Review of Collective Measures IoD response to UKCES consultation

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1 Review of Collective Measures IoD response to UKCES consultation Carol Stanfield Senior Research Manager UK Commission for Employment and Skills 31 July 2009 UK Commission for Employment and Skills Review of Collective Measures consultation Dear Ms Stanfield, Thank you for inviting the Institute of Directors (IoD) to respond to the Commission s Review of Collective Measures public consultation. Policy relating to skills and training is of the highest interest to the IoD and its members and we are delighted to participate in the consultation exercise. We hope you find our comments useful and look forward to further engagement following the conclusion of the consultation phase. About the IoD and its members The IoD was founded in 1903 and obtained a Royal Charter in It is an independent, non-party political organisation of approximately 50,000 individual members. Its aim is to serve, support, represent and set standards for directors to enable them to fulfil their leadership responsibilities in creating wealth for the benefit of business and society as a whole. The membership is drawn from right across the business spectrum. 83% of FTSE 100 companies and 64% of FTSE 350 companies have IoD members on their boards, but the majority of members, some 71%, comprise directors of small and medium-sized enterprises (SMEs), ranging from long-established businesses to start-up companies. IoD members organisations are entrepreneurial and resolutely growth orientated. More than twofifths export. They are at the forefront of flexible working practices and are fully committed to the skills agenda: over 90% of members organisations provide training for their employees and 70% provide training leading to qualifications. IoD members commitment to training has remained robust during the recession. In a survey of nearly 1,000 directors in April-May 2009, 80% said that their organisations had either maintained (51%) or increased (29%) investment in training over the course of the previous six months. 88% reported that their organisations were planning at least to maintain training investment over the next six months too. 1 1 The survey report, Training in the recession: winner or loser? (IoD, June 2009), is available for free download on the IoD website: 1

2 IoD response: consultation questions 1. What is your initial reaction to Policy Option 1: more and better inter-employer networks to increase employer investment in training in the UK? The principal merit of this policy option is that it offers employers a positive stimulus voluntarily to collaborate to improve the supply of skills. In principle, therefore, it is infinitely to be preferred to damaging regulatory interventions such as the introduction of compulsory training levies, to which IoD members have been consistently opposed. 2 However, the proposal needs a significant amount of refinement. It is important to ensure that the proposed Employer Network Fund does not simply duplicate or replicate the support available via other funding streams and collaborative initiatives, e.g. Train to Gain, Group Training Associations etc. One way to help ensure this is to sharpen the focus of the network funds, by stipulating that funding cannot be targeted contrary to what is proposed in the consultation at existing projects, but can only be used to support new activity. This approach will help to minimise potential deadweight subsidy one of the specific criteria proposed in the consultation. The Employer Network Fund should not be about quick wins, but fostering new links that generate genuine increases in skills development. Similarly, whilst the consultation paper envisages that the purpose of each network would be business improvement focussed but with a skills dimension, the IoD believes that this brief is too broad. Skills should be absolutely core to networks purpose, not an element thereof. Nor should the Employer Network Fund become simply another mechanism for promoting training programmes particularly favoured by Government e.g. Apprenticeships (the consultation suggests that additional subsidies for certain types of training might form part of the support available). Particularly in view of the fact that the initial networks are intended to act as path-finding pilots, the emphasis should be on innovation and flexibility and not on pushing particular programmes. This could seriously limit employer engagement. In summary, this proposal has merit, but there are a number of issues on which much greater clarification, detail and focus is required. 2. What do you perceive the main strengths of inter-employer networks to be in increasing employer investment in training? As suggested above in our response to Question 1, the main strength of fostering inter-employer networks as a method of increasing investment in training is its welcome emphasis on positive voluntary collaboration. With visible business leadership the networks are much more likely to secure employer engagement. The accessibility and attractiveness of the networks may also be increased by the relatively limited size envisaged by the consultation (10-20 employers per network), particularly for smaller employers. 2 In an IoD survey conducted in February-March 2008, of a representative sample of 500 IoD members, 69% of directors opposed the introduction of a compulsory training levy for employers in their sector. 21% supported the principle of a training levy. In an earlier IoD member survey conducted in April 1999, again of a representative sample of 500 directors, 61% opposed the introduction of a compulsory training levy, with 30% in favour. See R. Wilson, The Skills and Training Agenda: The Results of an IoD Survey (IoD Policy Paper, August 1999), p

3 3. What do you perceive the main weaknesses of inter-employer networks to be in relation to increasing employer investment in training and how might these weaknesses be addressed in policy design? Whilst supportive in principle of the Employer Network Fund, we highlighted some potential weaknesses in the approach outlined in the consultation in our answer to Question 1. To address these weaknesses, the Employer Network Fund must: adopt a tight focus on skills rather than general business improvement (though this might follow organically); promote genuinely additional training and not seek to subsidise existing projects; and foster innovation in approaches and qualifications, rather than seeking to push particular programmes. 4. What types of criteria do you think are appropriate? Examples might include the number of network participants, the number of specific types of participants (e.g. SMEs), the focus of training activity, the level of participant contribution or specific planned outputs. To secure business commitment, it is probably right that the contribution of the Fund to costs be capped at 75%. Clearly there will also need to be minimum expectations established of each network to provide confidence that public funds are being well utilised. However, it would be a mistake to make the criteria overly prescriptive, particularly in the pilot phase. Excessive bureaucracy will limit employer engagement, whilst a lengthy list of criteria will stifle innovation. 5. Please give any views on minimum expectations that might be set about participant contributions to network costs and the level of Government support that might be appropriate in the piloting of these networks. It is right that, in seeking to establish and evaluate the networks, Government should contribute the most financially. Significant seed funding will be required to get this initiative off the ground and secure business buy-in. It should also be self-evident that given the state of the economy employers have precious few resources to commit to non-business critical projects particularly pilot ventures. That said, it seems reasonable to expect an employer contribution so that there is some security of commitment. As a very rough suggestion, the projected cost of a network might be met by a 50% grant from the Government, plus a further 25% match-funded by the employers involved in the scheme. 6. What is your initial reaction to Policy Option 2: more extensive occupational licensing as a measure to increase employer investment in training in the UK? Previous research conducted by the IoD has indicated that the possible use of greater occupational licensing splits director opinion. In certain circumstances, and with some key provisos, IoD members considered that there was a degree of potential. However, this is not an initiative suitable for wide deployment. The range of suitable occupations will be narrow, and attention should principally be focused on jobs where a certified and formal level of training is vital to maintaining public safety. Limited occupational licensing must not be used as a backdoor mechanism for introducing compulsory training levies levies can be bureaucratic, crude and burdensome to employers. Finally, it is important that a misplaced belief in employer fears about poaching does not drive this agenda. This claim is frequently made but hugely overplayed. Concerns that employees might leave following the completion of training do not act as a significant brake on training investment in the organisations represented by IoD members. Nor does fear of poaching arise as a serious issue for employers generally in the Learning and Skills Council s own major skills research series. 3 3 See National Employers Skills Survey 2005: Main Report (Learning and Skills Council, June 2006), Figure 6.3, p. 114: 3

4 7. What do you perceive the main strengths of more extensive occupational licensing to be in increasing employer investment in training? Due to the fact that licensing is not suitable for introduction across a broad range of occupations, it is difficult to draw robust conclusions about its likely impact on employer investment in training. It will also, of course, vary according to the level of investment already being made by employers. 8. What do you perceive the main weaknesses of more extensive occupational licensing to be in relation to increasing employer investment in training and how might these weaknesses be addressed in policy design? The main weakness of introducing more extensive occupational licensing as a specific attempt to increase employer investment in training is that the approach is not likely to be suitable beyond a narrow range of occupations. Nor would there be the necessary employer support for moves to tie in a broader range of jobs. To be successful, occupational licensing must not be approached as an indiscriminate tool for leveraging up training investment. Rather, licensing should be highly discriminate and driven by principally by considerations of public safety. There is an inherent danger that the introduction of occupational licensing could curtail employers choice of training options by drawing a narrow definition of the industry standard qualification required to gain a licence. To address this risk, should licensing be taken forward in a particular occupation, it is important that the list of qualifying qualifications and certificates is as inclusive as possible, and that this benchmark is only drawn up after a thorough consultation process properly inclusive of smaller employers. Occupational licensing should not be used as a pretext for introducing training levies. Like the enduring fixation with the idea that employers fear of poaching is the key factor limiting training spend, training levies continue to be viewed by some as the silver bullet for improving skills supply. It isn t; they aren t. It should be remembered that not only were the training levy arrangements inaugurated following the Industrial Training Act of 1962 bureaucratic, they did not rectify the skill shortages and skills gaps from which British companies suffered in the 1960s and 1970s. The consultation rightly also notes other weaknesses in the occupational licensing approach, including the potential for bureaucracy and for inefficiency following the overdevelopment/certification of unnecessary skills. In summary, it is not a suitable national policy option, but might have a role to play in a limited range of occupations. Even so, it will require much further evaluation and refinement, as well as extremely careful piloting, before being taken any further. 9. Which of the following occupations do you think would benefit from extended licensing? Potentially: Rail signal workers; Motor mechanics; and in some circumstances Cooks. In fact, the spontaneous responses by employers to the question why they had not funded or arranged training showed that the principal reason for not doing so was the full proficiency of staff (71%). Poaching doesn t seem to have been mentioned at all. 4

5 10. Please give any additional details for your answer to Question 9. As indicated above, the IoD believes that the range of occupations suitable for formal licensing will be narrow and is best guided by a focus on public safety. The only occupations listed in Question 9 likely to be consistent with that principle are rail signal workers, motor mechanics and in some situations cooks. By including estate agents in the list the perennial pantomime villains the Commission is shooting for easy targets. Estate agents, alongside other occupations in this list such as customer service workers and beauticians, would be better served by a voluntary kite marking initiative rather than formal occupational licensing. 11. To what extent do you think that extended occupational licensing would create more opportunities for progression in the labour market or limit these opportunities? On the basis that there are innumerable uncertainties surrounding the viability of this policy option, it is very difficult to anticipate its impact on opportunities for progression in the labour market be they positive or negative. However, the main preoccupation of the UK Commission in scrutinising the merits of this proposal should be its benefits to public safety, not its effect on the trajectory of individuals careers. 12. Please identify who you think should bear the costs of license development by expressing this as a percentage for each of the following. Numbers must add up to 100%. State: 100% Targeted employers: 0% Employees: 0% Other: 0% 13. Please identify who you think should bear the costs of gaining and updating individual licenses on an ongoing basis, expressing this as a percentage for each of the following. Numbers must add up to 100%. State: 30% Targeted employers: 20% Employees: 50% Other: 0% 14. Please identify who you think the main beneficiaries of extended occupational licensing would be, expressing this as a percentage for each of the following. Numbers must add up to 100%. State: 15% Targeted employers: 20% Employees: 50% Other: 15% [The general public and consumers] It is extremely difficult to put even approximate figures on the benefits each stakeholder could be expected to enjoy and the above percentages should be treated in this context. 5

6 15. What is your initial reaction to Policy Option 3: modified accountancy standards as a measure to increase employer investment in training in the UK? Not favourable. It is unclear exactly what is meant by this proposal. It would clearly involve putting numbers on the ongoing value of training. It might involve using those numbers to capitalise some training costs, affecting the figures in the balance sheet and the profit and loss account. The main objection to putting numbers on the ongoing value of training is that it would not be possible to get robust numbers. The document refers to the real options method. That uses mathematics to derive some numbers, but they are only as good as the data with which one starts. Those data will mostly be little better than guesses. Even if the numbers were robust (which they would not be), there is no way that one should capitalise training expenditure. It would be a way of borrowing profits from the future which would be highly irresponsible. It could even increase risk by encouraging undue optimism. As employees may leave their employer following the completion of a training programme, the value of any training asset would have to be very uncertain. 16. What do you perceive the main strengths of modified accountancy standards to be in increasing employer investment in training? It is difficult to perceive any strengths in this approach at all. Over the last ten years, the IoD has conducted numerous surveys of its members views on skills and training. Accountancy standards discouraging training investment has never emerged as a major issue. (Or even, to the best of my knowledge, a minor one.) Two points should be made: The consultation envisages that action in this area would make training investment less 'risky'. However, the potential for irresponsible borrowing against future profits would be even more hazardous. If The purpose of this policy option is to make it easier for employers to invest in training, and this is an admirable objective, then the Government and the UK Commission should target areas that would genuinely have a dramatically positive impact. Reducing the regulatory burden on businesses, and keeping taxes are simple, stable and low, will ensure that organisations have more resources to commit to training. This is the real brake on greater investment in skills. 17. What do you perceive the main weaknesses of modified accountancy standards to be in increasing employer investment in training? Please see answer to Questions 15 and 16 above. There are considerable weaknesses with this policy option. It would not be possible to put reliable numbers on the ongoing value of training this would be little better than guesswork. Even if it were possible, which it isn t, training expenditure should not be capitalised in any case. It would be irresponsible and could increase risk. Energies would be better expended in other directions. 18. Please give any views on how this option might be developed further. This option should not be developed further. The UK Commission should turn its attention instead to arguing for the positive impact of other measures. The three principal forces holding back IoD members businesses are excessive regulation, taxation and skills deficiencies. Tackling the latter requires action on the former. IoD members believe in the benefits of training and have retained this commitment through extremely challenging economic circumstances. Decisions about investing in skills do not take place in a vacuum; they are profoundly affected both by immediate trading conditions and the wider business environment. As a consequence, the key to securing greater 6

7 employer investment in training is to ensure they have more resources to commit in the first place not tinkering with accounting standards, however well-intentioned this idea might be. Thank you once again for inviting the Institute of Directors to participate in this consultation. We hope you find our comments useful and look forward to further dialogue on the issues raised. If we can provide any further information, please do not hesitate to contact me. Yours sincerely, Mike Harris Head of Education and Skills Policy 7