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Britain seeks to plug skills shortages sapping productivity

[BRIDGNORTH, England] British manufacturer Grainger & Worrall makes millions of pounds casting complex aluminium engine blocks for Formula One and other high-performance cars. But it has hit a problem when it comes to a more basic issue: finding skilled workers.

The company recently bought a new robot to trim the rough edges off 150 kg metal blocks and match the levels of automation and productivity of factories in Germany and France. However, this has turned out to be tricky to use in practice.

"We've struggled with it because we don't have the skill sets and understanding to use robotics in that fashion," said Matthew Snelson, Grainger's quality director.

He was speaking at the firm's headquarters near Bridgnorth, a semi-rural part of central England, a few miles from where advances in iron smelting during the Industrial Revolution turned Britain into one of the world's mightiest economies in the 19th century.

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Now the country is facing up to new challenges as it prepares to leave the European Union, a leap into the unknown that has underscored the urgency of tackling one its long-standing economic weaknesses.

On Wednesday finance minister Philip Hammond is expected to detail an extra £500 million (S$865.68 million) a year in funding for technical education in his annual budget, aimed at developing the skills of 16 to 19-year-olds. This is in addition to existing plans to boost apprenticeships.

Skills shortages are a major reason why the productivity of the average worker during an hour at work trails that of employees in most other big advanced economies.

Some of the biggest shortages are in vocational skills which do not require a university education but are learned through practical training focused on a trade, such as operating complex machinery, vehicle mechanics or bricklaying.

British productivity in 2015 - defined as national economic output divided by the total number of hours worked - was 27 per cent below that in France, 30 per cent beneath US levels and 35 per cent lower than Germany.

Most economists view productivity gains as the main driver of long-term economic growth and improved living standards.

Since the global financial crisis, productivity growth has been weak across major economies, but particularly so in Britain, where wages have barely grown in real terms for almost a decade - something last seen in the 19th century.

Tackling weak productivity and a shortage of home-grown skills is now a growing priority for Britain's government, especially as its exit from the European Union is likely to make it harder for firms to import workers to plug skill gaps.

Funding for technical education in Wednesday's budget would be welcome news for Grainger & Worrall, which has struggled to find enough skilled staff to keep up with sales that have tripled to £50 million since 2009.

The company is now looking for funding to set up a larger centre to train apprentices.

While more Britons go to university than in most of the European Union, technical education lags behind, and employers said in 2015 they were unable to fill 20 per cent of vacancies due to skills shortages, up from 15 per cent in 2011.

Just one in 10 British workers aged 25-40 has a technical education as their main qualification, placing it 16th out of 20 countries studied by the Paris-based OECD think tank.

Business organisations have welcomed Hammond's promise of extra funding for technical education, but their response to other government attempts to boost skills has been cool.

From April, all companies which spend more than £3 million a year on wages will have to contribute to an apprenticeship levy, which will then fund those employers that provide apprenticeships that meet government standards.

The EEF manufacturers' trade association said its members viewed this as a blunt tool more like a tax, which did not reward training that took place outside formal apprenticeships.

The independent Institute for Fiscal Studies has warned about the risk of employers, especially in the public sector, rebadging existing training as apprenticeships in a rush to meet targets at the expense of quality instruction.

A similar levy on construction companies previously failed to end skills shortages, the EEF says.

While skills shortages are a crucial element, they are not the only factor behind Britain's weak productivity, said London School of Economics researcher Anna Valero.

Low business investment, a lack of focus on exports, limited public spending on infrastructure, and greater difficulty commercialising scientific research than in the United States, have all played a part, she added.

Another difference is that Britain's easy-hire, easy-fire jobs market and low labour costs for many roles have made it viable to rely on low-skilled workers - boosting employment levels compared with other countries but discouraging investment in less labour-intensive working methods.

This may be starting to change, with Britain's minimum wage now rising more steeply, in addition to new pension charges and the incoming apprenticeship levy for many employers.

"People will then have to scrutinise the value of that labour a little bit differently. Automation should become part of that," said Edward Grainger, whose grandfather co-founded Grainger & Worrall in 1946.

Technical skills aside, there also remains a problem with basic educational standards for school-leavers.

Last year the EEF tried to recruit 350 apprentices for its own training programme, but out of more than 8,000 applications, just 330 met the grade, said Verity O'Keefe, a skills adviser at the trade association.

British school results are average to below-average in maths, reading and science, according to the OECD, and the LSE said they had improved little in recent years.

Around 40 per cent of pupils fail to get grades at age 16 that would allow them to start an engineering apprenticeship or study academic subjects in preparation for university.

Nonetheless, Grainger's Snelson said it was important not to write off people who did not excel at school.

"Some of our best employees really didn't do that well at school, but they have come on and because of the practical nature of what we do, they're fantastic," he said.