UK apprenticeship levy is a £3.5bn mistake, say business leaders

Retailers, hospitality businesses, the tech industry and recruiters have called for urgent reform of the apprenticeship levy, calling it a “£3.5bn mistake”.

In a letter sent to ministers, the British Retail Consortium (BRC), UKHospitality, techUK, and the Recruitment & Employment Confederation (REC) said the government was “holding back investment” in critical training that could increase productivity, fuel economic growth and raise wages.

Helen Dickinson, the chief executive of the British Retail Consortium, which represents most major retailers, said: “The government must urgently fix this £3.5bn mistake, or it risks letting the UK’s anaemic productivity trail further behind its international counterparts.

“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. But the broken apprenticeship system is a ball and chain around their efforts.”

Under the current system firms contribute hundreds of millions of pounds into a pot, which can be spent only on very specific types of training. For example, businesses cannot use the money to fund any courses that are shorter than one year in duration. They say this has left them unable to spend £3.5bn of funds set aside.

Introduced in April 2017, the apprenticeship levy makes large organisations set aside 0.5% of their payroll for apprenticeships.

However, many employers say they are unable to use the funds – which are taken by the Treasury if not used within two years. A report by the Resolution Foundation warned of an explosion in the number of pricey, high-level apprenticeships for people already in work that could “crowd out” youngsters.

The trade bodies want the government to widen the apprenticeship levy into a broader skills levy that can be spent on a broader range of accredited courses including shorter, more targeted courses.

Kate Nicholls, the chief executive of UKHospitality, said an overhaul of the system would help bring those who had become economically inactive, including ove-50s, back into work to plug skills gaps.

“Hospitality businesses are eager to invest more in developing the skills, training and development of their workforce, particularly when vacancies are so high. Reform of the apprenticeship levy is urgently needed to offer greater flexibility to businesses, particularly in how funding is used.”

Julian David, the chief executive of techUK, said: “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 education minister Robert Halfon said the government had “transformed the country’s skills offer” since 2010.

“So far we’ve supported more than 5 million apprenticeship starts in over 650 high-quality standards, ensuring whatever your career goals they can be achieved through an apprenticeship, and we’re going further boosting funding to £2.7bn by 2024-25. We are rolling out and expanding T levels, Institutes of Technology, and skill boot camps – all backed by £3.8bn,” Halfon said.

“This Conservative government is on the side of business – that’s why all our skills programmes have been designed with employers to meet the needs of business and industry.”