In the News
How large is the appetite for levy reform?
Levy reform has been at the heart of Labour’s plan to ‘break down barriers to opportunity’ through skills investment. Under the Skills England umbrella, the Government has pledged to reshape the current levy into a “growth and skills” fund which would, they suggest, “give businesses more flexibility to spend levy funds on training for the skills they need”.
In practice, the government says this would offer businesses license to spend a proportion of their levy funds on non-apprenticeship training. Its original pledge placed this figure at up to 50 per cent, with a minimum spend of the remaining half on apprenticeships, though this figure did not explicitly appear in Labour’s election manifesto.
Responses to the announcement have been broadly positive, though often tempered by calls to ensure greater training flexibility in larger businesses does not have knock-on negative impacts on apprenticeship uptake and provision across the country, particularly among small businesses and for younger apprentices.
The AELP, who have been particularly vocal on levy reform and its implications, have argued that offering a significantly increased flexibility will necessitate greater funding for the sector, otherwise risking a reduction in the overall number of apprenticeships and restrictions on access in SMEs.
Echoing similar, The Edge Foundation have deemed it “absolutely essential” for the government to “employ other mechanisms” to safeguard apprenticeship numbers, particularly at the lower levels and among young people.
The Learning and Work Institute, at the time of the policy’s announcement, were keen to point out that offering additional avenues of expenditure in the biggest organisations could hinder levy access among SMEs. They called for a “wider plan” to either widen the levy or increase government spending “to ensure there is still sufficient funding is still available for SMEs” once reform is implemented.
That is not to say that the pledge to redesign the levy has gone without praise. The CBI (Confederation of British Industry) have welcomed reform, having “long called for additional flexibility” within the levy to enable a more effective addressing of skills gaps in the economy, readying Britain “to harness the digital and green market opportunities of the future.” City & Guilds have similar suggested that reform would “help stimulate employer investment in skills.”
But nearly two months into the new government, some concern has arisen in the sector about the future of the levy - and what some perceive as a lack of transparency as to the timing and details of its implementation might mean for apprenticeship uptake in the year ahead.
These calls have been led by the AELP, who have expressed “deep concern” that a lack of information is creating a “vacuum”, where some employers are “choking off investment in skills” under the impression that reform is imminent and will be wide ranging. They argue that the sector “simply can’t afford to wait” until fiscal events this autumn, and have urged the government to set out a roadmap and a timeline for the Growth and Skills Levy’s introduction.
For now, though, such news remains elusive. That’s why, in this edition, we wanted to sit down with leading FE and Skills experts to hear their thoughts on what a new growth and skills levy should look like in practice - where it should focus reform, what specifically it should include in its stipulations, and why effective changes could be key for the future of the UK’s skills landscape.
Interview: Faye Skelton, Head of Policy at Make UK
"The first priority of any levy reform should be ensuring that all money paid in employer contributions is spent on skills training."
What do you think are some of the major drawbacks of the current apprenticeship levy system? What impacts are they having on access, uptake, achievement, and the overall skills landscape - particularly in engineering and manufacturing?
The number of engineering and manufacturing apprentices has declined by 42 per cent since the introduction of the apprenticeship levy – the current system isn’t working for many businesses.
There is a particular challenge with the viability of engineering and manufacturing apprenticeships at levels 2 and 3. This is where the most significant decline in starts has occurred over recent years, and the challenge is not limited to the functioning of the levy. Funding bands for many of these standards have been routinely underfunded – not even accounting for the recent period of high inflation – and this has led to many manufacturers reporting that they are unable to access the right skills training locally as providers have begun to withdraw provision on the basis that it is unaffordable for them to sustain it with current levels of funding and apprentice intake.
What do you think the key features of a new and reformed apprenticeship levy should be?
Labour’s manifesto committed the new government to introducing the Growth and Skills Levy – this would give levy-payers the flexibility to spend up to half of their levy funds on approved non-apprenticeship training.
Make UK support the principle of flexibility in the levy, but this must be balanced against the need to reverse the decline in the number of engineering and manufacturing apprentices over the last seven years.
The previous government’s apprenticeship growth sector pilot, allocating £50 million over two years to providers to support apprenticeship training delivery on 13 key standards, is a welcome start to exploring flexibility in the funding rules to support providers with current ineligible costs in relation to equipment and machinery. The Government should consider the success of the pilot and explore how this can be extended to a broader range of apprenticeship training.
There needs to be more cohesion between the skills system and the immigration system. As part of addressing skills gaps which have been exacerbated by stricter post-Brexit immigration rules, the Government should use revenue from the Immigration Skills Charge to provide additional financial support for relevant apprenticeship standards, reflecting the approach in other points-based immigration systems like Australia.
How could the government go about improving the access to and utilisation of levy funds?
Currently, the apprenticeship budget for England is £2.8 billion. The total revenue collected from employers is due to reach £4 billion – even once the budgets of the devolved nations are accounted for, there is a large differential (roughly £800 million) which the Treasury currently cannot account for.
The first priority of any levy reform should be ensuring that all money paid in employer contributions is spent on skills training – this should be implemented at the Spending Review by reviewing the fixed budget allocated to the apprenticeship programme.
Given the increasing costs of apprenticeship delivery for providers, any additional flexibility in the levy to include other training could eventually lead to the total cost of the programme exceeding total levy contributions. The Government should consider how this would be addressed without increasing the financial burden on employers (i.e. without lowering the eligibility threshold or rate of the levy).
What would these changes mean for the future of skills training and apprenticeships?
There are 63,000 live vacancies in UK manufacturing currently. Make UK’s own research indicates that the cost of unfilled vacancies in the sector to the national economy is in excess of £6 billion per year. Improvement in both manufacturing and engineering apprenticeship starts and wider skills training would have a direct economic impact for the UK. It would mean the UK would be better equipped to drive affordable, clean and secure energy supply, boost productivity through increased digitalisation, and ensure the UK is a competitive place to do business.
Opinion: Andrew Clark, former Deputy Business Editor, The Times
There's no need to call everything an apprenticeship
Ever since its creation by David Cameron’s government, the Apprenticeship Levy has been a bone of contention for Britain’s businesses.
The policy – requiring companies to pay a fee of 0.5% of their annual pay bill, which could then be drawn down, with a 10% top-up from the Treasury, to fund apprenticeships – was intended to be a ‘shot in the arm for the country’s productivity’. It was created by a Government keen to create viable alternatives to university.
But as a business journalist for The Times when it was announced in 2015, I quickly picked up discontent – including a scathing analysis from Seb James, then CEO of Dixons Carphone, now of Boots, who described it as “very bureaucratic” and predicted it would “spawn an industry of consultants and add a lot of friction and cost”.
The retail boss has proved to be right. The levy hasn’t worked. Apprenticeship starts have fallen by a third since its introduction, albeit with a recent uptick. The system has spawned acres of paperwork and it’s remained oddly rigid in the face of calls for reform. Until now.
The new Labour Government’s announcement of a new Skills England body in the King’s Speech is a turning point. It brings an opportunity for employers, the further education sector and the Government to work together on fresh thinking.
I’ve worked for several companies employing large numbers of apprentices – in steel, manufacturing and in public transport. It’s evident that too much is being slotted in behind the word ‘apprentice’ as a result of the levy’s peculiar framework.
For large companies, outflow of money into the levy is substantial – the big supermarket chains, for example, employ hundreds of thousands of people in the UK and have payrolls in the billions. A 0.5% levy can run into tens of millions of pounds.
So there’s a strong financial temptation to shoehorn as many training courses as possible into the ‘apprenticeships’ category to claw this money back.
The rules of the levy are that apprenticeships must last at least 12 months, and that apprentices must ‘learn while they earn’. In transport, for example, this means year-long bus driver training apprentices – longer, you might think, that it truly requires to learn how to operate a bus.
These apprentice drivers have to take GCSE-level English and maths, a struggle for some, leading to a high drop-out rate. One senior executive grumbled, in exasperation, that he couldn’t see why you had to calculate the amount of water needed to fill a swimming pool in order to work in public transport. But without teaching this, there would be no levy funding.
Meanwhile, the levy is being used for a great deal of mid-career upskilling. A report by EDSK found that 46% of ‘apprentices’ have been with their employer for at least six months before starting their training. Nothing wrong with this in principle, except that it’s not really what was envisaged originally – and there’s a suspicion that a lot of courses are being unnecessarily reconfigured with hasty changes simply to meet the levy’s criteria.
It’s time to recognise, and adapt, to the reality that while apprenticeships are a terrific idea, they’re not suitable for everybody, and they’re not the only lever for employers to pull in order to upskill and train their people.
That is why it’s a good idea for the Government to turn the Apprenticeships Levy into a Growth and Skills Levy. Under the Education Secretary’s proposal, half the money in this future scheme can be drawn down for non-apprenticeship training. This surely makes sense.
It would mean, for example, that employees could be taught a language, could develop their IT knowledge, or could learn essential HR and managerial skills as their careers progress – without the need to elongate courses to take years and to shoe-horn in teaching to meet rigid criteria.
Britain needs an effective strategy towards skills more than ever before. With pressure on the Government to reduce immigration, it’s vital that employers can invest in people. And there’s really no reason why they should have to do so by describing anything and everything as an apprenticeship.
The levy has been in place for nine years. The world of work has become more flexible in every way – it’s time for a more adaptable approach to skills and training.
Andrew Clark is a freelance communications consultant. He was previously Deputy Business Editor at The Times.