Lord Fox: We owe it to our young people to make the Apprenticeship Levy work
We cannot let our apprentices suffer because of a poorly implemented tax that is stopping businesses from taking them on, says Lord Fox.
Last week, I was visiting one of our most successful engineering companies. During the visit, I spoke to the latest intake in their apprentice school. They were an impressive group of people who were all highly motivated. So was the school’s manager, and he had one thing he wanted to talk to me about: The workings of the Apprenticeship Levy.
When the Conservatives set a target of three million apprentices, this was a challenging aspiration. When they introduced the Apprenticeship Levy, they made sure the target could never be achieved. Since the levy started in 2017, large employers have been required to set aside the equivalent of 0.5% of their wage bill to train apprentices. At the same time, the Government turned the system for accrediting courses upside down.
Not surprisingly, the result has been confusion and concern. The Financial Times reports that during the first year of the levy’s operation in 2017-18, less than 10% of the more than £2 billion raised by the levy was actually spent on training. And stories circulated that some of what was being spent was to send senior executives – dubbed, ‘advanced apprentices’ – on expensive MBA courses.
Reacting to business pleas, the Government has increased the time available to businesses to spend the levy from 18 months to two years. But it is clear that much of this money will go unspent and will be scooped up by the Treasury as a workplace tax.
In the House of Lords on Monday, I asked the Minister what the Government is doing to reform the levy. But it is clear that the Government is in denial. I have spoken with many businesses that have excellent apprentice programmes but they are struggling to use their levy. They tell me that they can’t get their apprentices accredited because the standards aren’t being approved in good time. There is too much bureaucracy and too little flexibility.
Flexibility is a key issue. Most of the employees who will deliver the digital revolution in the UK are already of working age and are in work. Some of those can and will become apprentices, but many more need on-the-job training so they have the skills to work in new environments. The levy does not provide this flexibility.
Furthermore, the nature of modern supply chains means that there are many medium and small businesses that could benefit from their larger customers passing down some of their levy of their larger customers. But whilst 25% of a company’s levy funds can be transferred down the supply chain, the red tape involved means only a tiny fraction of companies are doing it.
So what would the Liberal Democrats do? Rather than focusing on the quantity of apprenticeships, it’s time we went back to looking at the quality. There should be a minimum standard in place for what counts as a full apprenticeship, such as that the apprentice must study for a recognised qualification. New targets could be introduced to boost the number of higher and degree apprentices.
Once the quality of apprenticeships has been assured, we can give businesses the flexibility they are calling for to spend the Apprenticeship Levy on other forms of skills and training. However, businesses must prove they have a well-functioning apprenticeship programme in place in order to access the money. We would ringfence funding for areas with the greatest skill needs and make it easier for companies to pass their money down the supply chain.
There is a rumour going around industry that the Treasury wants to raise the levy to 1%. But until fixes like these are made, this will just be another payroll tax, not the boost to our skills and productivity that our economy desperately needs.
We cannot let our apprentices suffer because of a poorly implemented tax that is stopping businesses from taking them on. We owe it to our young people to make the Apprenticeship Levy work.
Lord Fox is a Liberal Democrat member of the House of Lords.
PoliticsHome Member, the Chartered Management Institute, have responded to Lord Fox saying "Apprenticeships must be available to people of all ages and at every stage of their career". Read the full response here.