%. That impacted our NHS, and the number of specialist doctors in the UK from the EU or the European free trade area; it was more than 4,000 lower than if pre-Brexit trends had continued. Just to be clear, the shortfall is not being made up by non-EU workers. The situation is particularly acute in rural areas, prompting the Migration Advisory Committee to warn of the risks of rural depopulation, which is pretty serious.

The Minister will wish to argue that this serious situation could be addressed by investing in skills and education, to which I would say this: first, that would require real investment that is not forthcoming at the levels that we would all wish to see; and secondly, that strategy would not help the situation right now. It would perhaps help us to plug some gaps in the longer term, but our economy—our public and private sectors—need help right now. The situation is particularly worrying for Scotland, given that ours is the only country in the UK in which the population is projected to fall in the next decade.

What can the Government do about this situation? Well, they could make it easier for businesses to recruit from abroad as and when they need to, for all skill levels. Employers are concerned about how onerous, time-consuming and bureaucratic it is to recruit staff from abroad, and it should not be. Employers make every effort to recruit locally, but when that does not result in their gaining the staff and skills that they need, it should be much easier and smoother to tap into the labour markets of our European neighbours. That would make perfect sense for our employers, our economic prosperity, and those who are recruited. The Government’s own MPs are coming to realise how urgent the situation is. That was evident when the hon. Member for Lichfield (Michael Fabricant) echoed the Scottish Government’s calls for the Home Office to provide long-term stability for migrant workers with a 24-month visa.

It pains me to say it, but the UK Government are prisoners of their own rhetoric; they have somewhat boxed themselves in over visas and immigration, despite the demands of our economy. The Chancellor told us in his autumn statement last November that the Prime Minister would ask the Secretary of State for Work and Pensions to

“do a thorough review of issues holding back workforce participation, to conclude early in the new year.”—[Official Report, 17 November 2022; Vol. 722, c. 848.]

Some people’s hopes were raised that those words might signal change, driven by common sense, but as we have heard nothing since about a review, I fear that those hopes were misplaced. Perhaps when the Minister responds to the debate, he can update us on that review.

The temporary exception to the skilled worker criteria under the Government’s points-based immigration system for care workers, and the introduction of a bespoke visa for seasonal agricultural workers, are absolutely fine moves, as far as they go. However, they are clearly inadequate to address the scale of the workforce challenges faced by the sectors to which they are directed. They also take no account of the range of needs in other sectors. Similarly, the kickstart scheme, well-intentioned though it is, is simply inadequate to address these challenges.

--- Later in debate ---

[Theresa Villiers (Chipping Barnet) (Con)]

It is a pleasure to serve under your chairmanship for this important debate, Sir Graham. I warmly congratulate the hon. Member for North Ayrshire and Arran (Patricia Gibson) on securing it; it matters so much to many of our constituents. Although our views are very different on a number of matters, such as Brexit, I agree that addressing labour and skills shortages is crucial for our economy. That point was made strongly to me at a recent advice surgery by a constituent who has been struggling to recruit workers to her car repair business in Barnet. I strongly believe that apprenticeships can help us tackle that problem, and I will largely focus my remarks on them.

Apprenticeships are a highly effective way to improve people’s skills. That is important for several reasons. First, they make our economy more productive and competitive, and that boosts growth and raises living standards. They help plug the labour shortages that we have been hearing about this afternoon.

[Margaret Ferrier]

Does the right hon. Lady agree that if the Government invest both time and money in engaging unemployed people in younger age groups, and support them in careers that they have a passion for and enjoy, that could head off a further growth in labour and skills shortages? Could that begin to balance out the inactivity that we see in those approaching retirement years?

[Theresa Villiers]

I certainly agree that investing in adult education, apprenticeships and skills is crucial for giving people opportunities in life and the skills that they need. That is why I welcome the huge amount of work that the Government have done on this issue. Indeed, the Prime Minister identified that as a key priority for him.

Apprenticeships, skills and adult education are crucial in giving people the chance to succeed in life, whatever their background. They can be an engine of social mobility and social justice. Apprenticeships in the science and technology field can strengthen the capacity of our workforce to tackle the two huge environmental challenges we face: climate change and nature recovery. For those three reasons alone, I am a big enthusiast for apprenticeships. I have met a number of people whose lives have been transformed for the better because of them.

[Mr Perkins]

I absolutely share the right hon. Lady’s enthusiasm for apprenticeships, so I suspect she will be as concerned as I am that, since the introduction of the apprenticeship levy, the number of apprenticeships has fallen, and the number of apprentices in small and medium-sized enterprises has fallen massively. Companies that do not pay the apprenticeship levy are much less likely to do apprenticeships. Does she agree with me and the Labour party that we need to make the apprenticeship levy more flexible, and bring more small businesses under that regime?

[Theresa Villiers]

There is scope to review the apprenticeship levy and make it more flexible; I will come on to that. We also have to recognise the success in recent years in delivering apprenticeships; there have been around 5.2 million since the Conservatives returned to office in 2010. Yes, there has been a slight fall since the covid pandemic, which we need to address. I will come on to that later.

I commend Middlesex University, which is local to my constituency, for its work on degree apprenticeships. They deliver a great combination of academic and in-work learning, without creating the burden of debt that comes with a more traditional degree. It was great to meet young people in the university’s apprenticeship programme who are training for roles in the NHS at Barnet Hospital. Those dedicated apprentices show that skilling up people already working in the NHS can help to address labour shortages in healthcare, which we urgently need to tackle if we are to expand the NHS’s capacity for dealing with rising healthcare need.

I also praise the work of the BioIndustry Association. Last year, I met the association, along with some of its young people who are undertaking apprenticeships in the biotech and life sciences sector, to discuss these important matters. That part of our economy is truly world beating, as the inspirational work on delivering a vaccine during the covid pandemic showed. We need to ensure that the life sciences sector has a great pool of talent from which to recruit if it is to live up to its potential to deliver the new treatments, vaccinations and diagnostics that could transform healthcare in years to come, and if it is to provide hope for people suffering from devastating conditions such as cancer and dementia.

In his winding-up speech, I want the Minister to consider how we can get more people into apprenticeships. When it comes to tech sectors such as life sciences, co-ordination between the Government’s research and development and skills programmes can be invaluable. For example, the network of catapult centres created by the Government to encourage cutting-edge science and innovation could play a positive role in supporting small businesses in handling the apprenticeship process. That is illustrated by the cell and gene therapy catapult’s development of ATAC—the Advanced Therapies Apprenticeship Community. That engaged over 48 companies in using apprenticeships to attract, train and retain talent. Over half of the companies were small or medium-sized enterprises at the time of first recruitment.

Like the shadow Minister, the hon. Member for Chesterfield (Mr Perkins), I ask the Minister to consider the wider point of how we can make it easier for small businesses, such as that owned by my constituent, to employ and train apprentices. I am the vice-chairman of the all-party parliamentary group on apprenticeships, which considered that issue in a report published last July.

[Patricia Gibson]

The right hon. Lady is making important points about apprenticeships, which we all understand are important for our young people and economy. Of course, the situation is urgent. Does she agree that Government action on the issue so far, such as the kickstart scheme, which cost £2 billion and had a take-up of around 25%, shows that more bold and radical thinking is needed to address the challenges we face?

[Theresa Villiers]

A great deal has been achieved so far—not least more than half a million apprenticeships—but of course we can always do more. We need to ensure that schemes such as kickstart, and the other skills programme, have as wide an uptake as possible. I am particularly keen to see minority ethnic communities engaged effectively in those skills programmes. There is more that can be done, but much has already been achieved.

In the APPG’s July report, we appeal for a reduction in the complexity of both the creation of new apprenticeships and the delivery of current ones. I hope that the Minister will look at how the system, including the apprenticeship levy, is working, to make it more cost-effective for small businesses to take on apprentices. We also need the Institute for Apprenticeships and Technical Education to engage closely with sectors such as construction, healthcare, life sciences and green tech, to ensure that apprenticeship standards keep up to date with the pace of change. All of us, whether we are MPs, parents, teachers, Ministers or employers, need to do more to promote apprenticeships as a great way for young people to get on in life and achieve their goals. I have welcomed the opportunity to do that in today’s debate. I hope that there will be many more opportunities to discuss these important matters in the House in the months to come.