Government needs to Provide Greater Direction to the Skills System

The Industry and Regulators Committee of the House of Lords has been taking evidence on the future skills that the country will need for growth and modernisation of our industries and infrastructure. This issue is important to employers and employees alike and our conclusions highlight some serious and practical problems that the new Government will need to address. 

Background and Current System

The UK’s post-16 skills system helps people to gain skills in various ways, including through higher education, further education, and through training by employers. In our inquiry, we focused on further education and training. The Government supports skills provision in a number of ways, including by directly funding the further education system, deciding what is eligible to be funded by the Apprenticeship Levy – soon to become the Growth and Skills Levy – and creating and funding new qualifications and programmes such as T-Levels and Skills Bootcamps.  

System Complexity and Strategic Direction

We were repeatedly told during our inquiry that there have been a large number of different initiatives which in the words of one witness “are set up, run for a while and then die”. The uncertainty provided by this constant change in the skills system was described as “confusing”, “too complicated” and “overwhelming”. We found that the UK’s skills system to be complex, lacking strategic direction and operating in a fitful, short-term fashion. This makes it difficult for employers, educators and individuals to understand or engage with it.  

The new Government has promised to produce a comprehensive strategy for post-16 education. This will please the many witnesses who told us of the need for a national skills strategy, ideally forming part of an industrial strategy. A national skills strategy will be important for the Government to create a simpler skills system, with greater long-term funding focused on a smaller number of strategic priorities. Continuing to fund an array of short-term programmes will create further confusion for those who need to engage with them and will make it harder to meet the UK’s skills needs.  

Institutional Framework

This complexity extends to the institutions within the skills system. There are several different national institutions which play a role in skills provision, but we heard that this responsibility is fragmented. Several witnesses called for a central, co-ordinating body to work with regions and sectors and provide greater consistency. The Government’s plan to set up Skills England has the potential to provide a focal point for the system, bringing together information on skills needs, and feeding this information back to policymakers and into the design of the system. However, beyond deciding what is eligible for Apprenticeship Levy funding, it is not yet clear what role Skills England will have in directing activity and allocating broader skills funding.   

It is clear that local areas will also have a role in the skills system, with the new Government aiming to devolve further powers and funding to local areas, particularly to mayoral combined authorities. Local institutions can add value to the system through their knowledge of local conditions and their ability to link local employers and educators. Nonetheless, some have expressed concern at the prospect of “reinventing Whitehall” locally through new processes and separate programmes. The tight financial position of local authorities may mean that they struggle to perform this crucial role, especially after core funding was removed from Local Enterprise Partnerships, which helped to provide some of these local links. If the new Government’s local skills plans are to deliver real benefits, they will need stable funding for this purpose.  

Role of Employers

Employers play a central role in the skills system, as funders, consumers, co-designers, and beneficiaries of skills provision. As well as investing in training for their staff, large businesses fund apprenticeships through the Apprenticeship Levy, provide apprenticeships, and collaborate on the creation of apprenticeship standards. However, we heard several witnesses compare UK employers’ investment in training unfavourably with their counterparts in competitor countries. Several explanations were advanced for lower investment in the UK, including differing cultural expectations on the role of employers in training, economic uncertainty affecting employers’ decisions and the short-term costs of providing training.  

We repeatedly heard from witnesses to our inquiry that employers can be hesitant to invest in training if they fear that those employees will leave for other jobs afterwards, meaning that they will not see a return on investment. This runs contrary to the clear impression we received from witnesses that investment in training helps employers to retain staff for longer. The Government, Skills England, and local skills institutions will have to take a lead in communicating these benefits to employers. As cost remains a barrier to employer investment, we believe that there is a case for the Government to consider introducing financial incentives for employers to invest in training, for instance through a skills tax credit. 

Apprenticeship Levy and Growth and Skills Levy 

The Apprenticeship Levy, a tax on large businesses to fund apprenticeships, was introduced in 2017. The Levy has driven an increase in spending on apprenticeships, which is welcome, but there is widespread dissatisfaction with how it is operating. Some feel that employers are too free to use the Levy to pay for the training of existing staff, rather than young people or new starters, while others feel that employers need greater flexibility to spend Levy funds on shorter courses.  

We believe that the broad, unfocused nature of the Levy has shifted opportunities away from young people and those seeking to retrain and move to new industries. The Government should set out its view on the focus and purpose of apprenticeships and prioritise funding accordingly. We believe that there is a strong case for ring-fencing a substantial proportion of Levy funds for young people, new starters, and lower levels of qualifications. Any changes to what the Levy can fund will involve trade-offs, directing Levy funding towards some groups and away from others. Given that there are nearly 900,000 young people not in employment, education, or training, we believe that Levy funding should be more actively directed towards them. We welcome the Government plans to rebalance Levy funding towards young people and await further detail on how it plans to achieve this. 

Employers have been eager to have greater flexibility in how they can spend Levy funds, something they will be granted when the new Government establishes the Growth and Skills Levy. We heard strong arguments for some forms of flexibility granted to employers in how they can spend the Levy, for instance through funding pre-apprenticeship training, covering a larger portion of the cost of hosting apprenticeships and further incentivising small businesses to provide places. The Budget’s £40 million investment in foundation apprenticeships is a welcome start towards this.  

However, if too much flexibility is granted without ring-fencing for young people and new starters, then an even greater amount of funding will go towards funding short training courses for existing staff. In many cases, this uses public funding for training which employers may have funded themselves.  

Witnesses welcomed the rise in the quality of apprenticeships since the introduction of the Levy and the Institute for Apprenticeships and Technical Education (IfATE), which approves apprenticeship standards. Despite this, concerns were raised that the apprenticeship standards were overly bureaucratic to comply with, reducing the appetite of educators and employers to engage with them. Meanwhile, apprentices and others argued that the content of apprenticeships can be overly academic for learners, particularly the requirement to demonstrate functional English and maths skills to complete an apprenticeship. The Government should review apprenticeship content rules, including what basic requirements are needed for all apprenticeships.  

Youth Opportunities and Further Education

The new Government has recognised the lack of opportunities faced by young people not in employment, education or training, which it proposes to remedy through a “youth guarantee” of access to training, an apprenticeship, or support to find work for all 18- to 21-year-olds. The youth guarantee is an ambitious proposal and we heard support for it during our inquiry. Delivery of the guarantee will rely heavily on local authorities and further education providers, both of whom have faced a challenging funding environment. Cuts to adult education funding have left further education providers, such as colleges and independent training providers, unable to provide the facilities, equipment and staff to train vital skills for the future.  

The Government must ensure that whoever is responsible for delivering the guarantee has the funding and bandwidth to do so. The investment of an additional £300 million in further education at the Budget is a first step towards this, but providing a real guarantee may involve providing funding that can increase in line with demand, as is the case in the higher education sector. Otherwise, there will always be a cap on how many people can be taught, and there will be no guarantee of opportunities.  

Conclusion

The UK’s skills system has wandered falteringly between short-term initiatives for too long. To drive opportunities for young people and the growth of the economy, the Government will need to provide greater shape and direction to the system, choosing fewer priorities and giving them the time and resources they need to deliver real outcomes. Failing to do so would risk a continued drift and leave employers without the skills they need for the future.  

By Baroness Taylor of Bolton, Chair of the House of Lords Industry and Regulators Committee