HR’s skills priority for 2025: ‘revolution’ or time to reinvest, rediscover and reform?

Blog posts

16 Jan 2025

Dr Duncan Brown, Principal Associate

Follow @duncanbHR

If your organisation’s people strategy for 2025 didn’t already contain ‘skills’ as a priority, a range of new studies this New Year highlight that it probably should do.

The UK skills ‘mess’

‘Worrying skills shortages’ were reported by 60% of employers as their biggest challenge in the Recruitment and Employment Confederation’s Overcoming Shortages report published on 2 January. That’s almost identical to the 62% in the Open University’s Business Barometer research last June.

The Learning and Work Institute’s new World’s Apart report deepens the cold gloom of this New Year. It echoes REC’s warnings: economic growth risks being constrained by a ‘skills chasm’ between demand and supply, North and South.

The Prime Minister agrees. Announcing the new national co-ordinating body, Skills England, he said: ‘Our skills system is in a mess… Employers want to invest but have been held back from accessing the training they need.’  

This isn’t just a UK challenge. The World Economic Forum’s Future of Jobs Report 2025 highlights the scale of labour market change driving these shortages. It estimates 170 million jobs will be created in this decade; 92 million roles ‘displaced’; and 59% of us will need re-training or redeployment. No wonder up-skilling is the top workforce priority for 57% of employers in the REC survey.

In its initial report last month, Driving Growth, Widening Opportunities, Skills England showed skills shortages doubled to more than half a million between 2017 and 2022, representing 36% of vacancies. One-third of UK productivity growth is down to improvements in skills levels. So what should we do about this ‘mess’?!

Action on skills

As well as creating Skills England, the government has promised a post-16 skills strategy and revamped growth and skills levy.  Skills Minister Jacqui Smith announced last month £140 million to create 32 Homebuilding Skills Hubs by 2028 for ‘fast-track’ apprenticeships. IES’ evaluation of 23 of these hubs before Covid concluded they ‘offered substantial benefits to individuals’.

But is Sir Keir Starmer too lenient on UK employers’ responsibility for this ‘mess’? The LWI found a 26% drop in employers’ training investment since 2005. CIPD found training spend per-employee fell from £2191 to £1778 pa.

So what actions should you now be taking? IES’ research and consulting point to three areas for progress:

• Reinvest in workforce and skills plans.
• Rediscover the return on developing the skills and careers of employees.
• Reform reward systems to pay-for-skills.

1.     Reinvest: workforce and skills planning

‘Stop dithering start planning’  was the wonderful, if somewhat frustrated, admonishment to HR professionals of my colleague Wendy Hirsh in 2020. You can’t grow the skills your organisation needs for future success unless you are clear what they are and how to resource them: a workforce and skills plan.

REC’s survey found just 19% of organisations have a skills plan. IES research on people strategies found: ‘A genuinely people- focused approach (emerging), characterised by: in-depth labour supply and workforce planning, (with) sustained training investment.’ We also have many practical tools and case examples to help, including CIPD’s guide to workforce planning.

2.     Rediscover: training and career management

Reports this New Year of retailers such as Uniqlo hiring contract staff by the day-shift using apps like YoungOnes illustrate that the ‘gig economy’, lowest-cost-possible employment model survives. The change in approach however, in an ever-more talent/resource-constrained world, is palpable. Austerity, ironically, doesn’t ‘cut it’ anymore.

The moves to skills-based recruitment, commonly involving a lowering or removal of minimum qualification requirements, is the most popular initiative in Deloitte’s study. It highlights this shift to an ‘invest&grow’, rather than ‘harvest&exploit’ approach. There is now a greater wealth of evidence that investments in staff skills are just that, an investment, not a cost to be cut in tough times.

Mckinsey in ‘the economic case for reskilling in the UK: how employers can thrive by boosting workers skills’ find ‘effective reskilling tends to bring a productivity uplift of 6% - 12%’. So ‘in 75% cases employers profit from reskilling.’ They recommend firms ‘foster a culture of lifelong-learning, focusing on workers, managers and metrics.’

These positive results are reflected in a variety of individual studies. IES evaluated an employer-sponsored career-coaching programme for healthcare workers. The study found positive effects in terms of reduced intention to leave after one-two years. My colleague Alison Carter presented this research in Parliament just before Christmas.

The BBC provides an excellent example of supercharging employees’ career development in this new article. They were unpleasantly surprised by generally low scores in their 2020 staff survey on career development.  

They made a comprehensive, innovative response, including: two pan-BBC one-day career development workshops; improving the career discussion element in their appraisal system; developing ‘living libraries’, employees trained up to explain their jobs to others; introducing their ‘hot shoes’ and ’80:20’ short-term mobility programmes: running an annual ‘careers-week’. More than 2,000 staff have had new career placements as a result, and their staff survey now shows a 14% increase in career satisfaction scores.

3.     Reform: the renaissance of skills-based pay

Skills-based pay (SBP) systems enjoyed popularity in manufacturing in the 1980s. My recent research documents a renewed interest in the 2020s, with higher inflation and skills shortages once again encouraging employers to link skills and rewards. IES’ consulting work has ranged from large private sector companies, to housing associations such as Thirteen Group, and public sector employers such as the National Crime Agency.

In the wake of labour shortages, we have also seen SBP spreading to lower-skill workers. IES’  research found employers’ actions included:

• The redesign of jobs to facilitate progression, for example into supervisory roles.
• Structured career pathing.
• More family-friendly conditions, such as minimum-guaranteed-hours.
• Regular career conversations.

The results suggest a widespread triple ‘win:win:win’ occurring, for the employees involved, their companies and wider society.

Conclusions

The horrendous long-term impact of widespread cutbacks in government-funded and employer training are only now coming to be recognised. While not agreeing with the radical organisational ‘skills revolution’ exhorted by some thought-leaders, IES supports this direction of travel, (some might say return), to a more skills-investment-oriented approach.

It’s not a simple nor straightforward journey. Amidst economic depression in 1932, playwright JB  Priestley visited Cadbury’s factory in Bournville. He was impressed by the scale of their investments, in employee housing, recreational and educational facilities, hospitals and childcare. Many employers believed them unaffordable.

Yet Priestley recognised Cadbury’s investments produced ‘total and enormous gain’ for the employer, its employees and wider nation. Contemporary tough times made their approach more critical, rather than unaffordable. 

The terminology may be different today. But perhaps we are having to re-learn that lesson again. Skills-based HR appears to be one of its most important outcomes.    

If you would like to discuss any issues around workforce and skills plans our consultants are here to help, contact: askIES@employment-studies.co.uk