Failing to impose strict controls on what training the incoming growth and skills levy can pay for would turn it into a “complete racket” for employers, a Labour peer has warned.
A report on the new government’s proposed reformed apprenticeship levy, released by the Edge Foundation today, looks at what “levers are left to pull” that would target the policy to benefit young people.
It warns that too much non-apprenticeship training could erode “already dwindling” apprenticeship opportunities especially at lower levels for those aged under 25.
But first, Labour urgently needs to “clearly articulate” what it hopes to achieve with levy reform to avoid damaging the apprenticeship “brand” – a task that has been handed to new quango Skills England.
Here are some key options the Edge Foundation suggests the government consider.
Limit the scope of non-apprenticeship spending
The charity has called on Skills England to put “tight guardrails” on what types of non-apprenticeship training levy funds can be spent on.
To ensure the training is “high quality”, the skills body should set “specified standards of quality, learner experience and outcomes”.
Labour peer and leading economist Lord Richard Layard, who wrote the foreword for the report and had his views featured throughout, tells the Edge Foundation adding too much flex would be a “complete racket”.
He adds: “What businesses want is to be able to use the apprenticeship levy to pay for things which they currently pay for themselves. It’s an absolute outrage.”
Prioritise ‘pre-apprenticeship’ style spending
Limiting levy flexibilities to pre-apprenticeship training would both promote apprenticeships to young people while conserving funding, the charity said.
Ahead of the general election, Labour pledged to set aside 3 per cent of the skills and growth levy for 150,000 traineeships.
But Edge Foundation urges the government to “learn lessons” from previous the previous traineeship scheme, scrapped by the government due to low take up.
Ringfence for certain groups
The government could add ringfences for certain groups, such as the young, or lower-level apprentices, to halt the trend of employers spending their levy on “more expensive, higher-level apprenticeships and/or on existing, older employees”.
But while this could be a “powerful driver” of employer behaviour, the charity acknowledges warnings from former skills Sir Michael Barber, who has argued that higher-level degree apprenticeships are good for social mobility and “integral” in improving apprenticeships’ prestige.
Flex %s with caution
Labour plans originally suggested employers would be able to spend up to 50 per cent of their levy allocation on non-apprenticeship training, but this threshold was notably absent in their 2024 general election manifesto.
The more recent language of “up to 50 per cent” suggests Labour has “listened to the uneasiness about such an arbitrary division”, Edge’s report said.
It states that most interviewees who participated in their research preferred a majority share for apprenticeships, with Policy Exchange, for example, suggesting ringfencing 75 per cent of the levy for apprenticeships.
Alternatively, employers could be required to “earn” their flexible allowance by first spending a set proportion, for example 50 per cent, of their levy fund on apprenticeships, the report added.
It said: “Proceeding with caution when it comes to setting the proportions of the growth and skills levy seems like a sensible approach – how much employers can spend on non-apprenticeship skills training can always be increased, but it is harder to remove flexibilities from the system.”
‘Treasury Margin’
One way to fund non-apprenticeship skills training without reducing the number of apprenticeships available could be to tap into the estimated £835 million ‘Treasury Margin’.
This is the gap between how much the levy generates in employer receipts verses how much the Treasury hands to the Department for Education and the devolved nations as their apprenticeship budget.
However, this option is “unlikely to be popular” at the Treasury, due to what the Edge Foundation calls a “lack of transparency and accountability”.
Extend levy to more businesses
Another way to raise money could be to extend the levy to all UK businesses, raising as much as £1.6 billion per year.
Currently, only businesses with an annual payroll of over £3 million pay 0.5 per cent of their payroll bill into the levy.
Increase small business apprenticeships
Key to more young people and lower-level apprenticeships is reversing the decline of starts in small businesses since 2017, the report argues.
To do this, the government should roll out financial incentives, building on other welcome recent steps such as removing the cap for small to medium-sized enterprises (SMEs) and fully funding their training.
Address functional skills
The government should urgently look at the “suitability” of functional skills requirements, which many view as a “barrier to completion”.
Gill Mason, training academy director at Kids Planet, a learning provider and employer in early years, told the Edge Foundation: “It isn’t functional. It’s GCSE. It’s just what they’ve just left and come away from.
“It absolutely is the main reason our staff leave and don’t achieve is maths and English.”
Improve wages
Put apprenticeships on an “even keel” with other routes such as entry-level jobs and undergraduate degrees that have student loan support, the edge argues.
This would address surveys which have found that one-quarter of apprenticeship applicants didn’t pursue the careers route due to “affordability” concerns.
The Department for Education and Treasury have been approached for comment.
Read the full report here.
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