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UNLOCKING POTENTIAL

Off Course

The risks of the Growth and Skills Levy
Jess Lister, Adam Hawksbee
May 20, 2024
Off Course

The apprenticeship levy has never been a particularly well loved policy. Its aim was to pay for apprenticeship training and incentivise businesses to hire more apprentices. Since its creation, it has supported two million apprenticeships. But overall numbers are down by 10% – with nearly a third fewer apprentices under 19.

Reform is needed, but the debate is heading in the wrong direction.

The Labour Party has set out its preferred direction – increasing flexibility and expanding out the current scheme with a new ‘Growth and Skills Levy’. This would allow businesses to spend up to 50% of the levy funds on other types of training, not apprenticeships. Onward’s new research note, Off Course, warns that the move risks halving apprenticeship numbers, with 170,000 fewer apprenticeship places and just 39,000 places for under-19s left. 

Yet demand for apprenticeships as a training route is high. Four in ten — nearly 430,000 — university applicants are also interested in becoming apprentices. But 61% say there are too few vacancies in their local area, and only 77,000 under-19s managed to find an apprenticeship across all levels in 2022. The quality of apprenticeships may have improved since 2015, with new standards, Ofsted scrutiny and legal status, but the average apprentice is now 25, already employed and highly qualified. Young people want to become apprentices, but too many are missing out.

The Government has begun this work. In March 2023, it announced plans to fully reimburse small businesses’ apprentice training costs for those aged 16 to 21. But this alone isn’t enough to meet young people’s demand for apprenticeships.

Instead, Onward argues the existing apprenticeship levy should be reformed differently to encourage and support more businesses to hire apprentices, including:

  1. Lowering the levy threshold so more businesses pay into the fund and are incentivised to use it. 
  2. Fully funding 16-18 apprenticeships using taxpayer funds separate from the levy. 
  3. Build on the flexi-job scheme to allow apprentices to work across multiple businesses.
  4. Allow firms to bid for licences to rapidly develop new apprenticeship standards in emerging technologies or areas with acute skills gaps.

The apprenticeship levy currently works by requiring large employers paying out over £3 million on wages annually to contribute 0.5% of their pay bill to a ring-fenced fund for apprentices. The Government uses the fund to support businesses — levy-paying or not — with apprenticeship training costs. 

Gillian Keegan, Education Secretary, said: “We have rebuilt our apprenticeship system from the ground up since 2010, delivering over 5.8 million starts and expanding apprenticeships to nearly 70% of all occupations in the country.

“This report by Onward exposes how Labour’s ill-thought-through policy would slash the number of apprenticeships in half – damaging opportunities for people across England.”

Jess Lister, Policy Fellow at Onward, said: “Apprenticeships are effective and popular as a route to training and employment, particularly for young people. Given that there is already insufficient supply to meet demand, pursuing a policy to reduce, rather than increase, the number of apprenticeships available is a high-risk strategy. We recommend a different set of reforms to incentivise more firms to hire apprentices, allow some additional flexibility, and ramp up opportunities for young would-be apprentices.”

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