In recent years, our education and training system has been buffeted by several seismic events, including the quest to reach ‘Net Zero’ by 2050, Brexit, the COVID-19 pandemic and now the looming prospect of yet another economic downturn. To rise to the challenge posed by each of these events, let alone a combination of them, hundreds of thousands of workers will need to be reskilled or upskilled at a speed and scale potentially never seen before in this country. Regrettably, England is starting from a position of weakness. The amount spent by employers on training their employees has fallen 28 per cent in real terms since 2005, from £2,139 to £1,530 per year (less than half of the EU average). Even before the pandemic, 39 per cent of employers had provided no training to their staff in the previous 12 months.
The introduction of the apprenticeship levy in 2017 was an attempt, at least in part, to stimulate further employer investment in skills and training. Operating like a payroll tax, UK employers with an annual pay bill of over £3 million (approximately 2-3 per cent of employers) must pay the levy at a rate of 0.5 per cent of their wage bill above £3 million. However, despite the rollout of the levy five years ago, the Government’s ‘Spring Statement’ in March 2022 acknowledged that “the amount UK companies spend on training their employees remains relatively low”, and ministers would “consider whether further intervention is needed to encourage employers to offer the high-quality employee training the UK needs”. Consequently, this report investigates the impact of the apprenticeship levy as well as the wider skills and training system to understand why the UK remains so far behind other countries in terms of employers investing in skills, and what can be done about it.
The impact of the apprenticeship levy
Many policy experts acknowledge that the levy has helped increase employers’ awareness of, and engagement in, apprenticeships and skills more broadly. Nevertheless, the impact of the levy on the behaviour of some employers has been far from encouraging. First and foremost, when introducing the levy, ministers offered no clear aims and objectives for what it was supposed to achieve, save for occasional mentions of vague aspirations such as “raising our nation’s productivity” and making apprenticeship funding more ‘sustainable’. In any case, such aspirations have been constantly undermined by the levy’s own funding mechanism that encourages employers to think about their own interests and priorities when accessing the levy funds rather than approaching skills and training in a collaborative or strategic manner.
The way in which some employers have chosen to spend the levy funds has also raised concerns about its effectiveness as a tool to increase employers’ investment in skills. Previous research by EDSK found that more than 50 per cent of apprenticeships could in fact be ‘fake apprenticeships’, with employers rebadging and relabelling other existing types of training as an ‘apprenticeship’ to gain access to funding from the levy. Examples include low-skill roles such as working in a coffee shop or on a shop checkout through to Master’s level programmes and even Master’s degrees – none of which meet any established definition of an ‘apprenticeship’. Another concern with the levy system is the significant amount of deadweight (i.e. the large volume of training courses being funded by the levy that would have happened anyway even without the levy), as more and more existing training has simply been moved across to the levy system without adding any new provision. These problems have also contributed to the worryingly poor value for money that the levy has generated. For instance, a popular yet controversial Level 7 Leadership and Management course is available as an ‘apprenticeship’ and is eligible for £14,000 of funding from the levy, even though the same qualification is available outside of an apprenticeship for just £4,000.
The pattern of winners and losers also warrants attention, as some groups have benefitted from the levy at the expense of others. One salient issue is the increasing emphasis on more experienced and older workers, with more than half of ‘apprentices’ now aged 25 or over, and 55 per cent of apprentices having worked for their employer for at least three months before their ‘apprenticeship’ began. There has also been an increase in higher level apprenticeships, with courses at Level 4 (equivalent to the first year of a university degree) and above having grown from 7.4 per cent of starts before the levy was introduced to 25.6 per cent. Furthermore, the levy system restricts SMEs to recruiting no more than 10 apprentices even when they have the desire and capacity to take on more trainees. This compounds the overly bureaucratic and time-consuming procedures that SMEs must now navigate to offer an apprenticeship.
Government investment in skills and training
Alongside the employer-funded apprenticeship levy the Government also invests in skills and training, albeit with little coordination. Introduced in 2021, the National Skills Fund (NSF) aims to invest in programmes that help adults gain sought-after skills and improve their job prospects. One of the main NSF programmes is ‘Skills Bootcamps’, which offer free and flexible courses lasting up to 16 weeks to provide sector-specific training (e.g. construction, digital) based on local employer demand. 54 per cent of early attendees started a new or better job following their participation in a Bootcamp, suggesting that this top-down national approach has only had a moderate impact on reskilling. The NSF also funds a ‘full Level 3 qualification offer’ for adults who do not currently have A-levels or equivalent qualifications, or are unemployed or on a low wage. With only 19,720 adults taking up a free Level 3 course between April 2021 and April 2022, it appears that this centralised initiative is not delivering the type and scale of upskilling that employers and local communities need.
In fairness, some areas of government investment have recognised the benefits of passing responsibility for skills and training to local bodies. The Adult Education Budget (AEB), which provides funding for adults to gain the entry-level skills needed for work, apprenticeships and other types of learning, is devolved in ten areas to Mayoral Combined Authorities and the Mayor of London. The Department for Education is also consulting on a new ‘Skills Fund’, which will simplify the funding provision for basic skills by combining many elements of the NSF and AEB. Although the finer details have yet to be finalised, the Government has thus set the direction of travel towards a simpler and more unified adult skills system where money is allocated to, and distributed by, local areas wherever possible.
Individuals investing in their own skills
While employers and government have plenty of scope to invest in skills, individual employees are far more restricted when it comes to getting access to training. Advanced Learner Loans (ALL) for Further Education courses (similar to the student loan system for Higher Education) only attracted 86,200 learners last year across the whole country. In future, learners should have access to more loan funding to improve their skills through the ‘Lifelong Loan Entitlement’ (LLE), which will provide individuals with a loan entitlement equivalent to four years of post-18 education to use over their lifetime. The LLE is due to begin operating in 2025 and should allow learners to study individual modules rather than being restricted to full qualifications. While many stakeholders support its overall goals, it is unclear whether the LLE will have a noticeable impact on individuals’ investment in skills and training.
Another meagre offer to UK employees comes in the form of their legal right to ask employers for time off to train or study, but this right does not extend to being paid during their time off – making it worthless to any employee who cannot afford to go unpaid. In contrast, many countries across Europe offer paid training leave – typically 4-5 days a year – with employees generally entitled to their full salary while away from work. Wage reimbursements are often available to employers to cover the cost of their absent employees. Some countries are more generous by offering paid leave that can last up to a year (e.g. France and Austria), although this does not typically provide employees with their full wage. Regardless, the offer of paid training leave gives employees a powerful mechanism to drive investment in training.
Other countries are also more advanced in their thinking around integrating ‘social partners’ such as employer representatives and trade unions into their training system to increase employer investment in skills. Social partners offer several benefits such as anticipating future training needs, establishing joint priorities at a local and national level and promoting learning to employees. The UK is one of just four countries in the OECD that does not give social partners a formal role in the governance of their education and training system – another example of how this country falls short when stimulating investment in skills.
The UK’s persistent underinvestment in skills and training cannot be solved quickly yet, as the National Audit Office has noted, “there is a risk that, despite government’s greater activity and good intent, its [current] approach may be no more successful than previous interventions in supporting workforce skills development.” This report from EDSK concludes that to avoid simply repeating the mistakes of the past, three major shifts are now required.
First, the apprenticeship levy and the wider skills system need to switch from being ‘employer-led’ to being ‘employer-responsive’. The singular focus on ‘what employers want’ in recent years has meant that the views of other stakeholders – employees, government and localities – have too often been ignored, to the detriment of all concerned. Employers are a critical piece of the skills puzzle, but others have equally important views, perspectives and feedback to share. The levy and the skills system must both reflect this simple truth.
Second, employers must switch from being passive consumers of skills and training to being active co-producers. For too long, some employers have just waited for the next government scheme or programme to come along offering various subsidies and freebies (the levy is merely the latest in a long line of such offerings), yet this rarely results in sustainable and tangible improvements to workforce development. Given the worsening state of the public finances, employers cannot and should not passively look to government for support with reskilling and upskilling their workforce. Instead, they should be expected to actively engage with the publicly funded training system if they wish to access any subsidies or schemes.
Third, the apprenticeship levy has created a situation in which funding is only available for training labelled as an ‘apprenticeship’, even if the training is nothing of the sort and employers would prefer to deliver something else. This has undermined the apprenticeship brand and wasted a considerable amount of time, money and effort. By moving away from only funding ‘apprenticeships’ and large qualifications to instead supporting more flexible (and often shorter) forms of training such as non-qualification courses and individual units of qualifications, employers, employees and government can all expect better value for money and larger returns on their respective investments.
Creating a new culture around employer investment in skills will not be easy, particularly when there are many factors beyond funding streams and government programmes that influence when and why employers train their staff. Nevertheless, generating this new culture and attitude towards skills and training is crucial to boosting the productivity and growth of UK plc both now and in future. On that basis, this report proposes a package of reforms that set out how the apprenticeship levy and wider skills funding system should evolve once the cost-of-living and inflation crisis has subsided. These reforms are designed to build on the strengths of the existing system while addressing the weaknesses identified in this report. The new approach to skills and apprenticeships will therefore need to achieve the following goals:
- Delivers adequate and accessible funding to support employers to invest with certainty in training their current and future workforce
- Sets clear aims and objectives to ensure clarity and agreement among stakeholders about what the available funding is intended to achieve and what it can be spent on
- Promotes value for money to ensure available funds are utilised in a cost-effective way
- Encourages more collaboration between employers and social partners
- Involves all stakeholders in influencing how the available funding is invested
- Prioritises investment for individuals and organisations who require the most support
A new funding infrastructure for apprenticeships and skills
- RECOMMENDATION 1: The Government should convert the apprenticeship levy into a new ‘Apprenticeships and Skills Levy’ (ASL). All UK employers with at least 10 employees will contribute 0.4 per cent of their annual payroll costs towards the ASL, raising approximately £3.8 billion a year.
- RECOMMENDATION 2: The new ASL will be distributed to employers through two funding streams: a National Apprenticeship Fund to deliver world-class apprenticeships that will help learners of all ages enter skilled occupations; and a National Skills Fund to drive economic growth and productivity through strategic investments in skills and training
Clear objectives and responsibilities for investing in skills
- RECOMMENDATION 3: The National Apprenticeship Fund will be a single national funding stream available to all employers in England that has the following objectives:
o Investing in world-class apprenticeships up to Level 6 to help learners enter a skilled occupation or trade
o Preparing learners to progress and develop their skills through pre-apprenticeship training such as traineeships
o Encouraging employers to offer more apprenticeship and pre-apprenticeship opportunities through financial incentives
- RECOMMENDATION 4: The National Skills Fund will fund non-apprenticeship provision through a bidding process. It will also be devolved to Mayors / Mayoral Combined Authorities where applicable. The NSF will have the following objectives:
o Reskilling and upskilling the existing workforce in response to local and regional skills shortages and wider economic conditions
o Promoting collaboration by funding projects that deliver skills and training across multiple employers
o Improving the quality of leadership and management skills in employers of all sizes
- RECOMMENDATION 5: The Government should combine the Adult Education Budget and the free Level 3 qualification offer into a single devolved ‘Local Skills Fund’ that aims to help all low-skilled adults gain the skills, confidence and motivation they need to participate in our economy and society. The Local Skills Fund will have the following objectives:
o Support all adults to gain basic literacy, numeracy and digital skills
o Help low-skilled adults build their confidence and employability skills
o Upskill as many adults as possible to be qualified at Level 3
Putting individuals at the heart of the skills system
- RECOMMENDATION 6: The Government should introduce a new ‘Right to Paid Training Leave’ that gives employees the legal right to five days of paid leave a year to undertake a skills or training course. Employers will be reimbursed by government for the wage costs of any employee on training leave at a flat rate of £20 an hour to ensure that smaller employers and those employing lower-skilled workers receive the most support.
- RECOMMENDATION 7: The Government should work with social partners such as employer groups and trade unions to enhance the visibility and impact of the new skills investment infrastructure, particularly the National Skills Fund and the Right to Paid Training Leave.