Degree apprenticeships are affordable and vital for growth

Depriving graduates of apprenticeship opportunities helps no one and will stifle productivity

Depriving graduates of apprenticeship opportunities helps no one and will stifle productivity

18 Jan 2025, 17:34

The revelation that graduates are taking up one in six apprenticeship places has caused consternation in some parts of the sector.

Ministers are set to decide what the new growth and skills levy will fund once Skills England is fully up and running.

The argument put forward by a Social Market Foundation report last week was that graduates should be banned from receiving apprenticeship funding.

Analysis by the report’s author and former Tory education adviser, Tom Richmond, found £431 million was spent on apprentices in 2023-24 who had already obtained a degree. “Unsurprisingly”, Richmond states, “this generosity has placed a considerable strain on the apprenticeship budget”.

The problem with this zero-sum approach to apprenticeship policy and funding is that it is wrong-headed. It’s the misguided belief that we can only afford to provide more apprenticeship opportunities to non-graduates and young people by depriving those enrolled in higher-level skills training access to the levy pot in the future.

The other misinformed view about HE student financial support and the apprenticeship levy is the call for these to be treated like other forms of public spending.

In reality, the money individuals have borrowed from the taxpayer is a personal liability that has to be repaid over a working lifetime of 40 years. Once graduates earn above £25,000 a year, they are liable to pay 9 per cent of their earnings above the threshold in repayments for a bachelor’s degree and 6 per cent of their income for courses studied at the master’s level.

We are underinvesting in skills at all levels

Moreover, tax receipts from the employer-generated levy are not public money in the traditional sense of the term. The 0.5 per cent levy on large company payrolls raised about £3.5 billion in the fiscal year 2022-23. The levy was initially sold to British businesses as a hypothecated fund, with the purchasing power gifted to employers paying in to decide what type of apprenticeship standards to acquire.

In practice, the Treasury treats the payroll levy as just another source of tax revenue for its general fund. According to FE Week analysis, the Treasury top-sliced £418 million of what it raised in 2022-23, which subsequently was not included in the apprenticeship expenditure settlement given to the Department for Education.

When a £96 million underspend of the DfE’s apprenticeship budget during the same year is factored in, we arrive at over half a billion pounds of unallocated apprenticeship resources.

The Social Market Foundation report, I suspect, makes no mention of the Treasury’s blatant short-changing of the system, because if it did, it would blow out of the water its main contention that there is not enough money to fund Level 7 apprenticeships. There is plenty of levy money to go around.

It’s time for a more informed debate about how we invest in skills for productivity for growth in future. The truth is we are chronically underinvesting in skills at all levels of our economy.

Compared to European competitors, British employers invest about half of what our rivals invest in employee training. We have a massive problem with lagging productivity in the public services compared to the private sector.

Empirical studies have shown that the poor quality of management and leadership in some industries can explain about a fifth of the country’s productivity gap.

This debate points to the urgency of the Labour government now getting on and fully implementing the Lifelong Learning Entitlement Act. The ambition of this legislation is revolutionary because it has the potential to create a single post-18 funding system in which co-investment by the state, employers and individuals is made more transparent.

In this scenario, the prior academic attainment of apprentices becomes irrelevant. What matters is that we arrive at a sensible “co-investment mechanism”, in which a more optimal level of skills acquisition is taking place to impact economic growth. Destroying our world-class lead in degree-level apprenticeships is not the answer.

You can read Tom Bewick’s other views in his Substack, The Skills Agenda.

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