Closing the green skills gap

Good morning from New Economy Brief.

There are many policy questions about the green transition, but one of the most pressing is – who is actually going to do it?

We’re always hearing about how many jobs the shift to net zero will create. But when it comes to making the green transition happen on the ground – retrofitting 9 million homes with heat pumps and insulation, building infrastructure for electric vehicles nationwide and making the countless other changes on the ground that are needed, it seems to be taking its time.

There’s huge demand to make houses more energy efficient, for instance, but schemes like the Green Homes Grant have run up against a shortage of skilled people to do the work.

Decarbonisation takes new skills, and the UK is in a training and education crisis. This week’s New Economy Brief explores the roots of the ‘green skills gap’ and outlines some potential solutions.

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What is the green skills gap? 

In the UK, most workers lack the skills required for emerging green jobs, especially outside London, with the lowest average skill levels found in the North and Midlands. The New Economics Foundation (NEF) estimates that the average worker needs around nine weeks of additional intensive full-time training to access green jobs (with significant regional variation), whilst fewer adults have been participating in education and training over the past decade. Closing this gap by 2030 would mean restoring adult learning participation rates to those of 2001/2002 under Blair's Labour government, albeit focusing on different kinds of training.  

Why is this important? Urgent action is needed to ensure a fair transition in skills, given the imperative to rapidly decarbonize the economy, rising living costs, pandemic recovery, Brexit uncertainties, and automation. At most risk of being left behind in this transition are workers in low-skilled, low-paid, and precarious jobs, as well as those in carbon-intense industries. There is also a clear interaction with migration policy. If the UK needs certain skills, and we can’t or won’t train UK workers in those skills, then businesses will seek them from abroad. Finally, Chris Dillow also makes the point that reallocating labour takes time; “We can't therefore merely flick a switch and move tens of thousands of workers quickly from retailing to healthcare, construction or the green economy.” This matters because labour shortages could not just delay net zero, but also make it far more expensive. 

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So what is driving the skills gap? 

The UK faces skill shortages and low productivity because both the government and the private sector have slashed investment in developing skills. Austerity resulted in cuts to adult education spending, while employer investment in skills dropped by 19% between 2011 and 2022, especially in larger businesses, in the raw materials and service sectors. The job market has gotten more insecure since 2010, so businesses have less incentive to skill up workers they think may be gone before long. A study from the Prince's Trust also found that the cost of living was “threatening the aspirations of an entire generation” as rising prices force more people to accept any work rather than gain new skills. The low wages many apprenticeships offer add further risk for people pursuing opportunities to learn new skills mid-career.

Need for a more active state. The skills gap is another unfortunate consequence of a lack of clear industrial strategy. Compared to global competitors, the UK falls short in supporting large-scale upskilling, particularly in providing financial assistance to workers and incentives for businesses to provide training despite frequent job turnover. More than 40 organisations and businesses wrote to the UK government at COP28 demanding bolder action to address the deepening green skills deficit.

More carrots, less sticks. The conditions attached to claiming Universal Credit also hinder claimants from retraining. Back in 2022 the DWP’s ‘Way to Work’ campaign aimed to fill mounting post-pandemic job vacancies by giving claimants just four weeks to find a job in their preferred industry, compared to three months before. After that, if they turn down job offers from any sector, they risk having their benefit payments cut. This has made it harder for workers to undertake meaningful training, forcing people to accept work they aren't suited for, in industries they know nothing about. Studies have shown that businesses dislike these types of benefit conditionality, which means they “receiv[e] large numbers of unsuitable and unfiltered job applications, with associated negative resource impacts”. This doesn’t just waste employers’ time; it also makes it harder for candidates to secure employment. (As an aside, a 2016 report from the National Audit Office found no evidence that benefit sanctions do anything to help claimants find a job.)

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Enter the National Skilling Wage.

A new NEF proposal aims to de-risk skills investment for both businesses and workers by creating a National Skilling Wage to boost productivity and “provide workers and businesses with the financial stability, and confidence, to commit to (re)training.” This would reforms the government’s support for upskilling in two core ways:

Switching state support from corporation tax relief to a payroll tax credit. The National Skilling Wage would give all employers a flat-rate payment for every hour a worker spends on an approved training course. The idea is similar to the ‘human capital tax credit’ proposed by the Resolution Foundation, but employers would be paid via payroll taxes instead of corporation tax as it is now. Currently, corporation tax relief on training doesn’t target specific areas for upskilling, and is available only to businesses that make a profit; it favours large businesses training already highly skilled workers, and isn't up to the job of closing the green skills gap. NEF’s solution would increase state support for training and allow key skills-shortage courses to be targeted with additional incentives at key skills-shortage courses. It would also give businesses more reason to upskill lower-paid workers, and could support all employers irrespective of their profitability (including charities and other not-for-profit organisations).

Reforming student finance into a Personal Learning Account. Student maintenance loans are too low to attract mid-career workers as the cost of living rises, especially for those with financial and caring responsibilities. A Personal Learning Account model, providing a simple drawdown facility throughout a learner’s career should mean more people can take advantage. But importantly, NEF argue that the account should pay at least the real living wage for the time spent learning. (Read their paper for more about their proposed reforms, including various funding options.)

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Coordination is the key. 

Closing the green skills gap shouldn’t be an impossible policy problem. We have a rough idea of the skills we’ll need in future, we know which high-carbon industries will probably lose workers in the coming years, and we know how to train people. (Autonomy’s ASPECTT database is a good way to track the long-term trends in the UK’s skills composition to see how the skills we have now measure up against what we need for the green transition.) But bringing all these things together requires a proper industrial strategy. The government’s own Green Jobs Taskforce made this point when it recommended the creation of a national body bringing unions, businesses and government together to plan the workforce transition – a long-standing trade union demand. This suggestion was ignored in the Net Zero Strategy, but without this kind of institutional architecture, it’s hard to see how the skills gap can be closed and we can achieve a rapid, just transition.