Training investment has dropped by £10.9bn since apprenticeship levy introduced
Investment in training has dropped by £10.9bn since the apprenticeship levy was introduced in 2017, fresh analysis has shown, with calls growing for Labour to speed up its overhaul of skills programmes.
In a new report by the Fabian Society, which is affiliated to the Labour Party, the government has been warned that the apprenticeship levy on employers has failed to work and should be more closely linked to growth and immigration policies.
Its joint analysis with the HR platform CIPD suggests investment in training has collapsed, with a £9.5bn drop in funding in England coming alongside an increase of 18 per cent in skills shortages over eight years.
The left wing think tank’s study, which is largely based on survey figures provided by the Department for Education, said the drop in apprenticeship starts mainly at small and medium businesses (SMEs) showed the levy had been an “abject failure”.
The apprenticeship levy, which was designed by former Chancellor George Osborne, came into effect in 2017. Employers with a payroll bill of over £3m contribute 0.5 per cent of their total pay bill into a digital account used for payment on training and assessments, with some unspent funding to be used by smaller employers.
The previous government hoped the focus on apprenticeships would drive social mobility and improve the skills of young people entering the national workforce. Analysis by the Fabian Society said £4.5bn of revenue raised has been retained by the Treasury while some of the budget had not been invested in skills.
Earnings from the immigration skills charge, which was also brought in 2017 to make employers sponsoring foreign workers support the UK workforce, has also suffered from a lack of transparency on investment, researchers said.
Government ministers have pledged to overhaul the apprenticeship levy within the next four years, with Chancellor Rachel Reeves claiming getting young people not in education, employment or training (Neets) into work was a top priority.
Labour has pledged to roll out a new initiative, the growth and skills levy, to allow business training to be more flexible, with a starting £3bn budget to allow employers to train Brits.
Industry groups hit out at higher tax proposals
Industry groups including the Recruitment and Employment Confederation (REC) and the British Chambers of Commerce backed the Fabian Society’s recommendation to ring-fence revenue for investment in skills.
Jane Gratton, deputy director of public policy at the BCC, said the government had to move ahead with its expanded growth and skills levy to make training more flexible and less constrained by apprenticeship schemes, which can often be long and unsuitable for certain jobs.
But the government was urged by the leading business groups not to raise the levy or target larger employers with more taxes, contrary to recommendations in the Fabian Society’s report.
Kate Shoesmith, deputy chief executive of REC, said increasing taxes would be “deeply problematic”, adding that employers were already facing higher labour costs as a result of Reeves’ £20bn tax hike to national insurance contributions (NICs).
Gratton also said it was “vital” the government did not lower the threshold for levy contributions from the current £3m lower limit.
The Jobs Foundation’s Jamie Booth said a skills tax relief would better help businesses cover the costs of spending on training and provide a “proper fiscal incentive” for investment.
“We know from speaking with businesses across the country – from large corporates to local SMEs – that the current Apprenticeship Levy can be too difficult to engage with and doesn’t offer the flexibility needed to properly match businesses’ needs,” Booth said.
“We must be careful about raising more revenue for training and skills through increased taxes on employer’s payrolls.”