The ‘mini budget’ will provide some relief, but not for long

In his ‘mini-budget’ statement to the House of Commons last Friday, the new Chancellor, Kwasi Kwarteng set out his The Growth Plan 2022. The Chancellor’s statement saw a welcome ambition to grow the economy by 2.5% each year. The support contained in the plan for businesses means there will be some sighs of relief across the skills sector. We still face huge pressures as a result of high inflation rates so that feeling of relief won’t last for long unless we have more clarity on what support will be available once we reach April.

Limited support for businesses

Although there were some welcome interventions in the mini-budget, these will have a limited impact. Plans to reverse the rise in National Insurance will help individuals and businesses at a very challenging time. However, savings made from cutting employer’s National Insurance contributions will be a drop in the ocean for training providers given rising costs in other areas. We have estimated the savings will amount to £20-25million for apprenticeship providers – which is equivalent to around 0.8% of the overall programme budget.

We were also relieved to see more detail on the government’s plans to tackle the energy crisis by implementing a six-month guarantee for commercial energy users. This intervention was crucial given businesses – unlike domestic billpayers – aren’t protected by any kind of cap on energy prices. In particular, training providers that deliver programmes in energy-intensive sectors were gravely concerned about the impact of spiralling energy costs. However, businesses – including training providers – will need longer-term assurances that last beyond April if, as expected, energy bills fail to return to their previous levels.

Welfare reform means rethinking level 2 and below reform

The Growth Plan includes reforms to the conditions Universal Credit claimants have to adhere to. This includes raising the Administrative Earnings Threshold to bring more claimants who are in work and on low earnings into a more intensive conditionality regime. This includes providing more work coach support. Although we welcome measures to boost active participation in the labour market, there is concern these measures will not be effective without investment in appropriate training and progression routes for those in low-paid, insecure work. 

These reforms make it even more important for the government need to recognise the value of level 2 and below qualifications – not just as stepping stones to intermediate to higher-level study, but also for boosting confidence. As we await the outcome of the government’s consultation on funding for level 2 and below qualification, we would urge them to rethink their approach rather than bluntly cut at least 80% of these qualifications.

Economic growth needs skills investment

Economic growth of 2.5% is a laudable aim, but – given the tight labour market conditions we are seeing – will require a focus on closing the country’s skills gap. To do that we need a strong, sustainable skills sector with providers able to do what they do best – deliver high-quality training for learners and employers. That requires more investment – and we were disappointed to see the ‘getting more people into work with the right skills’ section of the Growth Plan offering nothing in terms of skills programme investment. 

We remain firm in our view that the funding available for delivering skills programmes must meet the true cost of delivery. That requires extra investment – and for funding rates to be reviewed on a regular basis. We are calling on the government to commit to reviewing funding bands for all programmes at least every two years. 

As the cost-of-living crisis starts to bite, there must also be a recognition that we need more incentives in place for learners and employers to participate in skills training. We would like to see the Class 1 National Insurance contributions waiver- which was introduced in 2016 for 16-24 apprentices – extended to include new hire apprentices who are over 25. This, alongside temporarily reintroducing the £3000 apprenticeship new hire incentive for employers specifically for new apprentices aged 16-24, would significantly boost employer participation in apprenticeships. There needs to be support for learners too and we would re-iterate our call to introduce a training allowance to boost the number of young people undertaking a traineeship, funded through the current underspend in the traineeship budget. 

Training providers will no doubt appreciate a reduction in tax burden and a freeze on the cost of energy until April 2023. However, with spiralling inflation, no long-term assurances on energy, and without further intervention around skills – I fear this plan alone will not do enough to offer confidence to the sector. The Growth Plan may have provided some urgent measures to protect businesses, but given the lack of extra investment in the skills sector, that protection may only have a short-term impact.