Employers urgently need chancellor Jeremy Hunt to provide real incentives to address skills shortages within their industries and to drive economic growth. In particular, confusion surrounding the apprenticeship levy is a missed opportunity.
Since its introduction in 2017, the apprenticeship levy has undergone a series of changes, and many employers have lost sight of its purpose and how it could help them to tackle skills shortages and future-proof their businesses. At a time when businesses are facing significant commercial pressures, they can no longer afford for so much of the levy to go unclaimed and return to the Treasury unspent.
The chancellor needs to think outside of the box about how to use fiscal measures to encourage more private sector investment in skills development and provide greater clarity too. Businesses know that they need an urgent injection of skills to support them in achieving positive transformations. They need a whole host of skills – business analysts, data scientists, software testers and developers. What they often don’t realise, and don’t have time to find out, is how the current system can help them to meet those needs.
For example, there are currently about 800 different apprenticeship standards in existence, as well as multiple delivery models. It’s not easy for companies of any size, but how can small companies with limited resources be expected to make sense of it all and select the right options?
Meanwhile, many don’t realise that they could reskill existing staff or recruit talented people to complete an 18-month apprenticeship programme leading to an industry-recognised, degree-level qualification. Crucially, they may be unaware that they can work with a specialist training provider to build programmes that fit around the operational demands of their business.
To address these gaps in understanding and encourage more investment in skills development, the Chancellor needs to take a different approach. A key problem is that many businesses are put off by the idea of paying the levy and an apprentice’s salary on top; they see this as a lose-lose proposition rather than a scheme that could support the delivery of their strategic growth plan.
Additionally, many larger employers don’t realise that if they don’t spend their levy funds each year, the money available to them is effectively wasted. They also may not know that while apprentices must be paid a salary, the business isn’t required to pay employers’ national insurance contributions.
Data sourced by FE Week as part of a freedom of information (FoI) request shows that levy payers are spending less on level 2 apprenticeship participation. Spending in this area dropped from £622 million in 2017/18 to £421 million in 2021/22. This needs to be rectified.
The good news is that more is being spent on higher level apprenticeships. This shows that larger employers recognise the value of some of the programmes supported by the levy. There is an opportunity now to build on this and spread the benefits of apprenticeships to businesses, to encourage more to take on people at a lower entry level, who are focused on skills attainment and learning their way to a rewarding career.
When the chancellor makes his autumn statement next week, we would like him to introduce real incentives for employers to invest in skills development. He could do this by transforming the apprenticeship levy into a fiscal benefit, with opportunities for corporation tax relief. Instead of paying a levy, employers could earn tax relief based on their investment in apprenticeship programmes and other training initiatives. This could help to change the way that employers think about skills-based training and the benefits it can bring. To avoid confusion, we also think that the new incentives should be made available to all employers, regardless of size.
But boosting interest alone won’t be enough. As well as providing a real and easily understood incentive, government needs to focus urgently on better signposting. Employers and prospective learners alike need to know where they can go for more information about apprenticeship programmes and the options available to them. The new UCAS search facility will aid learners through this process. Employers likewise should be able to easily access information and advice.
The economic challenges are clear for all to see. Unfortunately, the solutions – though they are here – are far less clear to those who need to implement them. Unless we get this right, and urgently, some UK businesses will find it increasingly difficult to compete, and the economy as a whole will suffer the consequences.