IPPR: CONCERNS ABOUT HOW THE .APPRENTICESHIP LEVY WILL OPERATE
While action to boost employer investment in apprenticeships through
the apprenticeship levy is a genuine step forward, there are some
concerns about how the apprenticeship levy will operate.
First, the amount the apprenticeship levy will raise is relatively small compared to the decline in employer investment in training in recent
years. Total investment in training declined by £5.1 billion in real terms
between 2007 and 2015 in England. However, the apprenticeship levy
will raise less than half of this in England: just £2.2 billion in 2017/18,
increasing to £2.5 billion by 2019/20.
Second, the apprenticeship levy in its current form does not support
devolution. Decisions on how to spend the funds raised by the levy
will be made by individual employers, the Institute for Apprenticeships
will approve apprenticeship standards and assessment plans, and the
Department for Education (DfE) will have oversight over the system.
This is made explicit in the devolution deals. The Greater Manchester
deal, for example, makes clear that devolution of adult skills does not
apply to the apprenticeship system, and that any role for the combined
authority will take place ‘within the national framework where individual
employers have control of their levy contributions’ (GMCA 2015).
Whilethe adult education budget is being devolved to local areas, it has been
cut significantly in recent years and it is barely enough to meet statutory
requirements, leaving local areas with limited discretion over how it is
spent, and with limited ability to meet local needs.
Third, the apprenticeship levy and the associated reforms to the
apprenticeship system seem to be focused on quantity to the exclusion
of – and perhaps at the expense of – quality. The last government set
a target of delivering 3 million apprenticeships by 2020, which was
reaffirmed in the Conservative party manifesto.
The levy appears to be the main tool to deliver this increase by boosting
employer demand for and investment in apprenticeships. Yet at the
same time, the system is being deregulated, with apprenticeships no
longer required to include a recognised qualification, and employers
being put in charge. In such circumstances, there is a risk that the
quality of apprenticeships will be undermined. Employers may seek to
recoup their levy funds by buying in high-volume, low-level, low-quality
apprenticeships. The training may merely be rebadging of existing job and
firm-specific training as apprenticeships. This may undermine the
quality of apprenticeships, which risks devaluing the apprenticeship
brand. The target is also driving a focus solely on apprenticeships, rather
than on other forms of training. Levy funds are not redeemable against
training other than apprenticeships. This limits the flexibility of the system
30 IPPR | Another lost decade? Building a skills system for the economy of the 2030s
and places unnecessary restrictions on employers for whom other forms
of training may be more suitable and beneficial.
The system has also driven a focus on apprenticeships at low levels.
As figure 3.1 shows, most apprenticeships are delivered at level 2,
and the vast majority are at level 2 or level 3. In 2015/16, 95 per cent
of apprenticeships were delivered at level 2 or 3. While the number of
apprenticeships at level 4 and above has started to increase, they remain
a very small fraction of all apprenticeships.
Finally, the apprenticeship levy may raise more money – and stimulate
further training – in regions where it is least needed. As the levy is based
on the size of an employer’s payroll, its impact on an area will depend
on both the number of large employers, and on average pay. In both
cases, London is an outlier. As figure 3.2 shows, two in three employees
working in the private sector in London work in businesses with 100 or
more employees, compared to one in two in the South West and North
West. Pay is also far higher in London. A business in the capital with 68
employees on average pay would be subject to the apprenticeship levy.
Yet a business in the East Midlands, Yorkshire and the Humber, the South
West or the North East with 120 employees on average pay would not
pay the levy.
As London has both a greater proportion of workers employed by large
employers, and far higher pay, it is likely that a far greater proportion of
employers will be subject to the levy. This would suggest that the levy
would stimulate training more in London, as more employers will have
levy funds that they could recoup. However, London has lower skills
needs than the rest of the country; the proportion of adults with a level
2 qualification or higher is 3 percentage points higher than in the rest of
England, and the proportion with a degree-level qualification (level 4) is
16 percentage points higher (IPPR analysis of ONS 2017c). Demand for
apprenticeships also seems to be lower in London; there are 1.6 times as
many applications per place in the North East and Yorkshire as there are
in London (Centre for Cities 2017).
It is not possible to confirm exactly how many employers will be eligible
by region, as it is based on payroll data held by HMRC. Remarkably, the
government has not conducted an assessment of the regional impact of
the apprenticeship levy (Parliament 2017).
However, it seems that the levy will raise less, and therefore stimulate
training less, in the areas where it is needed most and where there is the
highest demand for apprenticeships.
3.2 INTRODUCING A ‘SKILLS AND PRODUCTIVITY LEVY’
Although the apprenticeship levy will help boost employer investment
in skills, it would neither bring employer spending back to the levels
of a decade ago, nor would it bring us close to the EU average. In the
absence of further public investment and demonstrable under investment
by employers, we recommend that the government expands the
apprenticeship levy into a wider ‘skills and productivity levy’ in order
to help prepare the UK’s workforce for the challenges ahead. This would
also bind employers into an institutional settlement that coordinates them
more effectively at the sectoral level and offers a more decentralised
approach to funding and delivery.
Recommendation: the apprenticeship levy should be replaced with
a ‘skills and productivity levy’ which would:
• apply to all employers with 50 or more workers
• be set at 0.5 per cent of payroll or 1.0 per cent of payroll for the
biggest employers with 250 or more workers
• be redeemable not just for apprenticeship training, but for basic
skills training, high-quality vocational education and training, and
• allow sectors to tailor the levy to their specific needs – sectoral
institutions should be able to opt on a voluntary basis for an increased
levy in their sector beyond the statutory minimum, and to invest
unspent levy funds in strategic priorities
• top-slice a quarter of the contributions of the largest firms to
provide a regional skills fund that would be devolved along with
the adult education budget to invest in high-quality vocational
education and training.
The skills and productivity levy would have raised £5.1 billion in 2017/18,
more than double the amount raised by the apprenticeship levy, and
equivalent to the decline in employer spending over the last decade.
The regional skills fund would be worth £1.1 billion in 2017/18. It should
be devolved according to skills need, based on the proportion of workers
in an area who do not have at least a level 2 qualification. This would
mean areas with lower skills, such as the West Midlands, will receive
roughly twice as much funding per head than areas with higher skills,
such as Oxfordshire. It would restore the adult education budget nearly
to the levels of 2010/11, giving a real boost to skills devolution.
Recommendation: the government should abandon its target of
3 million apprenticeships by 2020. While an increase in the number
of apprenticeships would be welcome, a focus on quantity alone
risks undermining quality. Instead government should seek to
boost both the quantity and quality of apprenticeships.
This should be done through:
• setting a target to increase the number of apprenticeships at level
3 and above to 60 per cent of the total and the number at level 4
and above to 20 per cent of the total by 2021/22 (this would require
a small increase in the growth of those at level 3+, but a significant
acceleration in the number at level 4+)
• reinstating the requirement for a recognised qualification to be part of
• ensuring that existing rules around provision of off-the-job training
• monitoring and seeking to improve labour-market returns from
• requiring the Productivity Commission to report annually to parliament
on productivity, job quality, and training quality.
The system we outline in chapter 4 would ensure a greater focus on
quality of provision. Sectoral institutions, with representation from both
employers and employees, would be responsible for setting out the
content of apprenticeships and other training. Local institutions would
be responsible for quality control and ensuring that high standards are
3.3 ENCOURAGING INDIVIDUAL INVESTMENT
The adult skills system should seek to put learners in control of their
learning, their careers and their future. The skills and productivity levy
would help boost employer investment in skills. We set out in chapter
4 how decisions on how the levy would be spent should be governed
by strong sectoral institutions. Beyond boosting employer investment
though, there is a strong case for supporting greater investment from
Boosting skills can – if they are used effectively – deliver benefits not just
to employers, but to individuals through higher wages and opportunities
for progression, and to the wider economy through greater productivity
and growth. In this respect, while it is important for the state and for
employers to continue to invest in adult skills, it is reasonable too for
adults to be expected to make reasonable contributions when they can.
First, individuals already invest between £2 billion and £5.5 billion per year in
their own learning, with opportunity costs (including lost earnings from time
they could have been working) in addition to that (LWI 2016). This represents
between a quarter and a half of all investment in adult skills. However, we
know that adults with lower levels of qualifications are likely to earn less, and
therefore be less able to invest in their own education and training. We also
know that adults with higher levels of qualifications are more likely to receive
training paid for by their employer (LWI 2016).
Second, while greater collective action and stronger sectoral institutions
can improve the quality of training and make it less role- and firm-specific,
employers can only be expected to act in their own interests. While there
are associated benefits such as greater individual commitment, employers
will inevitably be primarily interested in training that can boost an individual’s
performance within their organisation, and therefore support productivity
and performance. It would not be reasonable to expect employers to
deliver training that would support an individual to progress outside of their
organisation, or to switch careers.
Third, there are some important groups who will not be supported by an
employer-led and apprenticeship-focused approach to adult skills.
• Self-employed workers – the number of self-employed workers has
been increasing rapidly in recent years. There are currently 4.1 million
self-employed adults in England, up from 3.2 million a decade ago
Self-employed workers do not have an employer who will
invest in their training, and, while there is significant variation within this
group, they are poorly served by the current system. Although there is
significant variation within the self-employed population, self-employed
workers are more likely to have lower levels of skills: 25 per cent do
not have a level 2 qualification compared to 21 per cent of employees
(IPPR’s own analysis). Self-employed workers earn less than employees,
and their earnings are lower than 20 years ago in real terms (Resolution
• Part-time workers – apprenticeships must involve a minimum of 30
normal working hours a week, and so are not available on a part-time
basis. This can make them difficult to access for adults with limitations
on working hours as a result of caring responsibilities or health and
mental health conditions.
• Unemployed adults – while unemployment has declined significantly
in recent years, there are still 416,000 adults on jobseeker’s allowance
(JSA) in England, or 1.2 per cent of the population. The number of adults
on incapacity benefits has remained stubbornly high, and currently
stands at 2 million or 5.8 per cent of the working-age population (ONS
2017e). Adults on JSA are four times as likely and those on employment
support allowance are six times as likely to have no skills as those in
work (IPPR analysis of ONS Labour Force Survey).