Last September, the Prime Minister announced a “rebalancing” of funding from the apprenticeship levy (shortly to become the Growth and Skills Levy). Employers’ ability to use the funds for postgraduate-level apprenticeships would be restricted in the hope of shoring up lower levels.
A couple of months later, Skills Minister Jacqui Smith followed up by confirming that the axing of Level 7 apprenticeships would be “pretty widespread”. What’s more, she didn’t rule out a blanket defunding.
The government’s thinking arises from a belief that employers are taking advantage of apprenticeship levy funding to upskill mostly existing, mostly relatively seasoned staff with MBAs and similarly expensive qualifications. At worst, some employers may be using a claw-back of their levy (which is paid by employers at 0.5% of annual wage bills that exceed £3 million) to give training perks to middle managers.
This activity may not only be offsetting those employers’ own training budgets such that the levy isn’t increasing the overall funding available, but in the process, it is also undermining what the government would prefer, namely that the money is used to address concerns about young people leaving school without more basic levels of employability.
The Government has a point. In 2021/22, nearly half of all Level 6 and 7 apprenticeships were in ‘Business, Administration & Law’. But the employers concerned (often professional services firms, accountants and legal services) may have a point too. They may feel their commercial interests are better served (and more economic activity is generated) by training up current employees who have high demonstrable potential rather than recruiting low-level apprentices who may be less reliable, loyal or productive in the longer term. After all, they might argue, businesses don’t exist to do the government’s job of workforce planning or social engineering.
In the second decade of this century many policy papers punningly declared that they were laying out a ‘2020 vision’. One such document in 2015 laid out the Cameron Government’s reform of English apprenticeships which heralded the introduction of the Apprenticeship Levy in 2017.
This new tax – sorry, ‘levy’ – would, it was envisioned, align skills supply with skill needs and provide a superhighway of progression for apprentices while simultaneously promoting wider access and higher standards.
Sadly, the vision was somewhat rose-tinted. At the time over half a million people started apprenticeships, but since then, the number has plummeted to barely a third of a million (339,580). At over 45%, the drop-out rates from apprenticeships are at a level that would make higher education blush and the system is “beset by widespread and deep-rooted quality issues”.
Meanwhile, apprenticeships have failed to be the hoped-for driver of social mobility for those who don’t pursue university pathways. Just 5% of apprentices were eligible for free school meals.
Given that employers recruit their apprentices and, unlike universities, they are not subject to any fair access requirements, opportunities have tended to follow traditional patterns of advantage.
Most of the fall in apprenticeships is accounted for by the 72% collapse of intermediate apprenticeships (equivalent to Level 2, ie. GCSEs), while higher apprenticeships (equivalent to Level 4 and above) have been the only part of the market to see an expansion – by nearly three times, such that they now make up more than a third of the (albeit lower) total.
There is no reason to suppose that excluding Level 7 apprenticeships from the funding system will suddenly make lower levels more attractive to employers. While it is true that the funding is drawn from the same pool, they are not seen as alternatives by employers: the Business Administration & Law sector is not likely to start offering intermediate apprenticeships to 16-year-old school leavers because they can’t offset their levy by training qualified professionals.
Rather it is in other sectors, where engagement in apprenticeships has been minimal, that the government wants to see the growth. For those employers, the fact that someone else may have been using their apprenticeship levy to fund an MBA was never stopping them from creating more junior opportunities.
What’s been stopping them is the red tape involved in setting up and running apprenticeships, the costs and inconvenience (such as the time of other staff to recruit, manage and train apprentices), and the limited perceived benefits.
Not only is defunding Level 7 apprenticeships not likely to solve the problems in the apprenticeship market, there is also a danger that babies (training that is critical to address skills gaps) might get thrown out with the bathwater (those MBAs which the government thinks should not be publicly subsidised).
For example, there are widely acknowledged and significant skills shortages (insufficient numbers) and gaps (insufficient skill levels) in the engineering sector, a sector that accounts for £645 billion – more than a third of the UK’s GDP. These deficits run the risk of derailing the government’s mission for economic growth.
But engineering is also critical to regional development as the spread of jobs and higher wages are not concentrated in any particular parts of the country. Indeed, often the greatest opportunities are in those parts of the country most in need of growth and improvements in productivity. Engineering higher education is also a major driver of social mobility and opportunity: graduate premiums in engineering are both higher and more equal for those from disadvantaged backgrounds than in other disciplines.
Level 7 apprenticeships in engineering are vital for up-skilling (and re-skilling), which is critical for the challenges outlined in the government’s industrial strategy, such as in defence, advanced manufacturing, clean energy industries, and digital & technologies (particularly AI).
Engineering is a highly dynamic sector with an ageing population of skilled professionals. Even if we can meet the profound challenges of providing sufficient new engineers into the labour market, keeping them there and maintaining their level of expertise will rely on increasing the availability of – and demand for – a combination of in-work training and education at the highest level.
Achieving Level 7 qualifications in engineering (which are often instrumental in professional recognition) is generally too expensive for individuals to embark on at their own cost and, given the competitive demand for skilled labour in the context of shortages, employers are fearful that if they invest heavily in these staff they may be poached by competitors. This is a prime example of where a low-cost intervention by government can have large-scale impact.
In other words, Level 7 apprenticeships in engineering are strategically critical. My understanding is that they are similarly vital in certain other sectors such as health.
The government is right to ensure Growth & Skills Levy funds are spent as effectively as possible, but that will require a nuanced appraisal of what is working and what isn’t as well as a recognition that a slash and burn of waste won’t necessarily promote growth where the government wants it.