Employer Investment in Skills

The Chancellor told the CBI the Autumn Budget will cut taxes for businesses that invest more, train more and innovate more. This followed on from the Spring Statement where he noted that UK businesses spend half the EU average per employee on training and he wanted to change that.

That triggered a wave of speculation of a formal review of the apprenticeship levy, something the Treasury quickly denied. It seems likely to me that we’ll see additional allowances and tax breaks for businesses that invest in training. But what is the issue and is that the right answer?

Learning and Work Institute research found that employer investment in training per employee has fallen 28% in real terms since 2005 – and many were arguing back then it wasn’t high enough. What’s more, the investment we do have is skewed toward statutory requirements like health and safety (important, but this should not be the limit of our training ambitions) and toward the already highly qualified. Those with degree level qualifications are three times more likely to get training at work than those with no qualifications.

Why does this matter? Firstly, because improvements in skills can help to kickstart economic growth and productivity. We can do better than the anaemic growth rates we’ve become accustomed too, and this is vital for raising living standards, tackling the cost of living crisis, and funding public services. Secondly, for individual opportunity and fulfilment, so we can level up training and career opportunities for those most likely to miss out today.

Chop and change

The current picture is not for want of government activity. Recent decades have seen a dizzying array of initiatives and an alphabet soup of initiatives come and go. We estimate Government support for employer training is around £6.8 billion each year. Yet the proportion of people getting training at work has flatlined and employer investment per employee has fallen. Why?

The constant chop and change hasn’t helped. We need to do better at learning the lessons of history too. For example, what can we learn from previous efforts to reduce the number of qualifications to inform the latest attempt?

We should also be clearer about the goals of policy – for example, what is our measure of success for the apprenticeship levy? We argue that the success of policy should be measured by whether the proportion of workers getting training is rising, investment per employee is increasing, gaps between groups narrowing, and all of this leading to greater business success and productivity.

Perhaps most importantly, so much public policy activity is focused on trying to get employers to be in the ‘driving seat’ of the publicly-funded skills and qualifications systems. We focus far less on what employers themselves are investing in and how skills are used in the workplace. To put it another way, the exam question is usually ‘what can we do for employers’ rather than also asking ‘what are employers going to do’. A lesson there for the latest policy cab off the rank, Local Skills Improvement Partnerships, perhaps…

Indeed, public policy increasingly passively follows employers’ decisions rather than seeking to influence them. That’s a big shift from previous decades when the aim was to incentivise greater investment in the lowest qualified. There’s always a balance – employers know best what they need, but there are also market failures and longer-term national priorities like tackling climate change.

Making a difference

What should we do about this? We made three proposals:

1. A strategy for growth. Public and employer investment in skills needs to be part of an overall strategy for economic growth. We suggest new locally-led partnerships could trial tailored approaches.
2. Reform the apprenticeship levy. Employers and the Government should agree how to widen the levy so spending on accredited qualifications is allowed alongside an expansion of the levy (with either more firms paying or a higher contribution rate) to raise overall investment.
3. Introduce a new Skills Tax Credit. Based on the R&D tax credit, this would allow small employers to deduct 230% of the cost of accredited training from their tax bills, rising to 300% for investment in essential skills like literacy, numeracy and digital and in lower income areas.

There’s no easy fix to a decades-old challenge. But to grow our way out of the living standards crisis and secure our future prosperity we need to think differently. Time for action in the Autumn Budget.