The government is significantly reforming the jobs market.
With a strong mandate for change, it wants to move from a largely flexible labour market approach to one with more rigidity and protection.
The combination of the Employment Rights Bill and the Industrial Strategy will radically change the type of labour market we will have by the end of the Parliament.
This model is likely to encourage firms to develop an approach with fewer core employees supplemented by contract, fixed-term and agency staff and self-employed labour as needed.
The drift to self-employment is likely to be strengthened by simultaneous increases in, and reforms to, employers NICs and the National Minimum Wage.
We know the government is seeking to join the industrial strategy and the skills strategy at the hip.
And the immigration white paper published earlier this week is a clear indication of how tighter worker migration has implications for domestic skills policy.
But to believe that the reforms in the UK-wide Employment Rights Bill will have zero impact on the type of skills system needed across the four nations of the UK is misplaced.
The development of a labour market with insiders who are part of a protected core labour market and outsiders who are not has critical implications for skills policy. Like many in business, I favour a more flexible approach, but that is not where we are right now.
In England, the new labour market model has implications for the very principles of the forthcoming post-16 education and skills white, paper, the long-term work of Skills England and the idea of a skills strategy championed by the Department for Education and seemingly limited to the eight sectors of the Industrial Strategy, plus construction, and health and care.
Employment Rights Bill
The Employment Rights Bill is the biggest regulatory intervention in our labour market for decades, making dismissal on competence more complex and costly, reducing the contractual flexibilities on offer to employers and extending the rights of trade unions.
Some, mostly in the trade union movement, believe these changes are positive for growth, incentivising firms to keep hold of staff and invest in them to boost productivity.
Businesses and their organisations on the other hand, including my own, the Recruitment and Employment Confederation, are unconvinced. Indeed, almost all business voices think the Bill is negative for growth, an assumption shared by the OBR (although the fiscal watch dog has yet to ‘price in’ its impact).
Core and non-core workers
We would do well to remember that nations with a less flexible labour market and relatively high minimum wages certainly have a core of well protected workers but they also tend to tolerate higher rates of both adult and youth unemployment.
Some workers will certainly benefit.
If you are in the core protected workforce and want to work on a permanent, open-ended contract then the only risk to you is whether your employer can afford to keep you on.
But what if you aren’t?
What if you are unemployed, in transition, or simply don’t want to work that way?
Rising numbers of non-core workers
Contrary to the often-expressed belief in Westminster, data shows the vast majority of temporary and contract workers are content to work in this way. Many actively prefer it.
It suits their needs at a given time, enabling them to manage complex lives or their own interests in their career.
For employers faced with managing rising costs, a mixed model of permanent, flexible and self-employed roles offers agility that they sorely need.
Without a permeable border to employment from unemployment, older workers will face a longer path back into core employment. Young people will struggle to enter it.
There is an economic message to businesses here that the Government is signalling, when taken together with the rising costs of NI (particularly for entry-level workers) and a minimum wage that has risen 25% in three years.
This message may be intentional or otherwise, but it runs counter to a goal of 80% employment. It is that if a job doesn’t create enough value per hour, don’t hire a person to do it.
Insider and Outsiders
That creates a problem. Not really for insiders – who are part of the smaller protected core employed on permanent contracts by private, public and voluntary organisations.
But for 'outsiders' – those looking for work or in need of retraining to progress - it is hugely complex.
Access to training can be particularly challenging where someone is self-employed, for instance, or on very short contracts.
Migrant workers on short-term employment contracts have also taken up the slack on demand in the past in the face of shortages. But restrictions on this, driven by the recent White Paper, will add to the pressure on employers. The only available solution to this is to activate a larger percentage of the domestic potential workforce, who may be quite deep in 'outsider' territory now, and in need of support. There can be no doubt that a skills strategy for this group – while not sufficient – is absolutely necessary.
The limits of employer leadership
Employers have a huge role to play in the skills, for their own staff and in collaboration with others. But employer funding of training in the new model labour market will be targeted at their core-protected workforce.
So this begs the question - who will champion the training and retraining needs of outsiders, including the self-employed, the unemployed, young people leaving full-time further and higher education, and older workers returning to work?
If the Government has lengthened the path into the core workforce, then the Department for Education, Skills England and the skills world need a plan for that.
The limits of employer apprenticeship policy
Consideration needs to be given to examining how apprenticeships can be extended to outsiders in the labour market.
That means changing what gets funded.
The apparent decision by DfE to limit apprenticeship funding at Level 7 in England to 16-21-year-olds could free up resources for more outsiders to be supported – but we also need to look at flexibility in what content.
Delivering on big promises made in opposition about a flexible Growth and Skills levy is fundamental to this issue of helping people navigate this challenge.
As part of this, DfE should also look again at ways in which the self-employed might become apprentices.
Even so, there will be limits on what an employer-driven apprenticeship system can do in the context of an insider-outsider labour market.
The New Labour market model and the Growth and Skills Levy
The wait has been long for progress on levy reform and there are concerns that radical reform might not be on the cards.
At the REC, we support the case for the levy to fund training beyond apprenticeships.
But Skills England must ensure that courses that are included are high quality and additive.
Quality assurance will matter more than ever – but that must be judged from a learner and employer point of view, not that of the government.
What matters is the destination, not the activity.
And yet, it is imperative that the design of the more flexible Growth and Skills Levy reflects a labour market of a protected-core workforce where employers supplement their labour need to agency workers and self-employed contractors.
That is one of the reasons why REC has long campaigned for change to the levy, to allow temps more access to the training their wages fund.
Insider-Outsider skills system
The creation of a labour market which results in a higher number of outsiders throws into question the very principles of skills policy in this country.
Far more weight may need to be attached to the publicly funded system and support the training and retraining of individuals who are outsiders in the labour market.
A training and retraining strategy for the self-employed across all sectors of the economy will be an essential ingredient of a skills strategy for an insider-outsider labour market.
More generally, an insider-outsider labour market makes progression more difficult.
Skills will be the only passport to becoming part of the protected-core of the labour market and are all the more important given the caution of employers about hiring in the face of costs and regulation.
It is vital that DfE, Skills England and the Office for Students work together to ensure 16-19 further education, placed-based adult skills and the Lifelong Learning Entitlement, and post-graduate loans assist outsiders in the labour market to upskill and reskill. Some form of thinking about the role of individual accounts in this would be sensible.
Slow down
We have called upon the government to slow down and be more pragmatic over the reforms in the Employment Rights Bill.
Slowing down would have other benefits too.
It will allow the government to develop an approach that avoids over-creating labour market outsiders and excessive costs in funding their training and retraining. And it will bring employers and providers along for the ride, which will be vital to success.
by Neil Carberry, Chief Executive, REC
Our regular guest policy views are written by senior leaders and thinkers. They aim to stimulate discussion, identify issues and contribute to debate on post-16 education, skills and employment policy. The opinions expressed are the authors' own and do not necessarily express the views of the Campaign for Learning