Govt must fix “£3.5 billion mistake” on apprenticeships

Four leading trade bodies, who together represent industries employing over ten million workers in the UK, are calling for urgent reform to the broken Apprenticeship Levy system. So far, £3.5 billion of Levy funds have expired under the use-it-or-lose-it scheme, because businesses were unable to meet the restrictive requirements they must meet to draw on the Levy funds they have paid in.

In a letter sent to the Government, the British Retail Consortium (BRC), UKHospitality, techUK, and the Recruitment & Employment Confederation (REC) say the Government is “holding back investment” in critical training that is vital to train the future workforce, provide better wages, increase productivity, and boost economic growth.

The letter comes as UK job vacancies soar to 40% on pre-pandemic levels, and the economy’s growth prospects shrink. Yet businesses are being blocked from investing in their workforce and creating job opportunities because of a broken Apprenticeship Levy system.

The current system requires businesses to contribute hundreds of millions of pounds into a pot, but it only allows these funds to be spent in an overly restricted way. For example, businesses cannot use the money to fund any courses that are shorter than one year in duration. As a result, £3.5 billion of potential investment into the UK labour market has gone to waste at a time when training is urgently needed.

The trade bodies call on the Government to widen the Apprenticeship Levy into a broader Skills Levy to allow businesses to spend their funds on a wider range of high quality, accredited courses including shorter, more targeted courses, or more tailored upskilling programmes, including functional and digital skills.

Crucially, these changes would not cost the Exchequer a penny, but by unlocking that funding, businesses could invest millions more into equipping their workforces with the essential skills and training that the economy needs to grow. Research last year conducted by the BRC revealed that retailers could create thousands of new apprenticeships if the Apprenticeship Levy system was reformed.

Helen Dickinson OBE, Chief Executive of the British Retail Consortium, said:

“The Government must urgently fix this £3.5 billion mistake, or it risks letting the UK’s anaemic productivity trail further behind its international counterparts. Retailers want to invest more in training a higher skilled, more productive and better paid workforce. They want to create more opportunities for people up and down the country. They want to contribute more to growth. But the broken Apprenticeship system is a ball and chain around their efforts. Without reforms to the Levy, retail will not be able to turbo boost equipping its workforce for the future.”

Kate Nicholls, Chief Executive of UKHospitality said:
“Hospitality businesses are eager to invest more in developing the skills, training and development of their workforce, particularly when vacancies are so high. Reform of the Apprenticeship Levy is urgently needed to offer greater flexibility to businesses, particularly in how funding is used. A much-needed overhaul of the system would enable businesses to go even further in their skills investment and deliver huge benefits for the wider labour market too, particularly in helping over 50s and the wider group of economically inactive back into work.”

Julian David, Chief Executive of of techUK, said:

“National Apprenticeship Week serves as a reminder of the work and support apprenticeships and the levy provide for businesses of all sizes. Apprenticeships should be at the heart of the strategy to level up skills across the UK, but there is more we can do to enable businesses to reach, attract and retain diverse talent, and prepare them with the skills they need. There is a real need to continue to support young people and new entrants into the workforce using apprenticeships, but also to support those in the existing workforce to progress and acquire the skills they need for the future of work. The key to this will be to reform the apprenticeship levy to make it flexible and fit-for-purpose.”

Neil Carberry, Chief Executive of Recruitment and Employment Confederation, said:
“The levy has always suffered by being imposed on businesses, rather than being designed with them and with learners. That means it has not had the incentive effects originally hoped for. It also pushes many workers out –like the million temps placed into work every day. Their wages are levied, but the system locks them out of training. A levy that allowed firms to access a range of high-quality training would see far greater uptake, and put more pressure on those firms who are not doing enough. A redesign with business at the table could transform skills performance, growth and prosperity.”