Investing in Apprenticeships: A Missed Opportunity for Economic Growth 

The deadline for submissions to the Comprehensive Spending Review falls in the week leading up to National Apprenticeship Week. With debt interest payments on government borrowing rising from £24.6 billion to well over £100 billion, and a variety of fiscal headwinds, we know that for our ‘unprotected’ sector, this may be a challenging settlement.  

We have heard the familiar refrains: “there is no money” and a relentless push for “value for money.” While these concerns are valid, they stem from a Treasury that often fails to achieve the very efficiencies it demands, missing key opportunities for economic growth. 

There are two things the Treasury need to do: firstly, stop hoarding the £800m difference between Apprenticeship Levy receipts and what is spent; secondly they should make incentives and programmes outcome focused across all departments.  

Bridging the £800m Divide: Reinvesting Levy Funds for Growth 

Take apprenticeships, for example. It is worth highlighting that Department for Education data demonstrates the significant return on investment (ROI) from apprenticeships. Level 4 and 5 apprenticeships deliver a return of £16 for every £1 invested, increasing to £25 at Level 6. Yet, instead of fully reinvesting employer levy contributions into apprenticeships, a substantial portion of these funds are diverted elsewhere in government, with little transparency. While all future economic forecasts carry some uncertainty, these ROI figures make a compelling case for reinvestment. Apprenticeships not only provide a crucial pathway into employment but also lead to higher tax revenues, reduced welfare dependency, and increased productivity. 

Despite these clear benefits, the Treasury continues to withhold approximately £800 million from levy receipts, effectively diverting funds intended for businesses and apprenticeships. It may be that Treasury doesn’t believe these figures, but if that’s the case it needs to explain what calculations they are using to make these decisions. AELP continues to ask that the apprenticeship budgets match more closely the amount raised by the levy, which would help the government fund foundation apprenticeships, mid-career apprenticeships and sustainable funding for apprenticeship delivery.  

Immediate Action and Structural Reform Needed to Boost Employment Rates 

The government has set itself an ambitious target of 80% employment rate. This is a significant rate by international standards, which, if hit, would take us into the international frontier, with only Netherlands, Switzerland, Iceland, New Zealand having a rate as high. Achieving this in an age of ever tighter public finances must mean focussing existing funding on learners and employers, not the institutions they study at. It means doubling down on incentives with a stronger focus on achieving outcomes rather than just participation.  

The employment target is a noble ambition, partly driven by the explosion in working age benefits, which will see Universal Credit claims rise to around £100bn by the end of 2030. An effective use of skills budgets could mean billions saved by spending millions.  

However, feeding into this is the growing crisis of rising number of young people not in education, employment, or training (NEETs), a challenge that will intensify as the number of 16-18-year-olds increases by 110,000 over the next four years. Independent Training Providers are ideally placed to help regions tackle the challenges posed by the expanding student numbers, yet are held back by an arbitrary growth cap of £500,000, alongside the limited growth rate of 30%. Think about this – we have a growing NEET problem, expanding student numbers, and providers ready to deliver this, but we are holding them back not once but twice. The 30% cap, tied to provider size, is reasonable; the £500,000 cap is not. Removing this barrier would enable providers to expand capacity and support more young people. 

However, incremental changes around the edges of contracts and growth caps will only get the government so far with its targets. To me, this requires ambition and real structural reform of government. I recognise that this isn’t solely a skills problem, it is a system problem. It encompasses health, transport, skills, economic growth and more.  

Steps in the Right Direction 

There have been welcome steps in the right direction, which we wait to see bear fruit. In his keynote speech to the Institute for Government, Chief Secretary to the Treasury Darren Jones spoke about a change for this Comprehensive Spending Review. The usual process has each department negotiate with Treasury for a settlement. He told the audience that this will be replaced by negotiations between the mission boards and Treasury. Rachel Reeves has also announced a review of the Treasury Green Book – the book that provides the framework for government investment. Meanwhile the trailblazer areas looking at links between health, employability and skills could be powerful tools for bringing people back into the labour market. These would be a welcome step in the right direction.  

What we need now is a Treasury-led commitment to cross-departmental collaboration, ensuring that government spending truly delivers value for money and maximizes effectiveness. The future of our economy depends on it. 

By Ben Rowland, CEO of AELP