Since its introduction in 2017, the Apprenticeship Levy has been a cornerstone of the UK government’s effort to address skills shortages, promote apprenticeships, and increase employer investment in workforce training.
However, over the years, the levy scheme has faced criticism for being overly rigid and not delivering the intended results. As part of its new Skills England initiative, the government is introducing the Growth and Skills Levy, designed to offer greater flexibility and drive investment in skills development across the UK economy.
The new Growth and Skills Levy will address some of the shortcomings of the Apprenticeship Levy while prioritising more accessible, entry-level opportunities and providing a more tailored approach to workforce development.
The Current Landscape of Skills Investment
The UK has witnessed a significant decline in employer investment in training over the past two decades. The Learning and Work Institute found that since 2005 training investment per employee has fallen by 26%, which has led to an estimated £15 billion loss in workforce training annually. As a result, the UK has lagged behind other developed countries in terms of workforce skills and productivity. The introduction of the Apprenticeship Levy in 2017 was intended to reverse this trend by creating a dedicated funding pot for employers to train apprentices.
While the levy has increased the amount of money available for training, it has not led to the expected surge in apprenticeship starts. In fact, the uptake of apprenticeships has decreased, particularly at Levels 2 and 3. Since the introduction of the Apprenticeship Levy, the market has shifted to meet employer demand for Higher-Level apprenticeships (Level 4 and above), resulting in a 319% increase in these opportunities.
This has come at the cost of entry-level apprenticeships, which have seen a significant decline of 73%, limiting new start opportunities for those at the beginning of their careers. This shift has been detrimental to younger workers and those seeking entry-level positions, who find it harder to access the training they need to get their foot through the door.
Skills and Growth Levy to Replace Apprenticeship Levy
The Growth and Skills Levy is set to address some of the challenges that have emerged under the Apprenticeship Levy system; with one of the key changes being the increased flexibility for levy funds.
In the Labour Party’s Manifesto 2024, Labour stated they would ‘reform the Conservatives’ broken Apprenticeships Levy.’ Commenting on the Apprenticeship Levy, Labour stated:
“The current rigid rules ignore vital skills and training needed to access apprenticeships. Labour will create a flexible Growth and Skills Levy, with Skills England consulting on eligible courses to ensure qualifications offer value for money.”
Unlike the Apprenticeship Levy, which restricted spending to apprenticeships, Labour’s new scheme will allow businesses to allocate a percentage of their levy funds toward other types of qualifications and training programmes. Initially, it is expected that 5-10% of the levy funds will be flexible, allowing employers to invest in qualifications beyond apprenticeships – though this is a far cry from the 50% Labour put forward in 2022 during early discussions.
This change will give employers the freedom to choose training options that align more closely with their specific workforce needs. The full list of qualifications that will be eligible for funding is still being finalised, the aim is to support a wider range of training programmes that address immediate skills gaps, and at the Association of Employment and Learning Providers (AELP) autumn conference, Apprenticeship Director Kate Ridley-Moy told attendees that DfE Skills Bootcamps could develop into a fundable option under the restructured Growth and Skills Levy.
This flexibility is particularly important for industries where certain qualifications are crucial but were previously ineligible for levy funding. It will, however, not cover qualifications that employers already pay for, such as Health and Safety or Safeguarding, ensuring that the levy remains focused on providing additional support for new and emerging skill requirements.
The flexibility in the Growth and Skills Levy could mark a significant shift in how employers approach workforce development. By allowing a portion of the levy to be used for non-apprenticeship training, businesses can better tailor their investments to their needs, making training more efficient and targeted.
The Role of Skills England
A crucial part of the new levy is the establishment of Skills England, an overarching body that will bring together various organisations and stakeholders to streamline the UK’s approach to skills development. Skills England is expected to launch next year and will play a central role in shaping the national skills agenda; its goal will be to identify critical skills shortages and work with employers, training providers, and educational institutions to address these gaps.
Skills England will also help manage the new Foundation apprenticeships, which are designed to provide a more accessible entry point for young people and reduce the number of NEET (Not in Education, Employment or Training) young people. These apprenticeships will offer a pathway for individuals who may not yet be ready for a traditional Level 3 apprenticeship or who lack previous Maths and English qualifications. By providing an intermediate step, Foundation apprenticeships aim to attract a wider range of candidates, including school leavers and NEET young people.
Rebalancing Apprenticeships with Restrictions on Level 7 Apprenticeships
One of the key criticisms of the Apprenticeship Levy has been the disproportionate focus on Level 7 apprenticeships, which are equivalent to a Master’s degree. FE Week revealed that ‘spending on Level 6 and 7 apprenticeships soared from £44 million in 2017/18 to £506 million in 2021/22 – hitting 1.325 billion in total over that period. Meanwhile, spending on Level 2 apprenticeships dropped by a third over that period.’
Under the Growth and Skills Levy, the government is planning to place restrictions on some Level 7 apprenticeship programmes, altering how they are funded. While these Higher-Level apprenticeships have been beneficial for experienced workers looking to advance their careers, they have consumed a significant portion of apprenticeship funding, which has led to fewer opportunities for younger workers and those looking for entry-level positions.
Skills Minister Jacqui Smith addressed concerns about Apprenticeship Levy reforms during her speech at the Associated of Employment and Learning Providers conference. She stated: “In order to open up the growth and skills offer to deliver new training where it’s needed most, you will be aware that we’ll be asking more employers to step forward and to fund level 7 apprenticeships outside of the levy.”
By rebalancing the allocation of funds, the government aims to ensure that more apprenticeship opportunities are available for younger workers, following their ‘Youth Guarantee’, and those seeking foundational training. This change would not only help close the skills gap, but the government hope it will encourage businesses to invest in the next generation of workers, rather than focusing solely on upskilling their existing workforce.
Final Thoughts
Despite some of the challenges faced under the Apprenticeship Levy, the introduction of the Growth and Skills Levy signals a positive shift in the UK’s approach to skills development.
The new levy’s focus on flexibility, inclusivity, and targeted training is designed to address the issues that have hindered the success of the previous scheme. By allowing employers to direct a portion of their levy funds toward non-apprenticeship qualifications, the government is aiming to empower businesses to invest in the skills that they need to drive their growth and success.
Foundation apprenticeships also aim to provide a more accessible route into the workforce for NEET young people and young people with limited experience, but there are still many questions about how they will be put into practice. A reoccurring issue for these initiatives (especially in growth sectors) is a lack of supply from businesses as opposed to a lack of demand from candidates, and it is not clear how the government plans to support and encourage employers to engage. Foundation apprenticeships, combined with the broader training options available through the flexible levy, will help bridge skills gaps and create more opportunities for individuals to build successful careers.
Skills England is in line with the government’s key mission around growth and breaking barriers to opportunity, with a renewed emphasis on developing a highly skilled, agile workforce, the UK needs to be in a better position to compete in the global economy and address the skills shortages that have historically held back growth.
As the Growth and Skills Levy continues to roll out and develop, and this fundamental shift and approach to apprenticeship evolve, we will be keeping abreast of it and making sure you are fully informed.