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John Compton PricewaterhouseCoopers

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The UK skills dilemma we cannot continue in the modern world with a situation where so many people [in the UK] have got no qualifications, because we know they will soon become unemployable". Gordon Brown. January 2007 there will be only approximately 600,000 unskilled jobs in Britain by 2020 compared with 3.6 million today. Hansard 22 March 2007 of the 13.5 million [UK] jobs expected to be filled by 2012, 50% - or 6.8 million will be in occupations most likely to demand graduates. Institute for Employment Research

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and the Irish conundrum the volume and quality of new business is as strong as it has been at any stage in recent years [but] we have to strongly encourage a drive toward further education to the fourth level for masters degree and PhD graduates to remain competitive. Sean Dorgan Chief Executive, IDA Ireland.. February 2006

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4 Section 1: Education and economic development PricewaterhouseCoopers LLP

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Ireland A Global Economy Economy grew by an average of 7.9% between 1995-2005 Growth is forecast to remain around 4% Attracted more Foreign Direct Investment (FDI) than any other EU member state Amongst worlds top-3 countries for: Technical sales as % of GDP High tech production and exports Investment by pharma/life science global leaders New patents/inventions by RoI-domiciled companies

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Ireland The Educational Linkages Amongst worlds highest level (55%) of 17-19 year-olds in further education Amongst worlds top-3 countries for: -Labour productivity -Growth in labour productivity -Investment in education, training and innovation In 2003 public and private sectors spent 1.6bn on workforce training - 50% of all workers got formal training One-third of all workers and 40% of 25-34 year-olds hold a formal 3rd level qualification or better

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Globalisation dictates the business location agenda Global economic domination is shifting from the developed to the developing economies Treasury estimates that by 2025, 5m US & UK jobs will be outsourced and 50% of world exports will come from developing nations Emerging economies are inefficient in energy use, unregulated and awash with cheap labour UK industry is highly regulated and with a rising tax burden Private sector profit contribution and business investment as a % of GDP have fallen steadily since 1997

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Globalisation education will determine what remains Top 20 global products represent 24% of world exports - developing countries increased share by 300% since 1980 Computer and electronics hardware - largest share of global trade but the greatest growth is in the developing regions Only specialist products - pharma/medical devices /complex electronics and services are growing and remain in developed countries due to design/innovation linked to university/skills Education will determine the ability of developed regions to drive global service industries the knowledge economy'

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Long Term Forecasts 2013-17 (Average annual growth)

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10 Section 2: The Northern Ireland economy PricewaterhouseCoopers LLP

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High level data suggests above trend performance GDP growth (2%-3%) equalled or outperformed the UK average for the past three years Manufacturing output outperformed UK average since late 1990s, with proportionally fewer job-losses than the UK Employment at record high 800,000 workers in employment Unemployment at a 26 year low (currently 3.7% compared to the UK 5.4% and EU 7.0%) Inward migration will continue - addressing skill shortages and hard to fill vacancies

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Significant demographic & educational advantages Amongst youngest EU populations well-educated workforce 100% broadband - schools on Internet 3 years before US 2 universities, 7 campuses, 6 further education colleges with 231 centres - 46,000 students in education - 32% graduates obtain postgrad qualifications- 12% more than the UK average Proportionately more IT graduates than any US college -the University of Ulsters business department is largest in Europe Low operating costs - lowest wages amongst 12 UK regions

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NI public sector equates to 65% of GDP, compared to UKs 42% and RoIs 27% Public sector, retail and hospitality account for 64% of all jobs NI public sector employs 1 in 3 of all workers and 60% of all females in employment A further third of the workforce relies on the public sector Overdependence on the public sector

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Underdeveloped private sector 89 per cent of local firms employ fewer than 10 people Only 65 companies employ more than 500 workers 10 companies account for 50% of all NI exports NI has second-lowest level of business formation of the 12 UK regions NI has second-lowest level of business growth in the UK

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Youth & long-term unemployment well above rest of UK 1 in 4 adults has low level of document and prose literacy 1 in 3 workers fails to meet level 2 of the National Qualifications Framework (NQF) -25% with no qualifications Fewer adults participate in learning in NI (30%) than any other UK region (UK average =39%) 75% of NI graduates studying outside NI do not return Skills under-achievement and lack of opportunity

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Low levels of labour market participation Over 530,000 people (41% of working-age population) not economically active Worrying underlying trends: Since 1978: -Unemployment fell by 24,100 - 45% -Employees in employment rose by 171,690 - 33% -Incapacity benefit claimants rose by 67,753 - 156% Over the past three decades, for every person coming into employment, three new incapacity claimants emerged These correlate with high levels of deprivation, especially in urban areas

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Over the past decade, the Wests working-age population grew by 13% as compared to 3% in Metro 6 of 8 Wests LCDs have employment below the NI average Only 32% of NIs VAT-registered firms in the West - 49% are in agriculture, 60% have no employees and 65% have annual turnover of less than 100k Almost 50% of 16-74 population in the West have no formal educational qualifications, compared to 39% in the East West comprises: LDerry, Strabane, Limavady, Fermanagh, Omagh Cookstown, Magherafelt and Dungannon Belfast Metro comprises: Belfast, Castlereagh, N Down, Ardds, Lisburn Newtownabbey A distinct East-West divide

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Work-readiness skills must improve Hard to fill vacancies (not vocational skills shortages), are increased through lack of work-readiness skills literacy, numeracy, team working and communications skills 64% of Northern Ireland companies experienced hard to fill vacancies in 2004/05 65% report hard to fill vacancies in skilled labour and almost 40% could not fill managerial/supervisory posts These have not declined since 2000

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Annual NI subvention exceeds 6.4bn per annum Equivalent to 3,700 per capita, annually NI households contribute an average of 40% the tax paid by households in England/Wales Normalisation intended to level tax take and use additional tax/savings to fund ISNI with Reinvestment & Reform Initiative (RRI) formula to fix borrowings To cut the subvention, the Executive must grow the economy - or tax it. The Subvention - paying our way

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Employment growth

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Public expenditure per head higher than elsewhere England Wales Scotland N. Ireland Source: HMT UK=100

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NIs public expenditure growth will slow Source: Priorities and Budgets 2006-2008 0.0 2.0 4.0 6.0 8.0 10.0 2005-062006-072007-082008-092009-102010-11 Real growth % Historic Forecast

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Private sector too small to take up the slack of falling public expenditure increases Global uncertainty may impact on inward investment and business confidence The Programme for Government (PfG) is ambitious, the Executive has no tax-raising powers, and delivering the PfG requires time to develop the private sector, modernise government and invest in infrastructure Transforming the economy will take 10-2 years Declining public expenditure will be a problem

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24 Section 3: Implications for education PricewaterhouseCoopers LLP

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NI cannot compete on cost alone Innovation enables businesses to compete effectively in an increasingly competitive global environment -Better innovation and R&D performance will move the NI economy up the value chain Enterprise is a critical ingredient of a flexible, modern economy -Fear of failure and lack of skills are barriers to new business set-up Modern infrastructure essential for economic growth -The 18bn Investment Strategy for Northern Ireland (ISNI) addresses the infrastructure deficit

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Implications for the Education System The system should produce people with the qualifications and skills to meet the demands of the future economy Future availability of skills will be the critical success factor for businesses Emphasis on value-added and innovation in the knowledge economy requires focus on technology, tertiary skills, a reform of vocational qualifications and their supporting infrastructure Improved school-leaver performance essential to reduce the high proportion of people with limited or no qualifications

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Political agenda for education Political stability to stimulate returners & entrepreneurism Community commitment to lifelong learning Challenging literacy and numeracy disadvantage at primary level Emphasis on enterprise, business and vocational issues in the curriculum Preoccupation on process masks focus on delivery and outputs Improved levels of practical careers advice and incentives for companies initiating skills training

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Issues for primary schools Falling birth-rates and declining pupil numbers - down 10-13% by 2015 Sustainability of urban and rural schools and adequately rural- proofing education policy Getting by-in from communities, parents, private sector and govt to specific, educational and social outputs Adequately funding primary education to deliver a consistently high quality of literacy, numeracy & socially-developed children while aggressively addressing deprivation and social exclusion

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Time is limited Educationally-challenged post-primary pupils are potentially lost adolescents who may opt-out of education, society and work A new agenda for skills and a culture of lifelong learning will help create and implement a new, outward-looking business model Limited opportunity to contribute to this agenda of radical change that will impact on economic regeneration and social inclusion Failing the education and could have a fatal impact on a new generation of Northern Ireland workers

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