Fixing the Apprenticeship Levy is a Big Ask, but Finally a Real Chance to Get it Right

Sorting out the failing apprenticeship levy is an enormous but essential task for the new government, and there are finally grounds for cautious optimism.

Since the General Election, Labour’s Growth and Skills Levy pledge has faded into a vague ‘offer,’ with limited engagement and employers frustrated by the slow pace of reform.

Recently and pleasingly, Skills England has shown signs of progress, signalling a willingness to introduce shorter, modular courses and collaborate with employers and providers on digital upskilling. The message from Skills England is that they want to know what works, even if it means bespoke solutions, and that is a step forward. It certainly chimes with what many businesses say to us. Employers want to train to retain and bring in new talent. But the levy, alongside other external conditions, often stops them in their tracks.

The Triple Challenge

The rules around the levy need freeing up, and swiftly, so it can hit a rapid hat-trick to contribute to economic growth this decade. Firstly, it must get more people doing apprenticeships, numbers sunk following the introduction of the levy. Secondly, it must flex even more than has been suggested to embrace people who choose to work flexibly, a growing feature of all labour markets. And thirdly, it needs greater emphasis on levels 1-4, because this is where the jobs are.

Fewer apprenticeships hit young people hardest, especially those wanting a vocational path. Knowing this community as I do, I know no one in the FE sector wants to sit back as youth unemployment skyrockets and apprenticeship participation rates tumble. And it is at odds with how the vast majority of employers feel but our reality is the current levy structures suck up money that many of us just cannot use effectively.

Supporting Flexible Workers

Temporary work is not just a stopgap, it is a vital part of a flexible labour market. But for workers to thrive, we need to ensure there are opportunities for progression. The levy was created for people who spend at least year in a job and this never really helped the 1 million temps in the UK. And yet, these are some of the people who could really, really benefit from short, sharp training opportunities, which could be funded by a dynamic ‘growth and skills’ levy. Let’s meet people where they are, rather than trying to make the labour market fit around fundable training routes that only work on paper rather than in reality.

Unintended Consequences

Ill thought-out policies lead to unintended consequences. There is nothing wrong with higher level apprenticeships, they’re a great pathway for some, but certainly not for all. And it isn’t right to see more of the money diverted to those opportunities when all our jobs data tells us that the roles at those levels are few and far between. A recent Parliamentary question to the Department for Education revealed that spending on those apprenticeships equivalent to master’s degrees has doubled over the last five years. A reformed levy could encourage and stream investment to where it is needed most, promote modular training and still find space for levels 6 and 7 where appropriate.

We face the danger of sidelining entry-level opportunities, and so it is time to realign the system. Young people deserve genuine routes into essential industries from healthcare to construction, sectors that are in urgent need of skilled talent. The current approach is falling short.

Time for Decisive Action

In the end, the levy is a policy problem. It smelled like a new payroll tax when launched, and has not done enough to address our persistent labour and skills shortages. Which is why the government must move swiftly and with determination to fulfil its promise of introducing a more adaptable Growth and Skills Levy.

That would be far more useful than talking about employers not investing enough in training. The way we count it is flawed, ignoring both in-house efforts and how thinly stretched businesses find themselves. Rising National Insurance contributions alone have wiped out learning and development budgets, and then some.

A Winning Strategy

A reformed levy, fused with the Industrial Strategy, is a winner. Skills is part of the strategy we need but not the only part, immigration, devolution and labour market activation all matter. As you’ll often hear employers say: everything from buses and childcare, infrastructure to apprenticeships, the entire business environment influences the investment decisions that firms make. It is vital some unity of thinking is brought to this across government.

By Kate Shoesmith, Deputy Chief Executive, Recruitment and Employment Confederation (REC)