Apprenticeship Levy

Debate between Jonathan Gullis and Tim Farron

Wednesday 22nd November 2023 Westminster Hall

[Jonathan Gullis (Stoke-on-Trent North) (Con)]

I beg to move,

That this House has considered the apprenticeship levy.

It is a pleasure to serve under your chairship, Dr Huq, and I am looking forward to this debate on the apprenticeship levy. As a former teacher and the former Minister for School Standards, I cannot state enough how important apprenticeships are for young people. They unlock opportunities for them, allow them to earn while they learn and drive social mobility. As the proud co-chair of the all-party group on apprenticeships and the employer of two apprentices—Mya and Jess, who are based in my constituency office—I know just how effective apprentices can be in the workplace.

There have been significant achievements in places such as Stoke-on-Trent North, Kidsgrove and Talke, where we have had 13,240 apprenticeship starts since May 2020. One of the great standout legacies of the past 13 years of Conservative government is our outstanding record on education. Compared with 2010, over 2 million more pupils are at good and outstanding schools, and our kids are some of the best readers in the western world.

I congratulate my right hon. Friend the Member for Bognor Regis and Littlehampton (Nick Gibb), who served with grace and honour as Minister for School Standards—a role I held briefly, although I basically kept the seat warm for his return—on his hard work in improving literacy and numeracy rates, restoring discipline in the classrooms, empowering a generation of learners and bettering educational attainment. His legacy will live on in this House and across the nation, and we are truly thankful for his service.

I served proudly with the Minister for Skills, Apprenticeships and Higher Education when he chaired the Education Committee, and he understands, as do we all, that further education plays a vital role in providing the skills needed to revive key sectors such as manufacturing and ceramics, so that we can level up the country. We have made great strides since 2019. We introduced T-levels and the lifelong learning entitlement. Government initiatives such as the skills bootcamp scheme, which works with local employers and local authorities to fill skills gaps and vacancies in local areas, should continue to be expanded.

Apprenticeships offer a great opportunity to learn and earn, and they keep talent and skills in our local area, making a vital contribution to the labour market. The huge demand for apprenticeships is waiting to be matched by supply. Almost half of the young people registered on UCAS are interested in apprenticeships, yet only 10% go on to start one. In recent years, there has been a dramatic decline in the number of new apprenticeship starts. Since the apprenticeship levy was introduced in 2017, overall apprenticeship starts have fallen from half a million in 2016-17 to just over a quarter of a million in 2022-23. That urgently needs to be reversed. The situation is exacerbated by the fact that the number of apprenticeship starts for 16 to 18-year-olds has fallen by 41% since 2015-16. For 19 to 24-year-olds, it has fallen by 31%, and for those aged over 25, it has fallen by 26%.

[Tim Farron (Westmorland and Lonsdale) (LD)]

I am grateful to the hon. Gentleman for the points he is making. Last year, more than £3 billion of the levy was not spent, I guess for many of the reasons he is setting out. In my community, many of the businesses that would love to have an apprentice find it too hard to get into the scheme. Would it be wise in an area such as mine, where one in four people work for themselves and many opportunities come through small businesses, to redirect some of the underspend to encourage small businesses to take on apprentices? That would be good news for our economy and for everybody else, for that matter.

[Jonathan Gullis]

I could not agree more: the levy should be much easier to access for small and medium-sized enterprises, and even for big levy payers, such as Lloyds Bank, which I met recently in my constituency at Saint Nathaniel’s Academy in Burslem. It said that it found it incredibly tricky to navigate the system to try to get money to the frontline. In that case, it was for digital apprenticeships and skills for those teachers and support staff, as the school went to a Google Classroom-based learning system. I will set out later how I think the levy can be reformed to make it more accessible and to ensure that more SMEs get more opportunities to take up apprenticeships. It is all well and good talking about skills, but if we do not have enough apprentices in the first place with the opportunity to access them, we will always have to overly rely on cheap foreign labour from abroad to fill vacancies. I suspect the hon. Gentleman and I have slightly different opinions on that, but the Chancellor said in the autumn statement today that he wants to see us skilling up and levelling up the opportunities for young people here.

The fall in the number of apprenticeship starts suggests that apprenticeships in their current form are not benefiting young people and helping them get into the workforce. We require businesses to invest in their existing workforce. Increasing the flexibility of the apprenticeship levy would help businesses with the cost of investment in British talent, further militating against the dependency on mass migration. Although increased collaboration between the Institute for Apprenticeships and Technical Education and the Migration Advisory Committee will not eradicate reliance on immigration for vital skills, it will shift the focus to prioritising British upskilling and offer a long-term solution to the nation’s skills shortages.

As evidenced in “The New Conservatives’ plan to upskill Britain”, which I proudly wrote with my hon. Friend the Member for Great Grimsby (Lia Nici), red wall areas have been hit especially hard by the reduced number of younger apprentices in SMEs. In northern and coastal constituencies, the number of apprenticeships has fallen, while it has grown in places such as Wimbledon and Chelsea. As the New Conservatives’ skills paper suggests, areas such as Stoke-on-Trent North, Kidsgrove and Talke need more home-grown apprentices so that we do not rely on cheap migrant labour to fill the skills gap. That is why it is so vital that we take on recommendations from industry and reform the levy, so that communities can benefit from apprentices.

One way the New Conservatives’ skills plan seeks to do this is by pushing for the Migration Advisory Committee to work much more closely with the Institute for Apprenticeships and Technical Education, by identifying gaps in the market where unspent levy funding can be used to support the training of home-grown talent that will help to close the skills gap. With net migration standing at over 600,000 in the year to June, it is essential that we explore ways to wean the economy off cheap migrant labour, which puts immense pressure on our public services, including our schools, our NHS and our housing supply, with migrants now making up half the demand for new builds. I am confident that reforming the apprenticeship levy to allow underspends to target specific gaps in the job market will help to solve one of the UK’s most challenging long-term problems.

In the New Conservatives’ skills plan, we also raise issues surrounding the levy transfer mechanism and suggest raising the current transfer from 25% to 35%. Since the introduction of the levy five years ago, £4.3 billion has been raised by the levy but kept back by the Treasury. In 2021-22 alone, the revenue raised was £750 million—more than the entire apprenticeship budget—and according to FE Week analysis, His Majesty’s Revenue and Customs pocketed an extra £415 million in the year to September 2023. I know that this is an issue for small and medium-sized businesses in Stoke-on-Trent, and I was shocked to see the Sentinel report in January this year that Stoke-on-Trent City Council was forced to send its £1 million apprenticeship underspend back to HM Treasury.

As co-chair of the APPG on apprenticeships, I have spoken to many businesses that say the system for transferring funds is immensely bureaucratic and requires excessive paperwork, which dissuades businesses from pursuing it. Our skills paper therefore sets out plans to increase the apprenticeship levy transfer to 35%. As the New Conservatives’ report sets out, the current cap at 25% limits employers making the most out of their funding, and it is difficult for businesses to transfer funding to SMEs outside their supply chain. That is why we advocate increasing the ease with which funds can be transferred by including other SMEs local to the region of the levy payer, which would keep investment local and widen access to apprenticeship funding.

The New Conservatives and I want to see a greater amount of the billions of pounds of unspent levy funding—like the £1 million underspend in Stoke-on-Trent—spent on skills locally, which will help the levelling-up agenda and assist young people in finding good career prospects near to home. However, to do that, the Government need to be brave and expand access to apprenticeship funding, as we outline in our report.

We need to allow for training to be more sensitive to labour market demands, so that we can upskill our homegrown talent. We should seize on local areas’ expertise, such as Stoke-on-Trent’s thriving video game industry, to make apprenticeships work for the economy. Alongside using unspent levy funding to support SMEs with grants, we should look to make it flexible enough to support shorter courses. Microsoft has identified that a modular approach to apprenticeships would allow apprentices to fit into the gaps in the labour market much more effectively. It says that this is essential to ensure that people are equipped with the digital skills they need to perform an increasing number of tasks.

In some cases, labour market demands do not require long courses, so making the levy more flexible will support shorter courses that meet existing needs of the business, rather than fulfilling bureaucratic apprenticeship requirements. This will enable employees to develop much-needed skills and help employers to address specific skills shortages that they face. Microsoft identifies such flexibility as being necessary for businesses to adapt to the rapidly changing requirements of digital roles, noting that the current 18-month waiting period for the digital apprenticeship standard to be approved is too long. Such long approval times stifle growth and leave employers without the skills that they need. Increasing the flexibility of the apprenticeship levy will also help Britons to upskill, improving productivity and reducing the skills gap.

In my role as the co-chair of the APPG on apprenticeships, I have also spoken with many leading businesses in Stoke-on-Trent North, Kidsgrove and Talke as well as across the country, and they have outlined ideas about how to make the levy work. Policy Exchange’s excellent paper, “Reforming the Apprenticeship Levy”, makes the disappointing point that SME involvement in the apprenticeship system has plummeted since the introduction of the levy, and it states that that has wider implications because, historically, SMEs train higher proportions of apprentices, particularly from disadvantaged backgrounds.

As such, Policy Exchange has proposed a number of recommendations to streamline the process and support SME involvement in the training of apprentices, including financial support for off-the-job training. It suggests that SMEs should be supported with £2,500 to fund off-the-job training for apprentices under the age of 25, with an additional £500 on completion.

Given that FE Week reported that HMRC pocketed around £415 million generated by apprenticeship levy receipts last year, I want the Government to explore whether there is scope to use some of that underspend to back SMEs with the £3,000 payment advocated for by Policy Exchange, which believes that such support would cost around £200 million. The policy was backed by the Prime Minister when he was Chancellor during the covid-19 pandemic, so I urge him to consider that to get more people doing apprenticeships once more.

For some businesses, especially SMEs, the hidden costs are often what prevents them from being able to hire an apprentice in the first place. The funding is there to support our SMEs and to support our apprentices with more than just training, and this simple change could be transformative.

Alongside reforms to the levy, I want to use this time to raise the issue of functional skills requirements, which are also a barrier to apprenticeships. For someone to be an apprentice in England, they must prove that they have good qualifications in English and maths. If they cannot do so, the Government pay to enrol them on a course and enter them into exams to prove that. That is wasting tens of millions of pounds of taxpayers’ money, because, in some circumstances, despite an older apprentice holding a degree or other level 4 qualifications, the fact that they cannot find their GCSE or even O-level certificates means that they must retake the exams.

The current focus on functional skills qualifications also poses a challenge to some hoping to complete apprenticeships, disproportionately impacting those from disadvantaged backgrounds and SME employers that are more likely to offer apprenticeships to younger and less well-educated students. I wrote to the Department for Education to raise my concerns about this issue and was disappointed with the response I received this week from the Minister, who said that they are

“currently unable to offer any flexibility here”.

If we were to relax those requirements, there would be a significant public savings benefit, meaning that money could be spent on helping businesses to support their apprentices more effectively. Over the past five years, the Government have spent £379 million on functional skills, with the per-apprentice cost increasing by 64% since 2021-22. If we reduce those costs by being more flexible about functional skills requirements, businesses will benefit.

As the co-chair of the APPG on apprenticeships, I have spoken with businesses who told me that reviewing functional skills requirements, which is also a recommendation in the New Conservatives’ skills paper, will improve retention rates for apprenticeships. That will give businesses confidence that the investment they make in new employees will be worthwhile.

Data supplied to me by Multiverse shows that 60% of apprentices undertaking functional skills exams already have degree certificates, but they do not have their school qualifications to hand, or they were schooled internationally. I do not believe that it is necessary for someone to take on extra training in English and maths if they have a degree-level qualification. A degree should be an indicator of competency in English and maths, and new recruits should be focused on developing skills that are fit for industry and not on functional skills training.

Multiverse argues that this requirement is a significant and unnecessary barrier to work. Its data shows that 74% of apprentices withdrew from their course when they were required to undertake English and maths exams. Given that fewer people have been undertaking apprenticeships since the introduction of the levy, we need innovative and simple ways to improve retention rates, and removing functional skills requirements could help to achieve that.

However, outdated attitudes towards higher education are thankfully ending. Recent polling shows that the British public are more positive about technical and vocational education than they are about university education, with 48% of parents saying that they would prefer their child to get a vocational qualification after leaving school, compared with 37% of parents who would prefer their child to go to university.

More broadly, there is support for prioritising further education and higher education equally, with 31% thinking that vocational education should be prioritised by the Government over university education and only 9% thinking that university education should be prioritised over further education. It is regrettable, therefore, that equal treatment of higher education and further education is not shown through the welfare system. Families should not be penalised if their child opts for an apprenticeship rather than other post-16 education. However, current welfare policy requires child benefit to be removed from families with children aged under 19 in apprenticeships, unlike if their child were studying for A-levels or T-levels.

More needs to be done to ensure that young people from disadvantaged backgrounds benefit from apprenticeships rather than being short-changed by their university experience. For those with low academic attainment or opting for low-return courses, a quality apprenticeship could offer a better option for a variety of reasons. Such a route should not be closed off due to parental financial worries.

In conclusion, the over-expansion of university education by Tony Blair and new Labour has left too many young people in debt, without the skills needed to secure well-paying careers. At the same time, investment in high-skilled trades has dropped, leading to an over-reliance on cheap immigration from abroad to meet our ever-expanding list of job shortages. As the party that values hard work and aspiration, we need to reverse that trend and invest in local talent that matches local labour market demands.

The policy suggestions presented in the New Conservatives’ skills paper aim to shift the balance from Government overspending on low-return higher education and repurpose all money saved for investment in quality technical and vocational education that keeps talent local and high-skilled. That will be achieved only by both disincentivising students from poor-quality university education and incentivising them towards high-quality technical and vocational education.

Such measures also need the support of local businesses. Small and medium-sized businesses need to feel that their investment in local talent is worthwhile and supported by the Government. With renewed prioritisation for apprenticeships and other technical and vocational training and education, our country can upskill its workforce, meet labour demands without reliance on immigration, and ensure good jobs for the present are there for future generations as well.

The central message of the New Conservatives’ skills plan is to increase the parity between further and higher education funding. That means that it is essential for the Government to support all apprenticeships offered by an SME regardless of how much of the levy is used. That will help businesses and individuals get greater access to apprenticeships, which is in line with my vision to make apprenticeships a more viable option and to make clear that degrees are no longer the sole gold standard in education.