Government's apprenticeship levy has failed and needs urgent reform, report finds

The government’s flagship policy for boosting apprenticeships and fixing Britain's skills crisis has failed, with most UK employers reporting that they have actually cut spending on training staff in the two years since it was introduced, according to new research.

Former chancellor George Osborne’s apprenticeship levy, which came into force in 2017, was supposed to increase apprenticeship numbers and boost investment in training.

But a leading trade body has concluded that the “levy has failed on both counts” and needs "urgent reform".

The Chartered Institute of Personnel and Development (CIPD) said on Tuesday that ministers made an “empty promise” when they said the levy would boost workplace training.

Official figures show the number of apprenticeship starts fell by more than a quarter to 375,000 in the two years since it was introduced.

A survey by the CIPD revealed that just 31 per cent of levy-paying employers have increased spending on apprenticeships because of the tax while nearly six in 10 said it had made no difference. Nearly one in 10 said they had reduced investment in workplace skills because of the burden of the tax.

Under the levy, every employer with a pay bill of £3m or more must pay a 0.5 per cent tax on their payroll. They can then reclaim money through vouchers from the government to spend on apprenticeships.

The policy was intended to reverse a 20-year decline in investment in workplace skills but the CIPD said the measure is flawed and falls far short of what is required to combat the problem.

More than a fifth of 2,000 employers surveyed said they use their levy money on training which would have happened anyway while 15 per cent said they use the scheme to accredit skills which staff already have.

According to 14 per cent of employers, the levy has diverted funds away from forms of training other than apprenticeships that are more appropriate for their organisation.

Lizzie Crowley, skills adviser at the CIPD, said the apprenticeship levy had failed to deliver more investment in workplace training and that employers were “gaming the system”.

Ms Crowley called for a broader and more flexible system that involves all employers with more than 50 staff and is less prescriptive about the types of training it focuses on.

“With only 2 per cent of employers required to pay the apprenticeship levy, the money raised from it was never going to be enough to close the gap that’s been left by the long-term decline in training investment,” she said.

“But if we had more employers contributing, we could make up the shortfall and also help to boost regional investment in skills.”

The CIPD wants a portion of the training levy to be used to create a regional skills fund that would help smaller, non-levy paying firms to provide training.

Chancellor Philip Hammond has highlighted better training as key to tackling the UK’s lacklustre growth in productivity - the amount produced for each hour of work.

The UK lags behind other wealthy economies including France, Germany and the US on this measure.