Why we need to create a new culture around investing in skills

In the recent ‘Mini Budget’, the Government set out its ambition to achieve an economic growth rate of 2.5 per cent, through “a concentrated effort, using every tool at government’s disposal”. While this is a desirable aspiration, the Mini Budget appears to have overlooked a significant piece of the puzzle: ensuring that we have workers with the right skills in the right places at the right times. 

It is well documented that many sectors and places are currently struggling with skills shortages. At the same time, the amount spent by employers on training their employees has fallen 28 per cent in real terms since 2005, from £2,139 to £1,530 per year (less than half of the EU average). Even before the COVID-19 pandemic, 39 per cent of employers had provided no training to their staff in the previous 12 months. 

Many attempts have been made over the years to stimulate employer investment in skills and training, with little to show for it. The current Government’s ‘top-down’ approach, which includes initiatives such as the National Skills Fund and Skills Bootcamps, means they dictate the qualifications and training on offer almost irrespective of the skills gaps faced by different cities, towns and industries. 

Even where funding for skills and training has technically been devolved to Combined Authorities, the Government is hesitant to relinquish control. The devolved Adult Education Budget is underpinned by centralised rules that specify which individuals are eligible for support, as well as what training they can receive. Devolved authorities are thus deprived of the opportunity to shape their provision around the needs of local learners, despite being better suited to this role than central government. 

Lack of financial support for employers

Another problem is the lack of financial support for employers who wish to deliver bespoke training programmes. Given that the funds generated by the apprenticeship levy are only available for training labelled as an ‘apprenticeship’, some employers have simply rebadged and relabelled existing training courses as such to access the levy funds. This results in significant deadweight costs and fails to encourage growth or improve productivity. 

The levy also generates poor value for money as it incentivises employers to search for the most expensive training courses in order to receive more of the levy funds, even if cheaper and better alternatives are available. For example, employers can draw down £14,000 of levy funding for leadership training courses available through the ‘Senior Leadership’ apprenticeship, even though a similar training course outside of the apprenticeship system costs just £4,000. 

Lack of influence that employees have around their own training and development

An additional concern is the lack of influence that employees have around their own training and development. The UK is an international outlier by not offering workers the legal right to paid time off for training or studying. In contrast, many countries across Europe offer training leave of typically four to five days a year, with employees still entitled to their full salary. Without supporting individuals to further their own careers, it becomes harder to tackle skills shortages in local economies and communities. 

There is an increasing urgency to address the persistent skills shortages in this country, and regrettably our current system is not up to the challenge. So what needs to be done to resolve these shortcomings? 

We need a new vision for employer investment in skills

Our latest report at EDSK concludes that we need a new vision for employer investment in skills and the apprenticeship levy. A sensible first step would be to convert the existing apprenticeship levy into an ‘Apprenticeship and Skills Levy’ (ASL).

To ensure that investment in skills and training is at the forefront of employers’ minds, our report proposes that every UK employer with at least 10 employees would contribute 0.4 per cent of their total payroll costs each year towards the ASL. We estimate that the ASL would therefore raise £3.8 billion annually. This would secure an adequate and stable source of funding that would be distributed across two streams: the National Apprenticeship Fund (NAF) and the National Skills Fund (NSF). 

The NAF would reserve funds specifically for genuine, world-class apprenticeships to help learners of all ages to enter skilled occupations. The NAF would also support learners to progress and develop their skills through funding pre-apprenticeship training such as traineeships, as well as offering financial incentives to employers to encourage them to provide more apprenticeship opportunities. Financial incentives would range from £500 to £5,000 and would be targeted at employers most in need of support. For example, a small employer recruiting a 16 to 18-year-old apprentice would be eligible for the maximum amount, whereas a larger employer recruiting an older apprentice would receive less.

Alongside the NAF, the NSF would create a more ‘bottom-up’ approach to skills and training by giving devolved authorities and local communities at least £1.1 billion a year to help them tackle skills shortages and drive economic growth. The NSF would provide funding for more flexible (and often shorter) forms of training such as non-qualification courses and individual units of qualifications. By allowing geographical areas and industry sectors to make strategic investments in skills and training based on their specific needs, the NSF would represent better value for money and create larger returns on the investments of employers, employees and government. 

The new ‘bottom-up approach’ to skills and training

As part of the new ‘bottom-up approach’ to skills and training, our report also argues that more power needs to be placed in the hands of employees. We propose that the best way to achieve this is to introduce a new ‘Right to Paid Training Leave’. By offering employees the legal right to five days of paid training leave a year, individuals could drive investment in their own skills and training in a way that is simply not possible in the current system.

Skills shortages are set to worsen in light of the goal to reach ‘Net Zero’ by 2050, combined with the effects of Brexit and the COVID-19 pandemic. To rise to the challenge posed by each of these events, alongside the looming prospect of another economic downturn, hundreds of thousands of workers will need to be reskilled or upskilled at a speed and scale potentially never seen before in this country. Unfortunately, as our report explains, England is starting from a position of weakness. 

Any political party that wishes to address these sizeable challenges will need to deliver bold and ambitious reforms to ensure that employees and employers both get the support they need to access skills and training opportunities. We hope that by switching to a system that promotes the interests of all stakeholders and regions, there would be a positive and lasting impact on the productivity and growth of UK plc. Perhaps then, the Government would deliver on its ambition to “boost growth sustainably in the long term”. 

Eleanor Regan is a researcher at the EDSK think tank. She has co-authored several reports at EDSK, including major projects on topics such as the future of assessment in primary and secondary schools, preventing young people from becoming unemployed and the debate over ‘low value’ Higher Education.