From education to employment

Looking Ahead to the Spending Review 

robert west

So, it’s 2025 and the new government isn’t quite so new any longer. We’ve had the first budget from the Labour government, and as with recent budgets over the past few years there was little in the way of real game changers in relation to fixing the ‘fragmented and broken’ skills system that Prime Minister Keir Starmer has spoken of. Now our sights need to be focused on the UK Government’s Spending Review. This multi-year review will set spending plans for a minimum of three years and is therefore crucial to the likelihood of many of the skills reforms that many are calling for. Robert West, Head of Education & Skills at the CBI argues that if the much-needed resources to enhance employment opportunities and address skills gaps are not included as part of this review, then it may be game over already.  

The Spending Review and Treasury Transparency

The Spending Review is a government process to set firm spending limits for government departments and other spending plans for the coming years. It is conducted by HM Treasury whose commitment to transparency around investment in skills continues to be questioned. Take for example the concern that funds raised by the Apprenticeship Levy are not fully utilised as intended. In 2022-23 approximately £3.58 billion was raised via the levy, but only £2.55 billion was allocated to the Department for Education (DfE) for apprenticeship funding in England.  

Resource Allocation and Department Planning

The review will set the envelope for the government’s priorities and strategies for skills development. Introducing new initiatives or expanding existing ones will depend on resources being made available. Policy direction is therefore also dependent upon this event, and DfE (along with other government departments) are busy trying to build their individual cases for much needed resources. 

Business Impact and Economic Constraints

The consequences of there not being increased resources for skills are immense. We’ve already seen this government use the argument that businesses will be expected to pick up funding for some level 7 apprenticeships. It seems there is a lack of understanding as to how unlikely it is that things that are defunded will be picked up by business instead. Businesses have less money now than before, so there aren’t spare budgets to pick up extra. Skills budgets come from what’s left over for training and development after you’ve complied with the law. So, National Insurance Contributions reduce the budget first, then the Employment Rights Bill will reduce it further. If firms are talking about not hiring people and even making some redundant, then you can expect they cut skills budgets first – not least because they’re legally required to consider every option to protect jobs before making redundancies.  

A new approach to skills policy was a key plank of the government’s pro-growth pitch to business pre-election, centred on the promise of Levy reform. The planned Growth & Skills Levy should lead to greater freedom for employers to invest in the skills that support growth and opportunity (including, by the way, degree apprenticeships). The more that government seeks to control what employers spend their training budgets on, the greater the risk that the flaws undermining the current Apprenticeship Levy are repeated. Yet if the funding allocation for levy reform is not there in the Spending Review, then the government will fail to deliver on its promise of a more flexible levy that allows for spend on much needed non-apprenticeship training as well as on apprenticeships.  

That all requires resourcing, and ultimately government needs to decide whether it’s interested in changing what existing skills budgets are spent on or increasing total investment in skills. They can’t make progress on the latter until they resolve the Levy.  

Skills Policy Reform and Levy Changes

Economic impact is dependent upon skills. Investing in skills helps improve productivity, reduce unemployment, and support economic growth. The Spending Review will no doubt aim to ensure resources are directed towards areas that will have the most impact, but are we confident that we will get the outcome needed? As the shadow Skills England have acknowledged from their consultations during the autumn, stakeholders want to be part of the co-creation and development of the solution; not just asked to deliver the ‘answer’ which has been developed by Skills England/Government.  

Social Mobility and Stakeholder Collaboration

The government values social mobility, which will also be a factor to consider in the Spending Review. However, what we are seeing at present seems to be robbing Peter to pay Paul, and that will not get us anywhere. The argument for removing Level 7 apprenticeships from the Apprenticeship Levy primarily revolves around cost and resource allocation. Education and skills training are vital for social mobility, and removing funding could limit access for those from less privileged backgrounds. The government could save around £240 million annually by taking some apprenticeships out of eligibility for levy use, but Level 7 apprenticeships, such as those for solicitors, provide a pathway to high-level qualifications for individuals who might not otherwise afford them. The spending review should help level the playing field for individuals from different backgrounds. 

The idea of a spending review is not of itself a bad thing. Long-term planning is needed, and many of our CBI members have pointed to the lack of long-term thinking and strategy in government which in turn hinders confidence in investment. Greater flexibility and agility are needed for the skills system to deliver what employers need now and in the future. The reality however is that funding policy does not line up currently with employer need. 

So, get involved. Provide the evidence and make sure you demand that the government departments, including HM Treasury, involve employers, providers and other stakeholders in genuine dialogue not just token consultations and engagements.  

Let’s also stop the carrots and sticks approach and collaborate. By collaborating, stakeholders can create a more accurate and dynamic understanding of the UK’s skills needs, ensuring that training and education systems are responsive to economic demands. Delivering skills reforms well is a key opportunity to get back to talking about growth. So, give us the resources to grow, otherwise by 2026 it could all be too late.  

By Robert West Head of Education & Skills, CBI


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