Double tax on employers to boost training, says former education minister

Lord Jo Johnson said a reformed apprenticeships and skills levy was "the only game in town" to increase spending on training

Lord Jo Johnson said a reformed apprenticeships and skills levy was "the only game in town" to increase spending on training

The next government should at least double what businesses pay in to the apprenticeship levy to repair the country’s poor record on training, according to a former Department for Education minister.

Jo Johnson, who was universities minister at the DfE when the apprenticeship levy was being developed, told an event in parliament today that increasing employer contributions would enable the levy to fund “a wider range of courses”, without reducing the resources available for apprenticeships.

The now Lord Johnson of Marylebone was speaking on a panel organised by the Future Skills Coalition – a new campaigning group set up by the AoC, AELP and City and Guilds. The panel event was part of a day of action with colleges and training providers lobbying MPs for greater investment in FE and skills ahead of next month’s budget. 

Johnson said taking more money from employers to fund adult training, as well as apprenticeships, was the most realistic way of solving the country’s skills gaps. 

“There is a need to ramp up training spending. As a country we spend less than half the Europeans on training employees and virtually all economists are in agreement that the UK needs to invest substantially more into training and development of its workforce.”

Johnson, who is chair of independent training provider Access Creative College, would increase the amount employers pay in to a rebranded “apprenticeships and skills levy” from 0.5 per cent of their annual pay bill to 1 per cent. 

He suggested half of the increased funding raised should be ringfenced for apprenticeships, and the rest could be spent by employers on “non-apprenticeship training, including modular courses to tackle key skills gaps.”

The Labour Party announced last year that it would also reform the levy to a “growth and skills levy” so businesses could use half of their contributions on non-apprenticeship training. Unlike Lord Johnson’s suggestion however, Labour didn’t announce any plans to raise extra funding from employers, leading to concerns that its plans could shut out smaller businesses. 

At today’s “mind the skills gap” event, which also saw speeches by Kirstie Donnelly, chief executive of City and Guilds, Jane Hickie, CEO of AELP, David Hughes, CEO of AoC and Lord David Blunkett who led Labour’s Council of Skills Advisers, Johnson took aim at the government’s record on investment in skills and training. 

“I think there is a really shocking mismatch between government rhetoric on skills and the actual resources that have been made available to colleges and independent training providers” he said.

“Government funding itself is not going to be the whole answer. So I don’t think anybody should be under the illusion that the Treasury is just going to write a cheque. 

“That’s why reform of the apprenticeship levy is so important, because it will potentially bring more employer funding to the table in a way that absolves the taxpayer and the treasury of the sole responsibility of addressing this mismatch. 

Smaller businesses should also pay the levy, Johnson suggested, so “more SMEs have skin in the training game”.

Currently businesses with an annual pay bill of over £3 million are liable to pay the apprenticeship levy. Johnson said that £3 million threshold could “potentially” be brought down, though he didn’t specify by how much. 

“As a country, we really need to double, or more, mandatory spending on training. An apprenticeship and skills levy in the next parliament, I think, is the only game in town in that respect,” he concluded.

Elsewhere in his speech, Johnson took aim at the government’s plans to defund applied general qualifications that overlap with T Levels. 

According to Johnson, the government is “proceeding at a really alarming pace” and has “created a burning platform with the defunding of BTECs and other applied general qualifications in order to accelerate the rollout of T Levels”.

“There is a clear evidence base that T Levels are not yet ready to take the weight and shoulder the burden that’s being placed on them, and I am extremely concerned, looking at the situation on the ground and talking to providers, that there is a real risk of a large number of learners being left with no option that really suits them,” he added.

His comments come on the day 360 headteachers and principals wrote to education secretary Gillian Keegan to ask the government to postpone plans to defund most BTECs and applied general qualifications.

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  1. Since the introduction of the levy in 2017, businesses investment in training has fallen overall and lots of existing training has been rebranded as apprenticeships (see the rise of degree apps level v non levy).

    Government has all but admitted that the levy system was designed to be underspent, so levy funds could be recycled via the treasury to support non levy provision. Which just so happened to be a useful way of getting public expenditure off the balance sheet.

    So obviously the answer is to double the levy and rebrand it, because doubling a mistake is a proven method, right? Will businesses continue to trust Government to run a skills system they are increasingly funding?

    What do you think businesses will do faced with the prospect of a doubled levy? Will they behave differently?

    Is there a chance that the increase in tax will flow through to price increases in the goods and services businesses offer, fuelling inflation at the very same time they are asking for pay restraint…

    “That’s why reform of the apprenticeship levy is so important, because it will POTENTIALLY bring more employer funding to the table in a way that absolves the taxpayer and the treasury of the sole responsibility of addressing this mismatch”

    A lot of heavy lifting being done by the word ‘potentially’ there. If it is not certain, then it doesn’t absolve the taxpayer or treasury. Even if it is certain, the taxpayer will still pay, just not through taxes but through higher prices and inflation eroding their living standards.

    The tragedy is that the opposition are on the same track, the wealth gap will keep growing as it has for decades.