The Great British skills mismatch

Britain now boasts the most educated workforce in its history, with 33.8 per cent of individuals aged 16 or older holding a level 4 certificate or higher according to the 2021 Census, up from 27.2 per cent in 2011. This educational improvement, however, hides regional imbalances and a skills mismatch. London leads with 46.7 per cent of its population holding higher qualifications, while the North-East lags behind at 28.6 per cent – an 18.1 percentage point difference. This contrast highlights the uneven distribution of education and opportunity across the country, giving the impression of two nations with divergent prospects for productivity, employment and social mobility.

The expansion of higher education has revealed inefficiencies in the labour market, particularly regarding over-qualification and skills mismatches. While firms struggle with shortages in technical and vocational skills, a growing number of young people are entering occupations that do not require a degree. A 2024 OECD study found that 37 per cent of UK graduates are over-qualified, the highest proportion among member countries. This paradox reflects inefficiencies in the allocation of education and skills resources, raising a crucial question: how can the UK better align education with real-world job demands?

The consequences of this misalignment are considerable. Workers in mismatched occupations often experience wage penalties, lower job satisfaction and higher turnover. Young people are especially vulnerable, frequently accepting non-graduate jobs to avoid unemployment. More troubling, this misalignment may be why young people cannot find a job in the first place, leading to prolonged job searches and potential disengagement from the labour market. 

Over-qualification reflects not only lost individual potential but also a broader economic inefficiency. Higher education loses value if graduates cannot apply their skills, ultimately harming productivity and innovation. Regionally, this problem is amplified. In places such as Newcastle, for example, universities produce many graduates, yet the region has the lowest proportion of high-skill jobs in the UK. The result: talent leaves, deepening inequality.

The Productivity Agenda rightly challenges the assumption that more degrees mean greater productivity. This supply-side ignores the skills employers are looking for, particularly given regional variations and accelerating technological change. A balanced system is required, one where academic and vocational pathways receive equal investment and recognition. As technology reshapes work, apprenticeships and technical education can better respond to changing employer demands, especially when traditional education struggles to adapt.

Britain must also embrace continuous upskilling. Short courses and flexible education programmes are viable alternatives for retraining without full-time study. Simultaneously, the government should incentivise firms to invest in training, perhaps through tax benefits, since companies often hesitate if employees might leave. Reducing training costs increases the chance firms will invest in, and retain, skilled staff.

Any effective strategy must account for place. Decades of underinvestment in regional education and infrastructure have deepened inequalities in employment, skills and opportunities. Addressing these disparities requires sustained investment in transport networks, digital connectivity and local development to connect people with opportunity in underserved areas.

Investment must also go beyond traditional universities. FE colleges, technical institutes, and adult learning centres in areas with low educational attainment and high economic inactivity, such as Blackpool, Grimsby or Southend can serve as crucial hubs, especially if they collaborate with local employers to tailor programmes to regional needs.

Economic regeneration and educational reform must proceed in tandem. Encouraging firms to locate outside London and the South-East can stimulate local demand for skilled workers. When young people observe thriving industries at home, they are more likely to remain local rather than feeling compelled to migrate for economic opportunities.

Finally, devolving more education planning to local authorities would allow for more responsive and targeted approaches. Local leaders, working with regional bodies and employers, often have a better understanding of their area’s economic dynamics than central government.

The economics of skills is not just about supply and demand in abstract markets; it is about the institutions that shape human potential and national prosperity. Perhaps the most urgent skill Britain needs is the ability to rethink our approach to skills altogether. Only then can it address its skills paradox and build an economy that works better for everyone.