In this current severe climate, the policy which could be the best way of supercharging growth, employment and living standards in 'left behind' Britain would be the introduction of training tax credits. A tax credit is an amount of money that businesses are permitted to subtract from the taxes they pay to the government. Under this policy, businesses pay less tax as they train more workers. The training covered under this scheme includes all types of training such as apprenticeships, upskilling existing employees and graduate schemes, in order to ensure that businesses do not invest less in a particular training type. The training tax credits aim to lower the cost for businesses of training UK workers so that businesses could invest in more human capital.
In the long-term, the training boosts the UK's human capital, which in turn raises the UK's productivity (C. Payne and S. Sidhu,2018). A rise in the UK's productivity would lower average costs: These cost savings might be passed onto consumers in lower prices, which increases the consumers' living standards. Productivity growth and lower unit costs raise the competitiveness of the UK, which in turn improved the UK's trade performance and thus increases growth and employment. For the business, productivity gains can produce larger profits for companies which might be re-invested to support the long-term growth of the business and used to fund higher wages for their workers. A rise in the rate of growth of productivity increases the trend growth of the national output. Overall, the policy will encourage more training, which will supercharge growth, employment and living standards.
The term 'left behind' is a shorthand describing areas of the country that are lagging economically (Oxford Consultants for Social Inclusion,2019). Besides economic factors, there are other markers such as geography and education to identify the left behind in the UK. Geographically, left-behind areas are most prevalent in post-industrial areas in northern England and coastal areas in southern England. The research shows that most people in left-behind areas live in urban locations. Demographically, according to the 2019 OSCI (Oxford Consultants for Social Inclusion) report, left-behind areas have a more youthful population compared to England as a whole (22.5% as against 19.1% of under 16s).
With regards to training and employment, jobs density (the number of jobs as a ratio of the working-age population) in left-behind areas is much lower than the rest of the UK. There are just over 50 jobs in these areas per 100 working-age adults (OSCI,2019). According to the OSCI, a much smaller proportion of young people from those left-behind (19.9%) are entering further education compared with other parts of England (37.5%).
In order to help the left-behind of the UK, this training tax credits policy will offer additional incentives for businesses to target their schemes at that particular group of people. One way this could be done is by offering added tax breaks for businesses which tailor their schemes to benefit the 'left-behind' people. For example, a business which offers qualifications in its training schemes to young people not in higher education would receive a higher rate of tax credits. Moreover, businesses based in left-behind areas can apply for more tax breaks as long as they recruit the local population onto their schemes. This higher rate of tax credit aims to incentivise businesses to train people from deprived areas instead of seeking people from more prosperous areas such as London or foreign workers.
Other policies which can stimulate employment and growth in the UK include subsidies such as grants. However, those other policies are not as effective as the training tax credits. For example, the R&D tax credits implemented by the government had lower administration costs and involved less red tape than direct grants from the government. This is because submitting a grant application and having it evaluated by experts is more costly and time-consuming than just verifying that the R&D took place (P. Mohnen,2013). Therefore, it is likely that training tax credits would cost the government less in administrative costs than subsidies. This makes the training tax credits more effective at stimulating employment and growth in the UK than subsidies.
With the R&D tax credits, the government found that not all businesses were signing up to the scheme. Many companies miss out on significant annual claims each year due to a lack of awareness of the scheme or misconceptions about it (InnovationPlus,2017). In order to prevent this from happening with the training tax credits, the government should raise awareness of this scheme through advertising campaigns and trade associations. This campaign should be featured prominently in major news outlets such as the BBC in order to reach out to the largest number of businesses.
The government implemented an apprenticeship levy in 2016, which aimed to increase the number of apprentices the businesses took on. Whilst the number of apprentices increased, the quality of the new apprenticeships was 'narrow and overlapping, restricting the extent to which apprentices gain transferable skills' (Chartered Institute of Personnel and Development,2018). The Chartered Institute of Personnel and Development 2018 report found that one reason why the apprenticeships' quality was so low was that the apprenticeships had no specified vocational qualifications, which weakened the ability of apprentices to signal their learning to other employers. A similar problem can likely occur with employer-led training schemes. In order to address this potential issue, the government could give tax credits to training schemes which contain accredited vocational qualifications.
The policy recognises and supports the needs of regions across the UK, instead of just London, because it gives more tax credits to businesses based in left-behind areas if they tailor their schemes to employ local workers. The policy can reduce red tape, bureaucracy and barriers to entry for individuals and businesses because it has the same effect as government grants but costs much less time and money to administer. The policy encourages an entrepreneurial and ambitious mindset across the whole of society by increasing the number of people who can access employer-led training and employment.
References
CIPD,2018, ‘Early impact of the apprenticeship levy’, https://www.cipd.co.uk/knowledge/fundamentals/people/routes-work/impact-apprenticeship-levy
C. Payne and S. Sidhu, 2018, ‘Human capital estimates in the UK: 2004 to 2018’, https://www.ons.gov.uk/peoplepopulationandcommunity/wellbeing/articles/humancapitalestimates/20 04to2018
InnovationPlus,2017,’A Guide to R&D Tax Credit Claims’, https://inplus.co.uk/tax-credits/rd-tax- credits-explained/
Oxford Consultants for Social Inclusion, 2019, ‘Left behind? Understanding communities on the edge’, local_trust_ocsi_left_behind_research_august_2019.pdf
P. Mohnen, 2013, ‘R&D Tax Incentives’, Innovation for Growth – i4g Policy Brief N°25, https://ec.europa.eu/research/innovation-union/pdf/expert-groups/i4g-reports/i4g_policy_brief__25_- _brief_RD_tax_incentives.pdf
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