The idm Group - Better Directors, Better Organisations

Governments around the world quickly picked up the cost, despite there being many warnings of a debt ladened society, bailing out the banks who again failed in their responsibilities. In doing so, they landed themselves with a debt unprecedented in peace time. The claim by the banks that circumstances were unforeseeable is frankly laughable. We all manage risks, it's a basic business skill. Being a risk taker is a judgement, being risk unaware is negligent.

So, with less income from taxes and a national debt close to £100bn (if you include the pension deficit), where is the real recovery coming from and how does this fit with new world economy? Looking backwards to learn how we escaped previous economic difficulties wont help too much in that two world wars created employment and abnormal economic conditions. Contrary to what some might think, I don’t believe there is an appetite to go down that path. The re-engineering of the economy will inevitably have to start from where it began: with specific sectors. Without the ability to borrow, investment won’t happen, houses will not sell and people won’t spend in the shops etc etc.

Gordon Brown has announced a £100bn investment in off shore wind farms, a significant step forward for the UK in meeting its 2020 carbon emissions targets and for the economy as a whole. According to some, this has the potential to create 60, 000 jobs. 60,000 jobs will create tax income revenue, a lessening of the burden on our welfare and national health systems, and crime will suitably follow with a positive outlook. All of these factors are interdependent.

On closer inspection however, many of the companies who have won this business aren’t British. If previous examples of wind farm building are anything to go by, they will be manufactured abroad and these foreign manufacturers will ensure their maintenance contracts are retained by the manufacturer. Simply put, income streams will remain with the country of manufacture. The dichotomy here is whether the UK should be more parochial about letting its crown assets out or stick to its principle of a free market. This is unlike the French, German, Chinese etc and, even if all these jobs were to be retained in the UK, they would not necessarily be new jobs.

The descriptor of ‘the Low Carbon Sector’ is a myth. Low carbon will affect every employer out there who uses energy. Erm, that’s all of us then. We will need to be better at using energy and cutting down on waste. That’s travel, heating, communications... these skills therefore will need to be adopted by everyone. As an example, imagine if Health and Safety had just been invented. The same people prophesising on jobs creation would be claiming the addition of thousands of new jobs. In reality, it has meant we all need to have some skills in Health and Safety, but there will be a few who have a specific need for specialism. So back to wind farms, these jobs are likely to be someone with an existing skills set extended to manufacture, install and maintain a wind turbine. Sure there will be new jobs because of the scale of demand, but it is difficult to see how the numbers quoted are turned into reality. On a more positive note, the number of people who will have to reinvent the national grid system to accommodate new smaller generators will indeed be significant.

Back to being parochial: assuming our government legislates for a more UK based Low Carbon workforce (whilst this smacks of protectionism), will it still attract the investment opportunities offered here? A key criterion for any (inward) investor is to ensure that there is a skilled workforce local to their operations and, as wind farms are new, they will probably look to the most suitable transferable skill set. So far so good. However, now we begin to see a problem: One would assume these machines, once installed, will need people with experience of electricity generation and maintenance, albeit on a smaller scale to the way we currently generate electricity and, of course, it will be out at sea. So, add the requirement for marine skills and ability to work at height to an existing power engineer and, Bingo! Mr Skilled Wind Farm Man at your service.

But, here is the reality check: the power sector is facing a critical skills challenge in that nearly 90% of its engineering workforce will retire in the next 15 years (this is not a misprint). This has arisen because whilst the workforce has been getting older, younger people have not been recruited and trained. OFGEM, who are so concerned about this, have agreed to a £200m allowance for workforce development. If this workforce had previously been treated as a physical asset, it would have been maintained and replaced. At this moment in time however, power engineers are the proverbial rocking horse pooh; not a good signal to any prospective investor.

OK, with every problem there is a solution: so why not go and recruit them? Well, the rest of the world has a similar idea and, for example, China is building almost as much generating capacity each year as the UK has in total. India too is likely to do something similar pretty soon. America, Australasia and Europe are all recruiting from each other to mitigate their skills deficit. There is of course plan C: we could train for a new workforce. Ironically, if this had happened in the first instance, the power industry would not be in this situation, but the myopic squeeze on OPEX to provide the regulators and shareholders with their returns created a perfect storm. And let’s be honest, not many see training as an investment worthy of shareholder value.

Training is expensive and laced with lots of reasons why British industry chooses not to do it at the same level as their international competitors. However, the evidence is overwhelmingly in favour of training as an investment. Our UK productivity output comparisons with 18 OECD countries rank as 14th. Our low level of qualifications (skills) attainment is considered to be a major factor in this. Our economy is predicted to be based on a knowledge based skill set and one primary reason for this is because our manufacturing and mineral base is depleting. Very simply, our workforce will need to reflect the higher skills level of this future economic need and, without thoughtful investment, it won’t. In comparison, India is churning out more graduates per year than we have individuals entering the workforce. Another good example of this was when our low skilled call centre work was outsourced to India in the belief that we would retain the higher skill level call centre work here in the UK. We did not quite understand that Indian call centres were filled with graduates and were better able to undertake the higher skilled activity we believed we would retain in the UK. Doh! If the UK were to close the productivity gap, it would be worth £80bn to GDP.

So the moral of this story is simply that if the UK had invested in its workforce, it would have been ahead of its competitor nations to embrace new and existing commercial opportunities. We, as a nation, still need convincing that training is worthy of our time and investment. Toyota for example, rather than lay off its workforce, trained them! Toyota, who has been equally hit hard by the economic climate, is still outperforming its competitors.

And finally, with regards to the power industry, there is only one way to ensure that the skills deficit relating to the low carbon opportunities is eradicated and that is: create your own indigenous workforce."