Will the Apprenticeship Levy live up to expectation?

by Ben Willmott, Head of Public Policy

The UK faces a major obstacle to closing the productivity gap with its major competitors as a result of falling investment in workplace skills over more than a decade. Investment in training in the UK has been in long term decline with a CIPD report published this week (Unlocking workplace skills: what is the role of employers?) highlighting evidence showing that the incidence of training across the whole workforce in 2010 was back to levels last seen in 1993, having peaked in 2000. The author of the report, Professor Ewart Keep, points out that employer-funded training has declined year on year since 2005, with recent (2015) government figures showing training spend per employee has fallen by 17% since 2011.

This structural decline in training was flagged in the Government’s recent consultation document on the apprenticeship levy, which also cited evidence showing a fifth of the difference between Britain’s productivity and that of the US, France and Germany is down to lack of comparative skills. These appear to be long-term developments that are not simply tied to the state of the economy, with decline setting in well before the recession struck.

A more deep-seated issue
However, the government believes that its new apprenticeship levy on large firms will reverse this trend. The Government consultation document for the levy states that: ‘The levy provides an answer to this structural decline and will put investment in training and apprenticeships specifically, on a long-term sustainable footing.’

This seems optimistic given that some of the likely causes of the fall in employer investment in training are deep-seated and broadly-based. The CIPD’s new report cites a number of possible reasons why the volume of training is falling:

  • managers are ‘becoming less optimistic about the value of skills for their business'
  • there has been a rapid improvement in the efficiency and efficacy of the training function, so that more learning can be delivered in a shorter time
  • learning is now embedded within work processes, and less overt training is required.

Earlier CIPD research (Learning and talent development survey, 2013) also suggests many employers – particularly SMEs – fail to identify that they need to improve leadership and management skills, which are often necessary for a more strategic understanding of the value of investment in workforce development and to utilise existing workforce skills effectively. In addition, there are other gradual structural changes to the labour market and employment model, with employers using more freelancers, self-employee contractors and temporary workers and arguably seeing less reason or opportunity to invest in their development.

Another big issue is that employers generally don’t have a strong interest in developing skills beyond what is required to produce a certain product or service to achieve a profit in the private sector, or meet public need in the public sector. Many employers are only generally interested in skills if these contribute to meeting organisational objectives – often short term ones.

Take the high road, not the low road
These obstacles to greater investment in workforce development are compounded by the number of UK businesses with ‘low road’ business strategies based on low skill and low costs. According to a UK Commission for Employment and Skills (UKCES) report in 2014, such low road businesses provide little opportunity for training, have low demands for skills and operate strategies that do not require significant skills usage. Improving the skills of UK workers, including young workers, is important but unless the demand for these skills moves in parallel there is a risk that skills are underused and do not make an impact on productivity. To put it simply, many employers have no reason to be interested in up-skilling in the short- to medium-term that dictates their business strategies.

This combination of complex factors underlying the UK’s skills deficit highlights the scale of the challenge facing policy-makers attempting to address the structural decline in workforce investment and suggests that the introduction of the apprenticeship levy on large firms will be far from sufficient in itself.

Greater ‘ownership’ of skills
The most recent policy focus on increasing investment in skills has been based on a drive to encourage greater ownership of skills. Led by the UKCES this concept is based on a belief that employers could be persuaded to take much more ownership of the education and training system, with more public money to be routed directly via employers rather going to training providers as had previously been the case.

Employer ownership of skills concept has manifested itself since 2011 in a number of reviews and pilot schemes, including various pilot schemes funded by UK government and managed by UKCES, mostly focused on getting employers to identify and tackle skills problems on a collective basis. These grew out of the failure of Sector Skills Agreements developed by Sector Skills Councils (SSCs) to achieve lasting change in the patterns and level of employer investment in particular sectors.

To overcome this inertia, the previous government (in its latter stage in 2009) proposed a new Joint Investment Scheme whereby key SSCs might have access to matched funding on a 50% employer, 50% government basis. This paved the way for the Employer Investment Fund, the Growth and Innovation Fund and the Employer Ownership Pilots (EOPs) which provided matched funding for employer-led projects designed to increase investment in skills or enhance how skills are utilised. The initial evaluation of these projects found that, overall, they resulted in a ratio of about £1.3 of private money invested to every £1 of public money – which is pretty good compared to most previous attempts to stimulate co-funding of skills provision.

The UK Futures Programme is the latest (announced in April 2014) initiative in this space ‘designed to address persistent skills challenges’ through innovative solutions to market/system failures. However, in the face of further cuts to post-compulsory training unveiled in Wednesday’s spending review, it seems highly unlikely there will be the money to continue to invest in such initiatives. The UKCES had already made it clear that there would not be a third round of the EOPs but that lessons learned on the direct impact on skills training and development would be used to inform the Government’s skills strategy.

Working in partnership
Professor Ewart Keep points out that a common theme running through all these different programmes has been a belief in the need to enable employers to work together better to tackle skills issues on a collective basis. In some instances, the focus for support and action has been on existing sectoral bodies (the Sector Skills Councils) but in other instances it has been new one-off coalitions of employers convened to deliver a specific project or initiatives, sub-sectoral bodies and industrial partnerships for the Government’s industrial strategy’s priority industries, or geographical clusters of firms.

A central issue for all these groupings or organisations is their sustainability when time-limited government pump-priming funding for their activities comes to an end. It is against this backdrop that the Government has introduced its apprenticeship levy and its target to create three million apprenticeships. It hopes that the apprenticeship levy will prove sufficient to stop the decline in workforce investment. We now know from the Government response to the consultation on the levy that the apprenticeship levy will come into effect in April 2017 and will payable by employers in the UK at 0.5% of paybill. All employers will receive an allowance of £15,000 to offset against payment of the levy. This effectively means that the levy will only be payable on firms with paybills in excess of £3 million per year.

The levy leaves key questions unanswered
However there are some big questions over its ability to be a game changer. There is a concern the levy will encourage employers to simply accredit more low level training as apprenticeships, further undermining the apprenticeship brand. In addition, 30% of employers that responded to a recent CIPD survey on the levy said it would mean that less was spent on wider workforce development. It is also not at all certain that small employers will have the time/interest to access the levy funding to develop apprenticeships unless there is more support to help them do this.

The CIPD believes the new Business Growth Hubs present an opportunity to provide better quality support for SMEs to help them raise their ambitions and think more about investment in skills - but not in their present form. There needs to more support made available to small businesses than a website. CIPD is currently exploring what type of people management support for SMEs might be delivered at a local level through its People Skills action research programme in Hackney, Stoke and Glasgow in association with JP Morgan.

There also needs to be a much bigger focus on how we incentivise people at different stages of their lives and careers to invest in their own development. Adults aged 24 and over are now able to access university-style Advanced Learning Loans to support learning at Level 3 and above, soon to be extended to other age groups and levels of learning. However, these don’t seem to be taking off, with learning for people in this age cohort having fallen by around one third since their introduction. It makes sense to support learners to invest in their own skills and to give them more ‘skin in the game’ and policy makers need to think about the best ways to achieve this. These challenges and the big changes in the employment and skills system more broadly, including the gradual introduction of Universal Credit, which places much more emphasis on getting on at work and not just finding a job, and the forthcoming introduction of the National Living Wage mean that the UK is very much at a cross roads. Are we poised to move to a higher-skill, higher-wage economy or are we stuck in the same low productivity rut? In the CIPD’s view it is crucial there is a fundamental review of skills policy to consider what other actions need to be taken at a national and local level to help ensure we are on the right road.

Ben Willmott (132x106)

Ben Willmott

Head of Public Policy

Ben leads the CIPD’s Public Policy team, which works to inform and shape debate, government policy and legislation in order to enable higher performance at work and better pathways into work for those seeking employment. His particular research and policy areas of interest include employment relations, employee engagement and wellbeing, absence and stress management, and leadership and management capability.


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