Former education secretary Damian Hinds has said that the apprenticeship levy needs to be reviewed and reformed.

Speaking in a Westminster Hall debate this afternoon, Mr Hinds, who was in post from January 2018 to July last year, said that it was “legitimate” to look at the criticisms raised so far around the levy, introduced in April 2017. 

He said: “I think at this point it is right to review and reform the levy. I think it is legitimate to look at things like MBAs.

“I think you could look at tailoring the specifications for different age groups and for different sectors. And I do think there’s an argument about pre-apprenticeships and that social justice agenda.”

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Mr Hinds addressed criticism from fellow MPs that employers continued to view the levy as a tax, that it is too inflexible and that employers struggle to use all of their funds.

He said: “On the tax, yes, it is a non-optional deduction levied by the government so it does bear some tax-like features, but it’s not exactly the same as a tax. 

“Fundamentally, in the suite of ways of getting money out of business, the levy solves the free-rider problem when it comes to investment in skills, and rewards the businesses who make a greater investment. As part of a suite of approaches, it has an important role.”

When talking about the levy’s lack of flexibility, he highlighted the German system and said that in England the specifications for apprenticeships are lower, the age range is wider and that the levy covers apprenticeships at different levels. 

He said: “You can argue that there are more things that it should be possible to use levy for, but the mathematical reality is if you are going to do that, other things being equal, you would need a higher level or take something else out of eligibility for levy spend.”

Mr Hinds said that some companies do spend all of their levy, and that it does vary from sector to sector.

He said: “You have to recognise the mathematical reality in the levy-payers’ pay for the apprenticeships in their own company and also for the apprenticeships for non-levy payers. If you wanted to change that system, you’d have to extend the scope of the levy.”

Apprenticeship levy ‘under constant review’

Department for Education minister Michelle Donelan said that although a great deal of progress has been made, the government is aware that the levy is a source of concern for some employers.

“I do want to reassure members that we are keeping the apprenticeship system and levy under constant review to understand how it works for employers for all sizes and, most importantly, how it can deliver for our economy and social mobility.

“It is vital to recognise the levy is at the centre of our ambitious apprenticeship reforms. Less than 2 per cent of employers pay the levy but 56 per cent of starts were supported by the funds between 2018 and 2019. The apprenticeship levy is supporting business high and small to access high-quality training that they need. 

When asked by former skills minister and chair of the Commons Education Select Committee Robert Halfon if the government was open to reviewing the levy, Ms Donelan said that in conjunction with the Treasury, the DfE would consider the impact it has on businesses, social mobility and opening up apprenticeships in the long run “to make sure that not only is it sustainable, but that it opens up door after door.”

Emma Hardy, Labour’s shadow FE and HE minister, said it was time for a general review and reform of the levy. 

She said: “When the government’s own skills adviser, Alison Wolf, told the education select committee in June 2016, that she suspected ‘the levy only applicable with £3bn of cost was only decided the night before’ then I think it’s fair to say the government’s rushed implementation of the apprenticeship levy has resulted in unseen consequences and perverse incentives.”

The prestige of apprenticeships

Mr Halfon said that, above all, more must be done around the prestige of apprenticeships. 

He said: “We can have as many tunings to the apprenticeship levy as we want but we need to do more on prestige and careers, otherwise the levy, as good or bad as it is, will never succeed in the way we want it to.”

Mr Halfon called on Ofsted to give tougher guidelines on student outcomes in terms of how many go from school on to apprenticeships or technical education. He said that he welcomed Lord Agnew’s letter to schools, stressing the importance of the Baker law but that it wasn’t enough. 

He said Tes’ exclusive investigation published today, which shows that more than £100 million in levy money had been spent on management apprenticeships, was evidence that too many companies were gaming the system.

He said: “We need to reform the levy so that funds are used more effectively. The government could do this by restricting funds to employees who are already qualified to degree level or by allowing employers more generous terms when they create apprenticeships for low-skilled workers.”