Budget 2023: A competent affair but with glaring missed opportunities

I can’t be the only one who found this week’s budget a refreshingly competent and much-needed return to serious government. For education and skills, it was very apparent this budget wasn’t a fiscal splurge but about targeted interventions that either reduce the cost of living or grow the economy. Or in the case of the generous childcare announcement, both

It’s worth remembering that the autumn statement had already delivered an extra £2.3 billion for schools and that the previous spending review committed to a £2.3 billion increase in the 16-18 education budget between 2019 and 2024. Many will argue this simply isn’t enough, but public finances remain stretched.

So what does it all mean for skills?

Holding firm on the levy

Groups like the CBI have been expending huge political capital on trying to dismantle the apprenticeship levy, often on the premise that ‘billions are handed back every year to the treasury’. When the policy was introduced there was indeed an underspend, but that’s simply not true now. Indeed, we have a serious shortage of apprenticeships so reducing funding by diluting the levy into a ‘Flexible Skills Levy’ would be misguided.

While the levy could be improved in many ways, it’s inescapable that it has doubled the funding available for apprenticeships over the past decade and created stability. It’s also driven up quality through the 20 per cent-off-the-job requirement and new employer-crafted standards.

The actual elephant in the room is that employers’ investment in training continues stagnate and is now half the European average. Less than 20 per cent of 25- to 64-years-olds hold a vocational qualification and off-the-job training (a good proxy for quality) has declined for years. This is a key cause of our long-standing low productivity and growth and leaves millions stuck in low-skills jobs and low job satisfaction.

A missed opportunity

The budget contained a £27 billion tax cut for business through ‘full expensing’, allowing companies to claim a 100 per cent deduction from their profits when they invest in capital like machines, offices, or vehicles. This is combined with a £500 million package of tax deductions for research and innovation.

Imagine how powerful this approach would be if it applied to investing in the workforce. For larger employers, it is not the upfront cost of training that acts as a barrier but the need for a solid, long-term business case. Generous tax credits would drive employer investment to the levels we desperately need, incentivise employers to look to colleges and training providers for short courses and maybe, just maybe, end efforts to dismantle the levy.

Smaller firms face a different challenge: cash flow. Upfront grants to take on apprentices or invest in high-quality training could make all the difference here. As Chancellor, Sunak established a £3,000 cash incentive to take on an apprentice during the pandemic. Between 5,000 and 10,000 apprentices were taken on each of the 18 months the scheme was in place. This relatively small investment should return, and a similar scheme could have been transformative.

Returners, retrainers and the minimum wage

While I’m not convinced returnership is going to catch on as a term, the concept is spot on. A lot of detail needs to be worked through but ‘earn while you learn’ works as effectively at 16 as it does at 60. For this reason, a ‘retrainership’ for those wishing to change careers would have complemented the ‘returnership’ idea well.

Meanwhile, the apprentice minimum wage remains a major barrier. At just £5.28 per hour from April for the first year of an apprenticeship regardless of age, it rules out adults without independent means. The living wage for everyone else over 23 from April is £10.42. A nearly 50 per cent pay cut rules out swaths of potential returners and retrainers. The apprentice minimum wage should have gone, replaced with the living wage every other worker earns.

Overall, what this budget lacked in vision and funding, it made up for in focus and stability. There is scope for much more, and not all of it dependent on the treasury, but in the meantime sector leaders will be pleased to see inflation – and their costs – decline.