Apprenticeship Levy 2.0

Flexibility and productivity

The UK is facing an urgent requirement for rapid upskilling to meet the needs of the economy and address skills mismatches at all levels. Here, we go beyond the public debate on how to re-distribute limited resources and ask how the levy system could support a meaningful expansion of employer-led training across the UK.

Structural challengesProposed Improvements

Read the full report

We have an opportunity to improve the apprenticeship levy system for its second decade, and focus on what really matters: not only up front costs and qualifications, but outputs and impacts.

Many people have called for more flexibility in how the apprenticeship levy can be spent but a flexible levy without additional funding means a loss of apprenticeships - and all the benefits they deliver to the UK economy.

We are proposing one approach that can deliver a skills and training system that addresses more skills mismatches without losing the rigour and quality that are essential to firm-level performance, regional economic growth, national productivity and return on investment for all.

You can read our 2022 report, in partnership with UVAC, which set out our vision for a positive reform agenda for the apprenticeship levy.

Structural challenges that need addressing:

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Skills shortages and reduced growth:

73% of organisations are currently facing skills shortages. As a result, businesses are experiencing reduced output, reduced long term growth plans and decreased staff morale and wellbeing.

Open University's 2023 Business Barometer

Declining employer investment:

Despite the importance of training, employer investment in skills has been decreasing. The cost per employee is half the EU average, and the number of days spent on training is at its lowest since 2011.

Learning and Work Institute
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Short-term focus:

Employers tend to prioritise immediate business needs rather than longer-term strategic requirements or broader economic needs. This focus on short-term challenges neglects the development of essential management and leadership skills.

Skills and Productivity Board

Proposed improvements

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Increasing the levy amount:

This would increase funding available to pay for work-based training and is administratively simple because it builds on the existing apprenticeship levy system.

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Flexibility and open spend:

Under this system any levy incurred above 0.5% of the wage bill would be available for a wider range of high quality flexible training, while current levels of investment as a proportion of levy-payer wage bill continues to support standard-based apprenticeships.

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Retaining quality and impact:

Increased flexibility where training retains certain principles such as a clear link to the labour market, work-based learning, independent accreditation and assessment, and capturing outputs for individuals, employers, and the economy.

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Balancing private and public funding:

Government matching of employers' contributions to employee lifelong loan entitlements (LLE) can incentivise further investment in training. The flexibility of the levy should be extended to three years, and open levy funds must be spent within the year.

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Driving take up among under-represented groups:

Through local and regional apprenticeship accelerators and a dedicated hardship fund for those most in need e.g. for help with travel costs or apprenticeship support services and to target SMEs not yet engaged with the system with HR, coaching, and system navigation support.

Case Studies and Resources

We spoke to a number of businesses about how they use management apprenticeships and the impact they are having on workforce participation, training and organisational performance.

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