The New Government’s Growth and Skills Levy – What Should It Look Like?

The Institute of Directors (IoD) Education Group recently hosted a webinar to discuss the new Labour government’s skills policy, including their new plans for the skills levy. Hosted by Gareth John, Director of accountancy apprenticeship provider First Intuition, the webinar saw contributions from a panel formed of the IoD, Make UK, the British Chambers of Commerce (BCC), the Federation of Small Businesses (FSB), the Confederation of British Industry (CBI) and the Association of Employment and Learning Providers (AELP). 

This article looks at what speakers from major business organisations in the skills sector want from the new levy to help make apprenticeships as accessible, inclusive, and useable as possible. This includes simplifying the levy process, expanding funding bands, inclusion of modular training, a focus on quality over quantity, funding flexibility, and consistency. 

Levy Flexibility

We spent a bit of time dissecting the Labour government’s talk of introducing flexibilities in the way the levy will operate and considering what we hope those ‘flexibilities’ to look like.

Jane Gratton from BCC focused on the value of “pre-apprenticeships” and “the need for more modular, flexible learning for adults to upskill and retrain”.

In the words of Simon Ashworth from AELP there are two ‘pots’ of flexibility to consider:

1. Programme flexibility; such as duration, what’s included, scaling down EPA.
2. Funding flexibility; what else can it fund?

The future of work demands a more agile and adaptable workforce, including access to different types of modular training that are shorter than apprenticeships and cover more specific topics to better meet business’s needs. As a result, the levy could support a broader range of training options including: 

• Pre-apprenticeship training programmes that prepare individuals for apprenticeships, particularly for those who need foundational skills. 
• Modular training and booster programmes that allows businesses to offer shorter, targeted courses that can quickly respond to market needs and help employees upskill.

However, it should be noted that allowing more flexible use of levy funds will ultimately cost more. In Ashworth’s words “how we are going to fund flexibilities is really, really important.”

There were some other concerns expressed about the potential negative consequences of levy flexibility:

Faye Skelton from Make UK “has reservations about expanding something that for manufacturing and engineering apprenticeships aren’t working particularly well” citing the 44% drop in starts since the levy started. 

Ashworth was “pleased that there was no mention of 50% for levy flexibilities in manifesto commitments” as “98% of the Apprenticeship Budget has been spent over the last couple of years so there’s not much headroom for flexibilities within the current budget.”

Paul Wilson of FSB highlighted the impact that allowing levy payers to spend more of their levy on non-apprenticeships might have on SMEs. “It’s definitely a risk and we need to see urgent clarification from the government. What we need to see is certainty for small employers that the government contribution towards their training costs will continue going forward and won’t be dependant on what’s left in the levy pot. We need an absolute commitment to apprenticeships in smaller employers from the Treasury, from the government, from the DfE.”

Expanding Funding Bands 

A consistent topic raised by several speakers was the fact that many current funding bands are insufficient to cover ever-rising costs of delivery across different sectors and levels. Many funding bands have remained unchanged since they were first introduced several years ago.

Robert West of the CBI raised this point, asking “how do we address apprenticeship funding bands that don’t go up with inflation? This puts more pressure on providers and employers.”

In a similar vein, Ashworth stated that “some apprenticeship programmes are undeliverable based on their current funding rates.”

Skelton echoed this for the manufacturing sector saying that “particularly at level 3 in manufacturing and engineering there is a gap of £6k or £7k per apprentice.”

The significant gap in funding and the cost of training programmes means that businesses are withdrawing or avoiding using apprenticeship programmes.

To address this: 

• Government needs to ensure that the bands are wide enough to cover the actual costs of training, including higher-level apprenticeships. 
• Adjust for inflation: Regularly update funding bands to reflect the rising costs of training and living. 

Transparency and Use of Levy Funds 

Linked to the funding band issue above, there is an increasing frustration in the apprenticeship sector that the full value of funds raised by the Apprenticeship Levy is not allocated to the Apprenticeship Budget.

This frustration was clearly shared by several of our speakers: “There has been around £2 billion of unspent funds since the levy started. That just goes back to the government’s coffers. This is not good for all the sectors who could benefit,” said Skelton.

Ashworth supported this saying “There will be a renewed push on the Treasury to release some of the ‘top slice’ that they keep which is £500m to £700m each year. It’s a cash cow for the Treasury. Even a bit of that would be nice.”

West followed “we must remember that each year more businesses cross the £3m threshold and start paying the levy. The levy take has risen disproportionately to the amount of the apprenticeship budget. The Apprenticeship Levy has not been spent on apprenticeships!” 

Advice given by the speakers included: 

• The government should ensure better transparency as to the funds available in the levy pot and where they are being spent. This may encourage employers to get behind it and invest further in training. 
• The full value of funds raised by the levy should be spent for the purpose they were raised: supporting apprentices. 

Simplifying the Levy Process 

Gratton raised an early point that “if we can simplify process for businesses in this reform it would be enormously helpful. The key thing is to get more businesses providing more training for more people and how does the levy enable that to happen?”.

Businesses, particularly SMEs, can find it challenging to navigate the complicated processes involved in accessing and utilising levy funds. A simplified process that reduces unnecessary hurdles and paperwork would encourage more businesses to invest in training.

This simplification should include: 

• Make it easier for businesses to apply for and use training funds. 
• Provide businesses with resources and support to understand and maximise the benefits of the levy. 

Employer Engagement

It is important that apprenticeship standards are fit for purpose for the sectors and employers expected to use them.

Wilson highlighted that we “need to ensure that apprenticeship standards work for smaller employers even thought they are inherently less involved in their design. We need to make sure that apprenticeship standards work for everyone, not just the small number of employers involved in designing them.”

This refers to the fact that many trailblazer groups involved in feeding back their skills training needs from their sectors are mostly made up of large employers which can mean the needs of small businesses are overlooked.

The new government’s changes to the skills and policy agenda are a great opportunity to revise some of the challenges and shortcomings from the previous system. The speakers raised some key points that would help make the levy more accessible to create a skills system that can better meet the demands of both businesses and learners.

By Gareth John, Director of accountancy training firm First Intuition