The apprenticeship levy cannot sit in isolation of place-based need

We mustn’t lose sight of other employer incentives and the importance of strategic and local leadership amid clamour for levy reform, writes David Phoenix

We mustn’t lose sight of other employer incentives and the importance of strategic and local leadership amid clamour for levy reform, writes David Phoenix

2 Jul 2023, 5:00

A Policy Exchange report published in May called for widescale changes to the skills funding system; and an open letter sent by several major employer representative bodies back in February described the apprenticeship levy as a ‘£3.5 billion mistake’. The Labour Party has recently announced that it would transform the apprenticeship levy into a ‘Growth and Skills Levy’.

While we do need to reflect on how we address weaknesses in the current approach to work-based education, we should also pause to celebrate the fact that since the apprenticeship levy came into effect in 2017 it has generated funding from business to support more than 1.75 million apprenticeship starts. This includes over 400,000 higher and degree apprenticeships. The department for education claim that, in England, 99.6 per cent of their ring-fenced apprenticeship budget (£2.455 billion) was spent on training last year, with less than 0.5 per cent of funding returned to the treasury.

With this in mind, I recently hosted a roundtable on the future of the apprenticeship levy with representatives from think tanks, professional bodies, representative bodies and Rt Hon The Lord Blunkett, who produced the Labour Party’s recent Council of Skills Advisors’ Report. Although there was much nuance to the discussion around the table, and a usual focus on transparency and bureaucracy with respect to the levy’s allocation, a key theme that developed was around the importance of positioning the levy within a wider, place-based skills framework.

The apprenticeship levy was introduced to help address the market failure of under-investment in training by UK employers (currently less than half the EU average). However, it has arguably had limited impact in this regard, given that only 23 per cent of employers were offering apprenticeships in 2021 and over one-third of employers (39 per cent) have provided no skills development for their workforce during the past year.

There is a risk that our skills funding is creating a ‘welfare state mentality’ for employers. With that in mind, the government perhaps needs to consider using tax incentives or other funding levers to complement the levy in ways that encourage more employers to take ownership of this agenda,  assessing their own future skills needs and investing in training, be that through apprenticeships or otherwise.

The levy is subject to the individual decisions of 17,000 employers

If skills development is to expand in a sustainable way, then as well as funding levers, we will need a clear skills strategy at governmental level to identify areas of skills deficit and focus on core growth opportunities like green skills, digital, engineering, biology and healthcare. The current lack of strategic oversight of how the levy is spent means it is currently subject to the individual decisions of 17,000 separate employers. While these employers will make the best decisions for their businesses, their choices will not necessarily align with wider government and societal priorities.

The identification of national priorities would help improve investment in infrastructure at a local level. That could be facilitated through the shared prosperity fund, for example, but linked to investment in local skills needs by local business beneficiaries. Without a clear strategy it is difficult to ensure work is joined up across different government departments and to understand not only where we should focus but what investment is needed for success.

If government provided a clear strategy, it could assess the funding needed to tackle shortfalls in level 2 and 3 skills. Currently, these shortfalls are unlikely to be addressed by business but these must be dealt with if we are not to fail 50 per cent of our young people. A dedicated fund to promote opportunities aligned to apprenticeships and training for learners from lower socioeconomic backgrounds could help to transform the skills pipeline as we develop our aspiration to be a knowledge-led economy.

This must be part of a clear skills strategy that helps support appropriately funded adult education through developed funding for core level 2 and 3. This plan must also incentivise employers to engage in skills development and align government departments to enable place-based focus within a national framework.

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