The apprenticeship levy was a good concept, but it has been so poorly implemented that it has turned into a bureaucratic nightmare.
When I was business secretary, we had managed to breathe life into apprenticeships, meeting a target to start 2 million between 2010 and 2015. They were high-quality, with employer-designed apprenticeships to fill in the skills gaps at the cutting edge of industry. Aerospace and construction were among the many beneficiaries.
But there was a 28 per cent drop in apprenticeships between August 2017 and March 2018, compared with the same period 12 months earlier, according to the Department for Education. Looking at March specifically, there was a 52 per cent drop on the previous March – the month before the levy was introduced.
The levy requires companies with a pay bill of more than £3 million to put aside an equivalent of 0.5 per cent of this total for approved training schemes. I laid out the groundwork for the levy, but when I left government it was increasingly clear that the Treasury spied the levy as a revenue-raising measure.
Figures obtained by the Open University show that of the £1.39 billion paid into the levy by English businesses, just £108 million has been drawn down.
The original idea behind the levy was that companies that trained their staff would be rewarded; those that did not would pay a levy for the common interest. Somewhere along the line, the original philosophy was lost.
Businesses have complained that the system is overly restrictive and difficult to use. They are unhappy about a requirement that funds need to be spent within 24 months, because it typically takes longer than two years to get a programme off the ground.
A second irritation is that there is a limit of 10 per cent on the proportion of unused levy funds that can be passed down the supply chain. The further down the supply chain you go, the more specialist are the firms, which means they suffer the greatest skills shortages and need apprentices more than anyone else.
Worse still, the 10 per cent contribution that small- and medium-sized enterprises (SMEs) – the backbone of our economy – need to make to their apprenticeships under the new system is far too steep for many of them.
The Liberal Democrats are proposing a wide-ranging reform of the levy. The administrative burden must be significantly reduced. Emphasis should be put on appropriate and meaningful monitoring rather than constant bureaucratic box-ticking.
Local providers of training funded by the levy, including further education colleges and private companies, need to have their opinions heard. This engagement should take place under the industrial strategy, through the sector deals and the local enterprise partnerships tasked with local implementation.
Responding to concerns around SME engagement with the levy system, the government should abolish the 10 per cent co-investment requirement for non-levy payers and simultaneously end the 10 per cent funding top-up for large, levy-paying firms. The percentage of funds that can be passed down the supply chain by levy payers should also be increased.
Investment in skills
Once the reformed levy has proved effective in raising both the quantity and quality of training, it would then be the time to raise the rate paid by the largest businesses to further boost investment in skills and training across the economy.
Other ideas that should be considered include giving the issue the clout in government that it deserves. There could be a Cabinet committee on skills and lifelong learning. The current minister of state for apprenticeships and skills could be replaced with a cross-departmental minister for training and skills, representing both the business and education departments. This person would bring together the government agendas on skills and industrial strategy.
The apprenticeship levy could also be turned into a wider skills and training levy. The cash raised would be redeemable not just for apprenticeship training but for a wider range of high-quality training – but only when companies have proved that they have an apprenticeship programme. This more flexible system would ensure that a wider variety of people’s upskilling needs are taken into account, not just those of young people at the beginning of their careers, and would be better designed to help prepare the UK workforce for the economic challenges ahead.
A quarter of the funds raised by the levy could go into a social mobility fund targeted at areas with the greatest skill needs.
This fund, created through a “top-slice” of levy contributions, would be worth £750 million a year by 2020. This would be used to help to address the UK’s productivity gap and make sure money flows to where it is most needed, rather than to just the wealthiest areas with the largest companies. The fund would also drive upskilling across underrepresented and disadvantaged demographic groups. We would introduce specific targets for women, the disabled and those from a black, Asian and minority ethnic background.
These changes have the potential to turn a good concept into a workable system that would re-energise the apprenticeships that are so vital to our society.
Sir Vince Cable is the leader of the Liberal Democrats. He tweets @vincecable