Labour Party Conference 2023

The Growth and Skills Levy

A St Martin’s Group thought piece for Labour policy makers.

St Martin’s Group was established in 2018 with the aim of helping to create a world-class Apprenticeship system by providing policy makers and officials with forward thinking, practical and data-drive solutions.  Our membership is unique in capturing the experience and expertise of leading employers, training providers and awarding bodies and is widely seen as being representative of the sector.

The purpose of this paper is to provide a high-level overview of what an incoming Labour administration should consider when transitioning the Apprenticeship Levy to a Growth and Skills Levy.

The paper covers:

1. The purpose of the Apprenticeship Levy and the Growth and Skills Levy.
2. What is working with the Apprenticeship Levy.
3. What needs to change.
4. Approved, updated and new qualifications.
5. Machinery of Government changes.
6. Conclusion

The purpose of the Apprenticeship Levy and the Growth and Skills Levy

The Apprenticeship Levy has suffered from an ongoing debate about its purpose. There is agreement that it must help drive economic growth and productivity but little else. Is it for young people? Older people? Entry-level jobs? Professional roles? New starters? Existing employees?

The St Martin’s Group believes in inclusion, diversity and flexibility. Improving economic productivity can go hand in-hand with increasing social mobility. Lifelong learning is essential. Lower-level training pathways are as important as developing higher-level skills. A Level 2 qualification for someone starting work can be as valuable as a Level 6 Degree Apprenticeship for a young person from a socially disadvantaged background.

A new government has the chance to end this unproductive debate. There is an opportunity to embrace inclusion, diversity and flexibility of provision and recognise that a Growth and Skills Levy should be for all employees. This means accepting a broad-based, lifelong approach to skills development to drive economic growth.

What is working with the Apprenticeship Levy?

Three features of the Apprenticeship Levy have worked well and should be retained:

1. Employer choice – All employers need skilled employees. The economy is diverse and varied. Quality has been driven by employer choice. Employers being able to choose which apprenticeship training programmes their employees undertake, and which training provider delivers the training, has been a key driver of quality. It has been considerably more effective than government distributing monies through often flawed and delayed procurement strategies.
2. Planning stability – Corporate investment in training is historically cyclical. The Apprenticeship Levy gives planning stability to organisations. Employers can develop multi-year programmes and take a longer-term strategic view. The Levy has also meant that many low-margin businesses are spending more on apprenticeship training than they would have done on a purely voluntarily basis. This means up-skilling of the workforce and greater productivity.
3. Lifelong learning and re-skilling – In a world of a 50-year career (18 to 68), lifelong learning has never been more important. Tech and AI will change the face of the Labour market and the fact that learners of all ages can undertake an apprenticeship to enhance their skills and re-skill is a welcome shift.

What needs to change?

Below are three areas where the Apprenticeship Levy has not worked, and we propose system change:

1. Programme flexibility – an Apprenticeship must have a minimum duration of a year, but an Apprenticeship is only one way of developing skilled employees. Productive businesses require agility and flexibility. The Apprenticeship Levy as structured gives little flexibility to employers. This can be addressed by enabling the development of a broad range of more flexible modular training and micro-credentials that give both employees and employers what they need. There is also an opportunity to build flexibility into apprenticeship programmes, prioritising employer needs in their design rather than embedding a blanket set of requirements. In other national systems, 20% of the content of an apprenticeship programme can, for example, be at the discretion of the employer.
2. Supporting lower skilled occupations – There has been a marked decline in Level 2 Apprenticeship training. This in part seems linked to low starts at SMEs. At the same time many larger employers have increasingly been investing in higher level apprentice programmes. Level 2 training programmes are an important route into the labour market. This is particularly true for employees of lower educational attainment who have often been failed in, or been failed by the school system. A reinvigorated skills system must provide employment pathways for all educational abilities. For many lower skilled roles, a long apprenticeship is not the answer. High drop-out rates in certain sectors are testament to this. Short, high quality, modular, micro-credentials would work better. Such courses would give learners more opportunities and employers more flexibility.  It would also see the success of the Levy being more than the number of apprenticeship starts occurring each year.
3. SMEs and Apprenticeships – Small and medium-sized employers are critical to growth and productivity, but the Apprenticeship Levy has not worked for SMEs. The low level of SMEs employing apprentices is evidence of this. The problem is acute, but the solution simple. Many training providers actively choose not to work with SMEs. The unit cost of training one learner in a small business is much greater than training many with a large employer. Delivering high quality apprenticeship training to SMEs as currently funded is not economically viable. As a result, scaled training providers focus on large employers. By changing the rate of funding for delivering apprenticeships to SMEs, market dynamics can be shifted. FE Colleges and Training Providers would be incentivised to promote and expand apprenticeship take up by smaller businesses. Policy changes here can be implemented quickly. Viable funding, combined with a concerted drive to reduce bureaucracy and the administrative burden placed on SMEs in starting an apprentice could have a transformative impact.

Approved, updated and new qualifications.

As stated above an apprenticeship is not always the most appropriate training for either a new or existing employee, or for the employer.  Enabling employers to have greater flexibility over a proportion of a reformed Levy makes sense. The St Martin’s Group believes such a change could have the biggest positive impact on supporting entry-level roles for young people and those with lower educational attainment levels.

The practical implementation of such a policy change will be key. The ESFA provides a list of already approved and regulated public qualifications. Each has an associated funding level. The list contains several thousand qualifications. Most of these programmes are at Level 3 and below. It is debatable whether all should be approved for funding through the Levy. Further work is required here. Options for consideration include allowing the Levy to be used for qualifications that link to areas of acute skills shortages, or directly align to a wider national industrial strategy.

A further important consideration for policy makers seeking to drive productivity growth through a reformed Levy, is the speed of development and revision of new qualifications. Developing new courses and programmes can be painfully slow. Here looking at improved ways of developing and approving qualifications by working with awarding bodies is an important component to implementing a responsive and agile skills system.

Machinery of Government Changes

Labour has committed to create Skills England, and ring fence at least 50% of employers’ Growth and Skills Levy for apprenticeship training. In any change there is a trade-off between a complete overhaul, building on what is working, and discarding what is not. There is a case for retaining and harnessing the parts of the system that are working, rather than a wholesale change of institutions which could slow rather than speed up an in-coming government’s reform agenda.  Consultation with parties in the system is essential in supporting this.

Conclusion

There are significant opportunities to take the parts of the Apprenticeship Levy that work and transform those that do not. Embracing the fact that Lifelong Learning requires an inclusive, diverse, broad and flexible approach to skills development is essential. Employers deciding how they spend their Levy has been a real success and a driver of quality and giving them greater flexibility will be welcome. Recognising that apprenticeship starts on their own, are not a measure of our ability to vocationally train a productive workforce, will mark a nuanced but important change of policy thinking. New flexibilities can also ensure that lower-level skills for those of lower educational attainment are not left behind as employers increasingly embrace higher-level Apprenticeships. Supporting SMEs must also be a priority as the system is failing them. In implementing the Growth and Skills Levy, recognise that Apprenticeships are hugely successful in building and growing talent, and be mindful of undoing the parts of the system that are working whilst reforming those that are not.

For further details contact: Emily Austin, Engagement Director, [email protected]