Human capital, where the UK stands | Deloitte UK has been saved
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Most conversations about the UK’s poor productivity record eventually turn to education and skills. Everyone agrees that education is vital but there is more debate about the relative value of different models and types of education. This week’s Briefing offers some thoughts on how the UK system compares to others and looks at some of the salient characteristics of the British model.
Public expenditure on UK schools is relatively generous by international standards, though not in the top tier. In 2015, UK spending on primary and secondary education, at 3.8% of GDP, was above the OECD average and higher than in a number of rich economies including Canada, the US, Germany, Japan, France and the Netherlands. Norway, Denmark and Finland, countries which score high on most measures of educational attainment, spend more.
UK schoolchildren rank above the OECD average for attainment in science and reading at the age of 15 and in line with the average for maths. Overall the Programme for International Student Assessment (PISA) tests put the UK in 23rd position in a field of 70 countries. The most highly rated countries, such as Singapore or Norway, are mainly rich, developed economies. But educational attainment is about more than money. Estonia with GDP per head at 55% of UK levels ranks above the UK in the PISA league as does Poland, with GDP per head at 36% of UK levels. Remarkably, Vietnam, with a GDP per head just 6% of UK levels is one place ahead of the UK in the PISA league.
In 1950, just 3.4% of 17-30 year-olds in the UK went to university. By the year 2000, the proportion had risen to 25%. Today close to half of all young people attend university in the UK, a proportion that puts the UK near the top of the international league of university attendance.
The headline numbers show UK students bear a higher burden of the cost of their university education than in any other country except the US. The UK system is, in practice, more progressive than this comparison suggests. Loan repayments do not kick in until income exceeds £25,000 and are written off after 30 years. As a result the Institute for Fiscal Studies estimates that only 17% of UK graduates will fully repay their loans and roughly half the value of all loans being written today will never be repaid. I suspect that the growing burden of unpaid student debt will prompt a growing focus on whether taxpayers, who will have to foot the bill, are getting value for money from the student loan system.
The UK punches above its weight in higher education. According to the latest Times world university rankings the UK has eleven universities in the top 100 globally, second only to America’s 41. Between them Germany and France have ten universities in the top 100.
The effect of a degree on lifetime earnings varies enormously by subject and institution. The standard benchmark for valuing degrees comes from comparing the lifetime earnings of graduates with non-graduates. The ‘graduate premium’ those from the UK’s Russell Group of leading universities stands at £177,000. Graduates of newer UK universities tend to command significantly lower premia; one estimate suggests that for all UK universities the graduate premium is around £100,000. Graduates of different courses also see different returns with those studying medicine, economics or maths tending to report the highest salaries five years after graduation. Those studying creative arts fare rather less well, with average earnings of only £22,200 at this point, compared to £44,900 for medics.
The increase in the supply of graduates mean that many are employed in non-graduate jobs. The Office of National Statistics reports that just under 50% of recent UK graduates now do jobs which are “non-graduate” in nature – defined as involving tasks that do not normally require knowledge and skills developed through higher education to be performed competently. However, perhaps surprisingly, the graduate premium doesn’t appear to have been eroded, with non-graduates still earning approximately £10,000 more a year compared to a non-graduate in 2017, the same amount as in 2007.
The flip side of the UK’s high university enrolment is relatively low levels of participation in vocational education. Only 32% of those aged 14-18 have had any vocational training in the UK. In Austria, Denmark and Switzerland the figure is closer to 65 to 70 per cent. A recent OECD report commented that, “England has too little vocational provision at postsecondary level in comparison with many other countries, and relative to potential demand”. The report went on to single out the patchy provision of workplace training as a particular challenge. In Germany, for instance, 63% of businesses in the private sector employ participants in vocational training schemes compared to 30.5% in the UK.
In what is arguably one of the broadest measures of educational attainment, the World Economic Forum’s Human Capital Index, the UK is in 23rd place in a field of 130 countries. Northern European and Anglophone countries dominate the top 20 in the league with, perhaps unsurprisingly, Norway, Finland and Switzerland, taking the top three slots.
An end of term report for UK education might note its strengths, particularly in higher education, and areas for ‘development’ – notably vocational training. The verdict for the UK might perhaps be, not bad, but could do better.
Yet there is no one universal solution for education. Simply copying successful nations is not practical or likely to generate success. There are aspects of the educationally high flying East Asian system such as heavy workloads, the use of paid tutors outside school and relentless exams that would probably not work well in the West. More studying and exams is not necessarily the solution. Finland’s widely admired education system involves less homework and fewer exams than the UK’s. In Switzerland children only start to read at the age of 6, around a year or more later than children in the UK. Nor is university necessarily the key. Germany and Switzerland, where educational attainment and incomes are especially high, send a lower proportion of 18 year-olds to university than the UK.
Ian Stewart is a Partner and Chief Economist at Deloitte where he advises Boards and companies on macroeconomics. Ian devised the Deloitte Survey of Chief Financial Officers and writes a popular weekly economics blog, the Monday Briefing. His previous roles include Chief Economist for Europe at Merrill Lynch, Head of Economics in the Conservative Research Department and Special Adviser to the Secretary of State for Work and Pensions. Ian was educated at the London School of Economics.