26 Apr 2024

Labour Wrong To Ring-Fence “Only” Half The Levy — Ex UCAS Executive Director Of Strategy

With the Prime Minister's apprenticeship reforms coming into effect this April, Managing Director of Bridgehead Education, William Walter, and Consultant, Ellis Coughlan, sit down with John Cope, Executive Director of Strategy at UCAS (2020 – 2024), to discuss the impact they will have on the sector.

We begin on a positive note, with Cope noting that we are close to full employment - a state we have maintained for nearly a decade. However, he tells us this is a double-edged sword.

“A tight labour market exacerbates skills gaps, with employers finding it difficult to hire people with the skills required for innovation and business growth”, he explains. “Higher-level skills are particularly in short supply, highlighting the importance of increasing access to college, university, or an apprenticeship.” 

Co-investment payments

We discuss the elimination of a five per cent co-investment payment for smaller firms to take on an apprentice under the age of 22, which he asserts is “long overdue.”

He recollects his role in the 2018 campaign to reduce co-investment while working at the Confederation of British Industry. Eventually, co-investments were reduced from ten to five per cent for SMEs, while the transfer limit was increased from 10 to 25 per cent.

“Our argument was that it should be increased to 50 per cent and that co-investment should be eliminated altogether,” he recalls. “So from my perspective, it's like the campaign I was running about five years ago has finally taken effect.”

Despite delays due to the pandemic and constraints on public finances, Cope welcomes the Prime Minister’s reforms. While the 2017 apprenticeship reforms “increased the careers advice on apprenticeships, doubled the funding available, and significantly improved their quality, smaller businesses still face challenges”, he says.

“If you’re a small business, hiring an apprentice is a considerable undertaking. Even with a co-investment of just five per cent and the government covering the other 95 per cent, it can still be a substantial barrier due to HR and support costs.”

Cope also highlights that the UK economy is predominantly composed of small businesses. “Apprenticeships work well in the German economy as they have a substantial number of medium-sized businesses, known as the Mittelstand”, he says.

“However, for small businesses in the UK, taking on an apprentice involves substantial expense and time. An apprentice can either be amazing or require significant support. You never know what you're getting, or the HR resources required.”

“If I were the Skills Minister with cash to spend, I would bring back elements of the Kickstart Scheme, launched by Sunak as Chancellor”, he reveals. “Between £2,000 and £3,000 of upfront support for employers taking on an apprentice would help SMEs with HR and set-up costs. An additional 5,000-10,000 apprentices were recruited each month throughout the 18-month scheme.”

Apprenticeship Levy transfer cap

Turning to the Levy transfer cap, Cope points out that the government faces a challenging balancing act. “Apprentices are calling for well-structured, consistent, and high-quality training”, he explains, “while employers are focused on running their businesses effectively.”

“It’s impossible to please everyone”, he adds. “The adjustment of the transfer rate from 25 to 50 per cent exemplifies one area where the government has enhanced flexibility for employers without risking quality of training.”

He cites a recent discussion with Adecco, a large staffing firm. “It was evident they struggle to utilise all of their Levy because many of their employees are temporary staff.” He continues, “therefore, the government's decision to allow companies like this to transfer 50 per cent of their Levy to their supply chain and partners is great news.”

SME threshold

When discussing whether more companies should pay the Levy (currently it is 0.5 per cent of an employer's annual pay bill above £3 million), Cope expresses some sympathy with policymakers given the demand for apprenticeships. Today, only 2 per cent of employers pay the Levy.

“By definition, thresholds are arbitrary”, he says. “You must draw a line somewhere, and there will always be those close to that line who might feel aggrieved.”

“SMEs are the backbone of the British economy”, he asserts. “They often struggle because they do not have the economies of scale that larger businesses enjoy. Therefore, increasing taxes on small businesses is something I’d struggle to support.”

However, Cope accepts the “fundamental problem” with the apprenticeship system is that demand for apprenticeships massively exceeds the supply. He shared his experience at UCAS, where he spearheaded the integration of apprenticeships onto the platform. Despite hundreds of thousands expressing interest, only a few thousand vacancies are available at any given time. He maintains that funding apprenticeships “will continue to be a persistent but critical challenge.”

Looking ahead

When asked how he would address some of these issues, Cope suggested he “would aim to ease employers' burdens by reducing red tape and ensuring apprenticeship standards adapt quickly to employer needs.”

He opposes the Labour Party's suggestion of ring-fencing “only” 50 per cent of Levy funds. “It would undermine the entire system, releasing over £1 billion currently ring-fenced for apprenticeships”, he claims. Instead, his approach would involve rolling out incentives for businesses to invest beyond the Levy.

“I would create tax incentives for employers to invest above their Levy on training that benefits their staff. This could transform a marginal business case for training into a strong one, akin to how R&D tax credits incentivise investment in research and development.”

Cope asserts that a “free-market approach, in contrast to Labour’s proposals, would not involve government mandates or Levy increases, but would provide attractive incentives for investment by businesses, serving as a 'carrot' to complement the 'stick' of the Levy.”

Finally, he suggests the government could support initiatives that aim to reduce regional disparities. Given that apprenticeships are often region-specific, he says “it’s exciting to see training providers like the Dyson Institute offering purpose-built student accommodation and universities like Manchester Metropolitan University offering apprenticeship programmes with strong employer links.”

Cope highlights that these disparities also affect those from lower-income backgrounds. He suggests, “an ‘Apprentice Premium’ similar to the Pupil Premium could help training providers support less affluent apprentices, ensuring apprenticeships remain key drivers of social mobility.”

As our interview concludes, John Cope’s insights into the Prime Minister’s apprenticeship reforms reveal a pragmatic approach to balancing the needs of employers and the demands of a changing workforce. Through targeted financial support, increased Levy flexibility, and tax incentives, he argues we can bolster the apprenticeship system and nurture a much-needed high-skilled workforce.

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