A formal review into the levy or not: the apprenticeship system can be improved

It’s been just over two weeks since the Chancellor’s Spring Statement, so now is a good opportunity to reflect on what this means for apprenticeships.

At the dispatch box, Chancellor Rishi Sunak announced that the government will be undertaking a review of the effectiveness of a range of corporate taxes, including the big-ticket item for our sector, the apprenticeship levy.

Following feverish chatter, the Treasury issued a firmly-worded statement explaining that:

“There will not be a formal review of the apprenticeship levy or system and that all taxes are under constant review and we will continue to engage with businesses on the levy.

“We are committed to protecting the quality of apprenticeship training and improving the system to respond to the legitimate concerns raised by employers.”

The Chancellor wants to ramp up the amount of employer investment in skills

However, we know from our recent discussions with Treasury officials that there is strong appetite from the Chancellor to ramp up the amount of employer investment in skills. UK employers spend around £40bn per annum on skills provision, of which the apprenticeship levy accounts for a tiny slither. This spending lags behind many comparative nations.

It was interesting to read that the Treasury, in an attempt to rectify this, is considering how tax incentives could be used to stimulate investment.

Tax incentives were originally proposed by Doug Richard in his review of apprenticeships in 2012, but at the time, it was deemed too complex to implement.

We must not forget that it was only last October, at the 2021 Spending Review, that we saw the Treasury recognise the need to increase the headroom in the apprenticeship programme budget.

This resulted in a welcome increase in apprenticeship funding to £2.7 billion by 2024-25 – the first increase since 2019-20. Whether this increase in the budget will be enough, only time will tell, but there is clear recognition of growing demand. This means that we should all be upbeat about the opportunities ahead.

AELP have always championed the apprenticeship levy. By nearly doubling investment into apprenticeships, it’s been a real game-changer.

We fought hard to ensure that funding remains ringfenced for apprenticeship training and assessment – and we continue to make this message heard loud and clear with the Treasury and the Department for Education (DfE).

Prior to the Covid-19 pandemic, the National Audit Office (NAO) warned of an impending apprenticeship programme overspend and the then DfE permanent secretary Jonathan Slater told the Public Accounts Committee (PAC) that  ‘hard choices’ lay ahead as demand for funding would outstrip supply.

The pandemic has reset the dial, but that very real risk still exists as the system builds back better and stronger.

Reviewing the effectiveness of the Apprenticeship Levy

Reviewing the effectiveness of the apprenticeship levy – whether formally or informally – is nothing new.

Back in 2018, then Chancellor Philip Hammond announced a review of the levy at the Conservative Party Conference in Birmingham. At the same time, he announced an increase in the amount of levy transfer from 10% to 25% effective from April 2019.

There was no formal public consultation, but the government undertook work internally. On the eve of April 2019, they also announced that the rate non-levy paying employers paid in co-investment would be cut in half, from 10% to 5%.

As a result of these two changes, the government stated it had listened to the concerns of employers and stakeholders in continuing to give levy-paying employers greater choice through increased levy transfer and by reducing the rate non-levy payers contribute.

It was reassuring to hear continued commitment to an all age, all level apprenticeship programme during the Spring Statement. That is a key principle of the levy system.

Recently, Skills Minister, Alex Burghart has publicly spoke of the continued importance of an employer-led system as it leads to ‘more and better opportunities’.

He was clear in his view that the best skills systems in the world are employer-led. The shift from an institutional-led to demand-led system is a key principle that AELP strongly supports across the post-16 education system.

Data does not lie

In terms of the current shape and nature of the apprenticeship system, the data does not lie. AELP still believes much more must be done to ensure that young people, entry-level learners, and small and medium sized employers (SMEs) have equitable access to apprenticeships. 

The system needs to work for employers of all sizes, apprentices themselves and the wider economy. This is vital if we are to achieve the government’s aspirations of levelling-up, improving productivity and closing growing skills gaps.

Non-levy paying employers find it far too difficult to navigate the Apprenticeship system

Non-levy paying employers find it far too difficult to navigate and access the apprenticeship system, with less than 10% set up to use the Apprenticeship Service. Historically, non-levy paying employers have employed a higher number of young people and entry-level learners, which is crucial for social mobility. Targeted incentives for SMEs would help drive starts in these important cohorts, giving people their first step on the ladder of opportunity.

The minister recognises the burden placed on employers within the current apprenticeship service system, which is positive. The government acknowledging the challenges SMEs face with the system is certainly a step forward. We hope to see the DfE bring forward proposals in due course that will reduce the burden on non-levy paying employers.

So, whether there is- or isn’t- a formal review of the apprenticeship levy underway, there is still plenty that can be done to improve the way in which the levy works – without undermining the progress we’ve already made. 

Simon Ashworth, Director of Policy, Association of Employment and Learning Providers (AELP)