Labour’s levy plans could collapse under election scrutiny

The Labour party has created for itself a potentially serious election wedge issue on apprenticeships which will get aired on the doorsteps in red wall seats unless it has a rethink.

At the Annual Apprenticeship Conference (AAC), shadow skills minister Seema Malhotra doubled down on Labour’s proposed ‘growth and skills levy’ in spite of concerns it will “destabilise” apprenticeships. This follows government ministers claiming that the proposals would halve the number of apprenticeships and would take us “back to square one” – a Conservative attack line that appears to be central to their approach to other wedge issues during the election campaign.

An ongoing lack of transparency over apprenticeship levy funding means that it is difficult to judge impartially. But it won’t be difficult for the proposal’s opponents to make a convincing case that reserving ‘at least half’ of the levy for apprenticeships will translate into a halving of our 337,000 annual programme starts.

Bearing in mind that levy receipts and the apprenticeship programme budgets across the UK’s four nations are not the same thing, several key factors need to be taken into account. These include whether the devolved nations will still receive their respective share of the £3.7 billion pot according to the traditional Barnett formula and whether the Treasury under Labour would maintain its habit of top-slicing the levy by approximately £500 million each year to spend on other priorities. Currently, this results in the DfE being allocated an apprenticeship programme budget of £2.7 billion to manage for England.  

Shadow chancellor Rachel Reeves said recently that it will be good to have someone in charge of the Treasury who can do maths. So, leaving aside for a moment devolved nation allocations and top slices, let’s do some maths of our own based on Labour’s proposals.

Half of the £3.7 billion levy receipts is £1.85 billion which might be reserved for apprenticeships. This is considerably less than the 98 per cent of the £2.7 billion apprenticeship budget which has been spent on apprenticeships annually in England over the past two years. In fact, it would mean almost a billion pounds less being allocated to the programme each year.

This implies either significant cuts to apprenticeship starts under Labour unless the treasury agrees to a larger levy to keep the same annual apprenticeship budget before the receipts can be used for other skills programmes. It also assumes that the shadow education team has reached an agreement with the shadow treasury team that they will end the top-slicing, but has it? Given the widely predicted doomsday scenarios for public expenditure after the election, a new chancellor might decide that the money is still required elsewhere.

For Labour, the alarm bells must start ringing every time Seema Malhotra refers, as she did at the AAC, to £3 billion of unspent levy money since 2017 as if the money were still available to fund Labour’s wider skills levy. But the levy underspends were simply an outcome of the Covid pandemic when the lockdowns prevented employers from recruiting apprentices. In 2019, the National Audit Office predicted an overspend of the apprenticeship budget, and in the two years following the pandemic, the underspends rapidly disappeared.

Ms Malhotra also talked again about the large levy-paying employers who complain that they cannot spend all of their entitlement on apprenticeships. But the levy was designed for this probability in order to fund SMEs’ apprenticeships. And when asked, she wouldn’t repeat her predecessor’s promise that apprenticeships for smaller firms would be protected by a ring-fenced budget.

Labour is reportedly “bombproofing” its election manifesto against Conservative attacks. Therefore, it should follow the recent example of the Australian Labor government of committing to a thorough review of apprenticeships with a view to reform but without any predetermined outcomes such as widening the levy’s scope.

This summer, 60 years after they were cut, passenger services will resume on the Newcastle to Ashington railway with the Mayor of North Tyne saying this week that young apprentices will now be able to travel to take up opportunities on the programme. It would be ironic if the actions of a Labour government were to limit the number of opportunities available.