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Government urged to address ‘broken’ apprenticeship levy system

The apprenticeship levy was developed in 2017 to boost access to skills for UK business, but many are concerned it isn’t fit for purpose

Clare McDonald
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Published: 06 Feb 2023 17:00

Senior industry representatives have urged the government to address issues with its apprenticeship levy, which has been criticised for being needlessly restrictive.

An open letter from several industry bodies has highlighted that around £3.5bn in levy funds have been left unused because of the rules surrounding how businesses can spend contributions.

Julian David, chief executive of tech sector trade body TechUK, one of the groups that contributed to the letter, said: “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.”

The apprenticeship levy was developed by the government in 2017, and requires employers with an annual wage outgoing of more than £3m to contribute 0.5% of this annual pay bill to the levy, which can then be reclaimed in the form of e-vouchers to fund apprenticeship training.

But these funds cannot be spent on all types of apprenticeships – for example, courses must be longer than a year to qualify, and the cash cannot be spent on non-apprenticeship courses such as work placement programmes or traineeships.

While apprenticeships have been flagged in the past as a good way for the technology sector to train people in the digital and technical skills that are currently lacking, the topic of conversation has since shifted towards lifelong learning and giving existing employees new skills.

Tech talent shortage

The British Retail Consortium, UKHospitality, TechUK, and the Recruitment and Employment Confederation have written to the minister for skills, apprenticeships and higher education, Robert Halfon, and chief secretary to the Treasury, Jon Glen, highlighting the importance of ensuring access to skilled workers in the UK, especially as there is a shortage of tech talent.

The letter said: “On behalf of our members, we are calling for the Apprenticeship Levy to be widened into a broader Skills Levy and for businesses to be allowed to spend their funds on a wider range of high-quality, accredited courses.”

The signatories of the letter claimed that many firms that have paid the levy have not been able to use the funds because of the limitations surrounding what types of courses are deemed acceptable.

Fund contributions also expire after 24 months – amounting to around £3.5bn wasted that could have been spent on talent if the levy was not so “broken”.

The industry bodies challenged the government to reform the apprenticeship levy into a more flexible skills levy to cater to businesses for which “apprenticeships are only part of the skills picture”.

Levy funds should be allowed to be used for shorter courses and online courses in the future, said the letter, to ensure businesses are able to take advantage of shorter courses for existing employees, or to ensure apprenticeship applicants are up to scratch on particular skills before joining a firm’s own programme.

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Last year, the government announced the Skills and Post-16 Education Bill with a focus on lifelong learning and training, highlighting the need for increased digital skills at all stages of life in the UK.

Allowing the use of the levy for shorter courses would also make businesses more able to upskill or reskill existing employees, the industry bodies pointed out.

Helen Dickinson, chief executive of the British Retail Consortium, said: “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,” she said. “But the broken apprenticeship system is a ball and chain around their efforts. Without reforms to the levy, retail will not be able to turboboost equipping its workforce for the future.”

This is not the first time the levy has been criticised – other businesses have previously asked the government for more flexibility surrounding apprenticeship levy spending.

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