If the PM’s apprenticeships plan is to work, it must reform the failed levy
The prime minister this week said he wanted 75 per cent of children moving to either university or apprenticeships. (Alamy)
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The George Osborne era apprenticeship levy has failed to deliver for the communities it was supposed to support.
Entry-level apprenticeships have plummeted by three-quarters since it was introduced.
In that same period, the number of apprenticeship starts in the most deprived neighbourhoods has fallen four times faster than in the least deprived, while we are spending over £400m of levy funding a year on apprenticeships for people who already have a degree.
With that in mind, the Prime Minister's announcement this week of a new ambition to see two-thirds of young people go either to university or take a ‘gold standard’ apprenticeship is very welcome. It offers the government and country a chance to reset the debate on skills and further education, and to invest in skills for the 50 per cent of young people who are often left behind by the system.
The context for this announcement was the Labour Party’s quarter-century commitment to ensuring 50 per cent of young people go to university. This totemic policy signalled the party’s commitment to broadening opportunity, and to helping young people succeed in a ‘knowledge economy’, with the target finally met exactly 20 years after it was announced in 2019.
The welcome change to broaden the target is a recognition that – for far too long – we have neglected the other half of young people. The forgotten fifty per cent, who want to pursue the technical, rather than the academic pathway. These young people have lacked a clear pathway to high skills and good work. As the PM argued passionately from his own family experience, their pathway is both less resourced and often less respected. This must change.
But while this new target is very welcome, the government will also need a plan to deliver it. This should start with addressing the failures of the apprenticeship levy.
Announced a decade ago by the then Tory chancellor Osborne, the apprenticeship levy is paid by large employers, with a payroll bill of over £3m, who pay 0.5 per cent of their payroll above that threshold into a fund that can only be used to cover the cost of training apprentices.
The levy aimed to boost apprenticeship starts and drive social mobility. It has failed on both counts.
Since the levy was introduced, the number of apprenticeship starts has fallen by a third. Total employer investment in skills has declined by £9bn.
The levy has also exacerbated – rather than addressed – stark inequalities in the skills system. Employers have long preferred to invest in the skills of workers who are already well qualified. Employees with a degree-level qualification are four times as likely to receive training than those who have no qualifications.
Put simply, the levy has made the situation worse. This is why the government has committed to reforming the apprenticeship levy into a ‘growth and skills levy’, with more flexibility in how employers can use their funds. In order to deliver on the new target, the government should do two things.
First, as recent Fabian Society research called for, the use of levy funds should be restricted to workers who do not have a degree. This would redirect investment toward young people who could most benefit from access to high-quality training. It would mean more brickies to build the homes we need and more skilled electricians to decarbonise our economy. It would mean less money wasted on MBA apprenticeships going to already highly qualified and well-paid workers.
Not only would this unlock opportunity, but it could also help unleash growth, too. Apprenticeships for young people have better labour market returns than those for older workers, and those at a lower level deliver better value for money than the more expensive degree apprenticeships.
Second, we should reinvest the £400m that would be saved in a new apprenticeship grant for employers. This should provide employers who take on a young apprentice with a grant worth £3,000. The grant should be targeted at SMEs, who account for 97 per cent of the decline in apprenticeship starts that we have seen since the levy was introduced. Similar grant schemes have proven to be effective in encouraging employers to take on young apprentices.
The Prime Minister’s new target is the right one. Bold reform of the levy can help deliver it, opening up opportunity for the forgotten fifty per cent.
Joe Dromey is General Secretary of The Fabian Society.
