Business Leaders in the UK Call for the Scrapping of £3.5bn Apprenticeship Levy

By Editor Holedo

February 15, 2023

Several leading industry groups, including the British Retail Consortium (BRC), UKHospitality, techUK, and the Recruitment & Employment Confederation (REC), have jointly urged the UK government to urgently reform the apprenticeship levy. Describing it as a "£3.5bn mistake", these groups are calling for a change in the way that apprenticeship funding is allocated, which they say is hindering investment in training that could improve productivity, fuel economic growth, and raise wages.

The BRC's Chief Executive, Helen Dickinson, warned that unless the government takes immediate action, the country's already poor productivity levels will fall even further behind those of other countries. She explained that the broken apprenticeship system is preventing retailers from creating opportunities for people, investing in higher-skilled, more productive workers, and contributing to growth.

The apprenticeship levy, introduced in April 2017, obliges large organizations to set aside 0.5% of their payroll for apprenticeships, but firms say they are unable to use the funds, which are taken by the Treasury if not used within two years. Moreover, under the present system, businesses can only use these funds to pay for certain types of training, which has left them with a surplus of £3.5bn that they cannot spend. For example, employers cannot use the money to fund courses that are shorter than a year in duration.

To remedy the situation, the trade bodies are urging the government to expand the apprenticeship levy to create a more extensive skills levy that can be used for a more diverse range of accredited courses, including more targeted and shorter courses. According to Kate Nicholls, the Chief Executive of UKHospitality, a reformed apprenticeship levy could help bring economically inactive individuals, such as those over the age of 50, back into the workforce to plug the skills gap.

Julian David, the Chief Executive of techUK, agrees that there is a genuine need to support both new entrants and existing workers using apprenticeships, saying that "the key to this will be to reform the apprenticeship levy to make it flexible and fit-for-purpose." The Education Minister, Robert Halfon, stated that the government had already supported over five million apprenticeship starts in 650 high-quality standards since 2010. He went on to explain that the government is rolling out and expanding T levels, Institutes of Technology, and skill boot camps, which are all backed by £3.8bn. The Minister believes that the government's skills programs have been designed in collaboration with employers to meet business and industry needs.

To summarize, Business leaders in the UK, including the British Retail Consortium, UKHospitality, techUK, and the Recruitment & Employment Confederation, are calling for urgent reform of the apprenticeship levy, calling it a “£3.5bn mistake.” Under the current system, firms contribute hundreds of millions of pounds into a pot, which can only be spent on specific types of training, leaving them unable to spend £3.5bn of the funds set aside. 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. The current system is a ball and chain around the efforts of businesses to create more opportunities for people, to contribute more to growth, and to invest more in training a higher skilled, more productive, and better-paid workforce. The government's failure to reform the system risks letting the UK’s anaemic productivity trail further behind its international counterparts.