From education to employment

Driving-up employer investment in training – pressing the right buttons

cfl new report

New report considers how to increase employer investment in training in England as announcement expected in Spring Budget

Government should focus on policies that drive business growth and enable a shift to net zero amongst a range of interventions to boost the demand for skills and employer investment in training, according to a new report released by Campaign for Learning today (Tuesday 14th March).

The issue of employer investment in training was raised by then Chancellor Rishi Sunak in March 2022 when he noted the amount UK companies spend on training their employees is relatively low.

It is expected that at the Spring Budget chancellor Jeremy Hunt will respond to his predecessor’s statement and that the government will consider whether ‘further intervention is needed to encourage employers to offer the high-quality employee training the UK needs’.

The report, ‘Driving-up employer investment in training – pressing the right buttons’, by Campaign for Learning, considers these issues through analysis and recommendations from 21 leading organisations and experts including representative bodies, think tanks and independent experts. (See below for the full list)

Julia Wright and Mark Corney, editors of the report at the Campaign for Learning, said:

We need to increase employer investment in training, particularly skills training that boosts labour productivity, so we can catch up with our main economic competitors.

“As the report highlights, employer spending on training must be viewed against the backdrop of significant changes and financial pressures for employers.

“These include the end of the free movement of labour between the EU and UK and the introduction of a new immigration system in January 2021, as well as the Covid-19 pandemic between March 2020 and July 2021 and the cost-of-living crisis which has left employers facing higher energy and wage costs.

“The Chancellor now has an opportunity in the Spring Budget to introduce a joint industrial and employer skills strategy backed up by significant fiscal incentives. Incentives should be used to give employers a nudge to increase investment in skills that improve labour productivity.

 “Specifically, the Chancellor in his Spring Budget should extend zero relief to employer national insurance contributions for adult apprenticeships and adults on part-time higher technical qualifications and skills bootcamps.”

There are ten ‘takeaways’ from this report.

1. Employer spending on training is a large share of GDP.

In 2019, employers spent £39bn on training in England. This is equivalent to 1.8% of UK GDP and the same budget as the Ministry of Defence in 2019/20. 

2. Employer spending on training must be viewed in the context of business investment in capital and R&D.

Between 2015 and 2019, UK businesses performed poorly on capital investment and R&D investment whilst employer spending on training stalled. Employers, therefore, seem to have performed relatively weakly on both capital investment and spending on training.

3. Employer investment in training must be seen in the context of a highly dynamic labour market. There are between seven and eight million job changes each year, equivalent to 20-25% of the workforce.  Nearly one in five of the workforce are temporary workers, have jobs with low-or-zero hour contracts or are self-employed. In addition, net worker migration into the UK is in excess of 200,000 a year. Clearly, there are strong signals for employers to recruit skilled workers from the external labour market rather than invest in skills training.

4. Employer skills are a ‘derived demand’. Policies should focus first on increasing business investment in capital – including R&D – and the shift to net zero, which will drive up employer demand for skills. Simultaneously, we need to improve the quality of British management so that organisations introduce new product development and service delivery strategies, which in turn will also boost skills demand.

5. Skills policy is in a funding cul-de-sac where skills are needed to boost growth, but growth is needed before more public funding is available for skills. A mix of fiscal Incentives and extra public spending is required to nudge employers to invest more in training which increases labour productivity. Too much attention is currently focused on the average number of training days per trainee provided by employers which in 2019 was 6.0. Six days is not sufficient to develop the skills necessary to boost labour productivity. For example, using the benchmark of a minimum of 46 days off-the-job training for apprenticeships in the year, we need to know how many employees received a) 46 days training; b) 23 days training; and c) 11.5 days per year. Training of these durations is more likely to boost productivity.

6. Employer investment in skills training is a costly business. There are two costs to employer expenditure on skills training. The first is the cost of provision, and the second is the cost of wages paid to trainees. In 2019, employers in England spent £39bn on training. Half of this was spent on the wage costs of trainees. In 2019/20, DfE spent £1.9bn on apprenticeships. There is no official estimate of how much employers spent on the wage costs of apprentices, but a rough calculation is £5.9bn. For employers, having ‘skin in the game’ is more than making a contribution to the cost of training; it also includes the wage costs of trainees and apprentices.

7. There is no consensus on the operation of the apprenticeship levy and the funding of apprenticeships in England. Both politicians and stakeholders in the post-16 education system have differing views over the future of apprenticeship funding.Before any radical change is introduced, policy makers should recognise that the apprenticeship budget is the only large-scale, employer-facing programme that seems to encourage employer funding of skills training that can contribute to labour productivity.

8. We need a transparency review of how apprenticeships are funded in England. At the time of each Spring Budget, the chancellor should set out a) the forecast yield from the UK Apprenticeship levy for the forthcoming year b) the allocation of public spending to the devolved nations (Scotland, Wales and Northern Ireland), and the allocation to the DfE for spending of apprenticeships in England. This will provide a clear baseline of the aggregate funding available for apprenticeships to both levy and non-levy paying employers.

9. There is a strong case for funding apprenticeships for 16-17 year olds in England through general taxation. Employers do not contribute to the cost of 16-18 academic and vocational education, and nor should they towards apprenticeships. It is estimated that the cost to the Treasury is in the region of £300 – £350 million per year.

10. The dynamism of the UK labour market means that employer-driven skills policies can only achieve so much of the upskilling and reskilling required by the workforce. Employer-driven skills policies need to be balanced by the development of strong, individually-driven skill strategies, so that adults can train and retrain for new jobs, change careers and work longer as the state pension age rises.

Download the full report and recommendations here.

Driving-up employer investment in skills – pressing the right buttons’

  • Louise Murphy, Economist, Resolution Foundation
  • Dr Vicki Belt, Deputy Director, Enterprise Research Centre, Warwick Business School
  • Becci Newton, Director, Public Policy Research, Institute of Employment Studies
  • Neil Carberry, Chief Executive, Recruitment and Employment Confederation
  • Ewart Keep, Professor Emeritus, Education Department, University of Oxford
  • Sam Alvis, Head of Economy, Green Alliance
  • Dan Lucy, Director of HR, Institute of Employment Studies
  • Natasha Waller, Policy Manager, LEP Network
  • Jovan Luzajic, Acting Assistant Director of Policy, Universities UK
  • David Hughes, Chief Executive, Association of Colleges
  • Paul Bivand, Labour Market Consultant
  • Aidan Relf, Skills Consultant
  • Stephen Evans, Chief Executive, Learning and Work Institute
  • Robert West, Head of Education and Skills, CBI
  • Lizzie Crowley, Skills Policy Adviser, CIPD
  • Anthony Painter, Director and Daisy Hooper, Head of Policy and Innovation, Chartered Management Institute
  • Jane Hickie, Chief Executive, AELP
  • Mandy Crawford-Lee, Chief Executive, UVAC
  • Ian Pryce, Principal, The Bedford College Group
  • John Widdowson, Board Member, NCG
  • Stephen Isherwood, Joint Chief Executive, Institute of Student Employers

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