Despite good intentions, the apprenticeship levy hasn’t had the easiest of beginnings. Apprenticeship starts were 39 per cent down in April compared with the same period in 2016 – the clearest sign yet that we’re some way from having a system that works, that encourages companies to invest more in skills and training, and ultimately delivers a chance for people to embark on their career or retrain.
Any policy that reduces the very thing it was designed to encourage needs to be looked at again.
Making the levy work really matters. Skill shortages are the biggest domestic risk to UK growth and competitiveness. The most recent CBI education and skills survey found three-quarters of firms expect to increase their number of high-skilled roles over the coming years, with 61 per cent concerned about a lack of sufficiently skilled people to fill them. Apprenticeships are an important way of achieving this.
However serious the levy’s current design flaws are, there is a way forward. It can and must be fixed.
Encouragingly, the government has accepted the need for some levy reform, and is working with the CBI and others to improve the system, including a relaxation of "transfer" rules. One idea the CBI has proposed is for firms to be allowed to pool and share their levy funds – something that requires a change in the levy regulations. Today, Department for Education officials and several CBI members in the West Midlands are meeting to discuss how this idea could be piloted. Levy pooling alone wouldn’t fix the levy, but it’s a step in the right direction.
What is pooling?
Businesses with an annual salary bill of more than £3 million must pay 0.5 per cent as an apprenticeship levy. Pooling is a way for firms to work with each other by pooling their levy funds to develop shared quality provision in their sector or local area – and for non-levy-paying smaller businesses to join in. As well as encouraging partnerships, this addresses the common issue of employers struggling to find suitable training to plug their skill gaps.
Take an investor in research and development that my team spoke to recently – they pay the levy and they’re keen to develop an apprenticeship programme. They’re based in the Oxford-Cambridge corridor, so you’d think that they would be spoilt for choice when it came to local R&D-based training. But they aren’t. And the levy rules mean they can’t pool their funds with others in the same boat and fund a local business initiative to change that.
A formal way for pooling and collaboration would offer greater flexibility, making the levy system easier to use and allowing businesses – small and medium-sized in particular – to provide the quality training they need for their workforce. If employers could purchase their training together in a joint venture, they would be able to incentivise providers to create supply when needed, demand higher-quality provision and share out the administrative burden. The potential also exists to create centres of apprenticeship excellence for training, in the same way that already exists for healthcare, tech and defence.
Of course, there will be questions about how pooling would work in practice. That’s why it’s important to have a pilot. The most important question is how best pooling could allow local enterprise partnerships, local authorities and elected mayors to play a supporting role in a pooling arrangement. To make it work, the amount of levy funds that could be pooled needs to be significant – 50 per cent feels reasonable to me, but a pilot would be able to test what is most effective.
Pooling is no panacea, but it’s one small part on the road to making the levy work. The government deserves credit for accepting the need for reform. It’s in everyone’s interest to make it work.
John Cope is the CBI's head of education and skills