Apprenticeship levy not fit for purpose, says Labour, proposing new skills body

The Labour party said the Tory government’s apprenticeship levy system is failing to provide enough skilled workers for 40,000 manufacturers and has pledged to change the way the levy is spent and to create a new body called 'Skills England'.

Sir Keir Starmer is set to unveil his plan to change the apprenticeship levy to a “growth and skills levy” at a new STEM research centre in the South West, alongside shadow business secretary Jonathan Reynolds.

The apprenticeship levy taxes employers 0.5 per cent of their payroll each month if they have a wage bill of more than £3m a year. Businesses paying into the pot can use this money to fund apprenticeship training schemes.

Four leading trade bodies have called the apprenticeship system “broken” and have written to the government asking for reform.

The British Retail Consortium (BRC), UKHospitality, techUK and the Recruitment & Employment Confederation said the existing levy system is restrictive as businesses cannot use the money to fund courses that are shorter than a year, resulting in £3.5bn being wasted.

The group said the government should change the levy to a broader skills levy and allow businesses to fund courses that are shorter, more targeted and more tailored.

Helen Dickinson, chief executive of the BRC, 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.

“The broken apprenticeship system is a ball and chain around their efforts. Without reforms to the levy, retail will not be able to turbo-boost equipping its workforce for the future.”

The Co-op is also calling for reform to the apprenticeship levy after conducting research which it said revealed that more than £600m of levy funding which could have funded over 60,000 apprenticeships has been returned to the Treasury in the last year.

The Co-op wants the government to increase the cap on funding that can be shared between businesses from 25 per cent to 40 per cent and cited previous Co-op research which found that 64 per cent of young people were more likely to choose an apprenticeship because of the rising cost of living.

Shirine Khoury-Haq, chief executive, Co-op Group said: “Apprenticeships are one of the best tools available to promote social mobility, so business must play a central role in providing young people with an equal chance to gain the skills they need to fulfil their potential – particularly in the current economic climate.

“The apprenticeship levy goes some way to encouraging businesses to invest in their people, but the government needs to better support businesses to make apprenticeships accessible to all and ensure that funding is used as effectively as possible.”

Other polling by Opinium for the London Progression Collaboration found that 78 per cent of people believe they could not live on the apprenticeship minimum wage, which is £4.81 per hour and is set to rise to £5.28 per hour in April.

More than six in 10 people thought this wage was too low and that it should be replaced with the National Minimum Wage, with 71 per cent of the over-65s in favour.

Last week, a study showed that UK firms are facing mounting recruitment problems. Four out of five of 5,600 businesses surveyed by the British Chambers of Commerce (BCC) said they had problems recruiting workers in recent months.

As a result, the government has been urged to help firms in attracting staff.

Hospitality firms were most likely to face challenges when recruiting, followed by manufacturers and those in construction, although the public sector was also finding it difficult to take on staff, the BCC said.

Investment in training remains low, according to the report, with fewer than one in four firms surveyed having increased their investment plans over the last three months.

The BCC’s director of policy and public affairs, Alex Veitch, said: “[These] findings reveal that British businesses are facing the highest level of recruitment difficulties on record. Instead of seeing any easing of our extremely tight labour market, this issue only continues to head in the wrong direction.

“While the government will be celebrating their apprenticeship programme… as part of National Apprenticeship Week, we urge them to use this time as an opportunity to take a hard look at the reality of how the system is actually working for businesses and apprentices.

“The apprenticeship levy is unsuitable for many employers and the BCC is calling on the government to introduce flexibility into the levy.

“With an anaemic economy and low productivity, government must take immediate steps to ease the considerable labour pressures on businesses. We can’t afford to wait any longer.”