The Government must be bold on apprenticeships

Posted On: 
3rd July 2017

Apprenticeships are finally getting the political attention they deserve, but now real action on policy must follow, writes the IPPR’s Joe Dromey

Neglected for too long, the adult skills system is finally rising up the political agenda. There is a growing consensus that if we are to address stagnant productivity and wages, if we are to adapt to rapidly advancing technology, and if we are to build an economy that works for all, we need an effective adult skills system.

Yet the UK suffers both from a lack of high quality vocational provision and low levels of investment. Already low compared to the EU average, employer investment in skills has fallen by 14% per employee in real terms since 2007. At the same time, public spending on adult skills has been slashed, falling by 40% in real terms since 2010. 

There is a pressing need for greater investment. The government’s solution is the apprenticeship levy. Introduced in April, the levy deducts a sum equivalent to 0.5% of payroll above £3m, which employers can use to pay for training for apprentices. The levy will raise £3bn a year by 2020/21, and it will help deliver the government’s manifesto commitment of three million apprenticeships in the five years to 2020.

While we have seen progress in terms of quantity though, there are growing concerns about quality. Most apprenticeships are at level 2 and higher level apprenticeships account for just 6% of starts. Both wage returns and opportunities for progression from lower level apprenticeships are often limited. 

Recent reforms to the system may undermine quality further. While stimulating investment through the levy, government has removed the requirement to have a recognised qualification as part of an apprenticeship, and given employers responsibility for designing standards. 

There is a concern too over the regional impact of the levy. As it is based on payroll, the levy will raise far more per capita in London and the south-east, where pay is higher, and there is a higher concentration of large levy-paying firms. Yet these regions already have higher levels of qualifications, productivity and pay. 

Conversely, the levy will raise less, and stimulate training less, in the regions where it is needed most. Instead of addressing the regional disparities that scar our country, the apprenticeship levy may aggravate them. Yet remarkably, government has not even attempted to estimate the regional impact of the levy. 

There are some immediate things that the government could do to ensure the levy is a success.

First, the government should rethink its three million target which is driving a focus on quantity to the exclusion of – and potentially at the expense of – quality. Instead government should seek to boost the proportion of apprenticeships at higher levels. While there is a place for level 2 apprenticeships, we should ensure they are a stepping stone, not a destination. 

While there are benefits in an employer-led system, employees should be given a voice too. Many of the most successful apprenticeship systems on the continent are characterised by social partnership, with employers and unions jointly governing the system. The Institute of Apprenticeships should be broadened to include representation from the TUC and the largest trade unions in the country, to ensure the system works both for employers and for employees too. 

In the medium term – once the reforms have bedded in – we should look to be bolder with the levy, and bolder with the governance of the skills system. 

IPPR has called for the levy to be broadened into a skills and productivity levy. Set at 0.5% of payroll for medium-sized employers and 1% for larger firms, the skills and productivity levy would raise £5.1bn – twice as much as the apprenticeship levy – but it would give employers more flexibility, allowing them to spend their funds not just on apprenticeships, but other forms of high quality training. 

Top-slicing a quarter of the contributions of the largest employers would create a regional skills fund worth £1.1bn which could be devolved to local areas according to skills needs, to invest in high quality vocational training. This would turbo-charge skills devolution and ensure that the levy addresses – rather than accentuates – regional inequalities.

Finally, government should use the industrial strategy to build strong sectoral institutions to govern the system. Successful skills systems across Europe tend to be underpinned by strong sectoral institutions, which bring together employers and employees to improve the quantity and quality of training. 

If we want a system which is genuinely industry-led – but which gives employees a voice too – we should seek to build strong sectoral institutions to drive a collective commitment to skills and productivity.