From education to employment

The Apprenticeship Levy: What’s the problem we’re trying to solve?

Rishi Sunak generated a great deal of attention when, in the spring statement, he suggested that he might be willing to take another look at the apprenticeship levy.  Few skills policies generate such strong – and such divergent – views amongst colleagues.

In this, MH&A’s, first podcast for FE News, we ask: what’s the problem with the levy?  What about it might the Chancellor consider changing – if anything at all?

Join our founding partner, Professor Matt Hamnett, apprenticeship expert and former COO of the National Apprenticeship Service, Jaine Bolton, and CEO of the Recruitment and Employment Confederation, Neil Carberry as they explore – without mincing their words or agreeing a great deal – how effective the levy has been, and what might need to change.

They end the podcast by making some predictions about how the Chancellor’s period of reflection might play out – so stick around until the end.

If you would like to read a transcript of this episode you can access it below.

Learn more about MH&A on our website and LinkedIn.

The Apprenticeship Levy: What’s the problem we’re trying to solve? – Transcript

Matt Hamnett

Hello, and welcome to the first MH&A podcast for FE news. My name is Matt Hamnett, I’m the Founding Partner of MH&A and I’ll be hosting the session today. I’m joined today by two of my absolute favourite people in the skills system, if not far, far beyond that. Jaine Bolton and Neil Carberry.

Matt Hamnett

Jaine, for the few people that aren’t aware of your role and influence in the apprenticeship system, could you give us a little introduction?

Jaine Bolton

I’ve been working in the skills system for over 30 years. For five or six of those years, I was Chief Operating Officer at the National Apprenticeship Service, responsible for the growth of apprenticeships, over that period, doubling them from 250,000 to over 500,000.

Matt Hamnett

Thank you, Jaine. Welcome, Neil Carberry

Neil Carberry

Hi Matt, Hi, Jaine. Delighted to be here. My name is Neil Carberry. For a day job, I am Chief Executive of the Recruitment and Employment Confederation (REC), which is the trade body and awarding body for recruitment in the UK. So, we examine the recruitment apprenticeship.

But my real reason for being here is that I’ve been hanging around the British labour market causing mischief for about 25 years at the CBI and elsewhere and I was the CBI’s Chief on Education and Skills for about a decade, and I was around at the time that the apprenticeship levy was in development.

Matt Hamnett

Thank you. Today, we’re here to talk about the apprenticeship levy, and particularly, what’s the problem we’re trying to solve?

I’m sure, colleagues are aware that there was some talk in the spring statement about consideration of the levy and how it operates. I think there’s been a little bit of rowing forwards and backwards since, and Neil might be able to give us the latest.

What I’m really interested in is taking us back a stage to what apprenticeships are for, and then pushing us forward a stage; as we think about the levy through the course of this year, what’s the problem we’re trying to fix considering the role of the levy, I’m going to come straight to you on this Neil, because you’ve been… I’m trying not to say “banging on” about the…

Neil Carberry

…Belly aching

Matt Hamnett

You’ve been belly aching about the levy for quite some time. What’s your problem with the levy Neil?

Neil Carberry

So, I think in life, we all carry our past mistakes with us. And I’ll hold my hands up as your responsible officer at the CBI at the time. I could not convince the civil servants that they were making a grave mistake. Part of the reason I couldn’t convince them was that they thought businesses’ problem with a levy was paying for skills.

I fundamentally don’t think that’s the problem. I think businesses buy value. I think the challenge with the levy has always been that it is too defuse to act as any kind of incentive for employers to solve what I think the problem is, which is doing more in-work training and as apprenticeships go, particularly for younger people who need a route to a skilled career. In England, because it is massively more complex when you get to the devolved nations.

I think that the idea of trying to understand what an apprenticeship is and what we’re trying to get delivered was insufficiently thought through. So, what we ended up with was essentially a tax that jumped fully formed, that businesses had to pay. And a skills system where there were some really good bits, I think business generally still thinks that the move from frameworks to standards in apprenticeships was a good move.

But that money flowed into a system that was insufficiently focused on who I think the clients are. And the clients ultimately are the learners and to some extent their employers. So, maybe what happened is the civil servants got what they wanted. They got the old adult skills budget paid for by someone else. But the actual work of the adult skills budget, which is about helping people access skills. Yeah, big fat fail for me.

Matt Hamnett

Yeah. Now there’s a really interesting point in here. For me, Neil, about what is an apprenticeship? So, when you talk about getting the adult skills budget funded from somewhere else, I think what you’re talking about is one of my favourite threads, which is: What we currently label and fund as an apprenticeship, what any of us really mean by apprenticeship? Jaine you’re, even part of the history on this one.

Jaine Bolton

I’m a real fan of apprenticeships, obviously, and have been for a long time. And I think I’d disagree, Neil, because the evidence is clear in terms of the levy, despite the clunky system, which I would absolutely agree with.

The last few years have shown increasingly how employers have better engaged with apprenticeships, and both from the design of the standards and then the utilization of those standards. And the last few years have also shown how apprenticeships have become more aspirational for young people and their parents.

So, I think something in the system has worked. I definitely don’t think the apprenticeship levy and its introduction has been a failure, I think the opposite of that.

Neil Carberry

So, I think that’s really interesting, Jaine. Let me just tease apart what I think I said, the standards and aspiration piece I would absolutely agree with, and I think there are some really committed businesses who are making some progress. But I don’t think that’s the levy. I think that there are bigger pushes that the levy may have helped, but for most businesses, if you go and talk to a business today, it’s a tax. And in truth, it is just a tax, because it’s a big pot.

I suppose my sense is that we have really great engagement from some businesses, I think we could have even greater engagement in an environment where the levy was more targeted in how you use it, because I personally do think that is a problem that starts dropping year on year. I also think it’s a problem that we’re moving away from the types of apprenticeships that people might enter more commonly at 18.

Jaine Bolton

I think we’re just going to disagree, on whether it’s only seen as a tax? Or is it seen as employers having influence over the funding system and how it works? There are lots and lots of examples, including some of the employers I’ve worked with, high street banks, etc, who really have made the most of their levy, both for their own workforce, and sharing their unspent levy with smaller employers. High street banks, and other employers, including the private sector are doing some really great work in that area.

That said, I think where I’m going to agree with you is not enough employers are involved. Despite some employers making it work, for others, that’s just not happening. And for smaller employers in particular, the system is just really hard work for them. You know, they’ve got to bid in and ask for permission to use the account that’s limited. Their choice of providers, their visibility, I think, is worse than it’s ever been.

So, I think in terms of small providers who were always small employers, who’ve always had the strongest track record in recruiting and training younger apprentices, I think they are getting the thin end of the apprenticeship system. And more needs to be done around that. But fundamentally, I don’t think the system’s broke.

Neil Carberry

So, I think that’s particularly true for small levy payers, because I think one of the blind spots, Westminster and Whitehall had was that the government threw around this and 97% of businesses won’t pay the levy or whatever it was, well, yeah… But that’s because 50% of businesses don’t employ anybody.

You know, most people work for a levy paying employer, and it’s typically not a high street bank. I put in small manufacturing in areas like that, and I think that you’re right, Jaine, that’s exactly where the challenge is. If you’re HSBC or one of these big banks, then you can do interesting things with training your own staff, training incoming staff, and pooling and sharing your levy contributions. I do think the move to pooling and sharing of levy a couple of years ago was a fantastic move. Which certainly, in my time, at the CBI, we strongly supported, not least, because it was supporting some of the most interesting stuff that’s going on in places like WMCA and Manchester. Here, you’re starting to build communities of employers and providers that can align to local economic strategy, and fundamentally can use the bully pulpit on those employers who aren’t doing their bit.

The challenge is still it’s still that question about whether apprenticeships are just how you train your workers in this system, in which case everything has to be an apprenticeship, which was Nick Boles point of view. Or whether it’s part of a system when an apprenticeship does a certain job, and there are other things which you might want to fund in other ways.

And I suspect we haven’t done the hard yards on that. I sit here at the REC, our members place a million temps into workplaces every day, it does feel unfair to me that their wages are levied. And that that levy goes to pay for management apprenticeships at Big Four accountancy firms. I think that’s fundamentally immoral, that we’re giving an MBA level training to people who are pretty well off, off the back of low paid temps.

There’s sort of a big tent discussion that we’ve never really had, because of the way the levy came forward, which was essentially be civil servants going: We do adult skills, we do innovation, and we do universities, and probably after the 2015 Spending Review, we can only afford to have those. Let’s have the skills levy and the government coming back saying no, we have this big apprenticeship target, let’s have an apprenticeship levy, then that kind of burst fully formed.

We’ve done some incremental changes over the years. But there is it is probably time to think about how we catalyse more private sector investment. And that’s not to throw the levy out the window.

Matt Hamnett

So let me come in on this one. Because I think this is one of my favourite kind of topics on this. If you’re a hammer, everything is a nail. And it strikes me that in the system right now, it has to be an apprenticeship because that’s the thing that we have, that’s the thing that we do. And I’ve long thought that there’s a sort of political issue here about the voter recognition factor of an apprenticeship over any other product in the skills system. Which seems over time to have driven their political traffic towards apprenticeships as a label more than as a model, which gives them this monopoly in the system in that sense.

I pretty much agree that the move from frameworks and standards has been very positive to shifting emphasis to that kind of demand side development role… And I think you’re right that sometimes standards in the levy get merged when we talk it, but they’re the different work streams of a reform agenda, weren’t they?

I do worry that we’ve lost the sense that another type of program might be the right solution for a given occupation, for a given sector, and perhaps crucially, for a different age group. And I wonder whether, if we if we found ourselves in a year’s time with a skills levy, not an apprenticeship levy, how much of the current apprenticeship menu would generally recede from view and reinvent itself as the shorter, more focused course? That is probably what we really, really need.

I’m also concerned that, Neil, that you and your mates on the demand side, would really quite like that kind of diversification of what you can spend the money on. So that you can sort of gently and further retire your L&D budget, including the times we hear the suggestion about it being part of your payroll budget, at which point we’re sort of retiring the levy really aren’t we.

Neil Carberry

I’m not going to win friends in parts of the employer community by this right. But this idea that you should be able to fund people’s pay from the levy is absolute nonsense, right? If you’re employing people, you pay their wages, full stop, end of story. But you’re right to be suspicious, in the same way as I wouldn’t trust the provider community as far as I could throw them… I think the provider community and the government are right to be suspicious of the instincts of businesses, but that’s what the government’s actually for. It’s for designing and regulating the market rules. And I suppose my real complaint is I don’t think the market rules are very effective in terms of achieving the best things for the players in the market.

I would actually tighten the rules around bits of the levy, if there’s a public policy goal on young people and routes to careers., some of the levy has to go to that. But let’s also have a debate about that. Well, skills bootcamps are very popular at the moment and doing great things. If a four or five weeks bootcamp works for an employer to get people a job that pays three, four pounds an hour, is that something we think should be levy funded?

Well, it probably pays for itself pretty quickly. And, and it’s a bit easier to deliver on the provider side. So, I think of the government as regulator and designer of the market rather than announcer of things that ministers want to announce, or worse still, announcer of throughput on a system that looks like achievement, because there’s big numbers.

I just worry that we get very focused on having bums on seats in the system. And don’t talk enough about well, what happens to the individuals that we put through that system?

Jaine Bolton

I think in terms of what happens to the individuals in the system, apprenticeships do perform well in terms of people retaining employment and progressing in employment, all the evidence by employer size sector really demonstrates that. And even through the pandemic, it’s really held up well – I think in terms of proving that point. But if you start to expand what the apprenticeship levy can fund, where do you stop?

You know, do we go back to the Train to Gain, days? Do we go back to short apprenticeships, you know, at the beginning of the real growth in apprenticeships, part of that growth was because we were supporting really short apprenticeships, these short programs are bit like Train to Gain in some cases, a bit like schools and boot camps in others.

And what you do if you’re not careful is you erode everything that is good about an apprenticeship, and you say it has no meaning. And it has no importance, I think that then would mean that employers would start to value apprenticeships less. But more importantly than that, young people, and others, because it’s not about age, for me, it’s about the stage that that individual is at, they would have that as their view and their positive view on apprenticeships would start to deteriorate again.

And we don’t want to be there because apprenticeships are held in much higher regard now than they’ve ever been. If you start to erode what you can do, where do you stop? Because an apprenticeship is really tightly defined, some say over defined in some cases, but I think that’s about standards in the development. And if you start to meddle around at the edges, I worry about where we would go.

We want the best of skills bootcamps, but what you’d get is all skills bootcamps, and they’re not all good. And just defending training providers, which I didn’t know was my job, but there are so many really great training organisations out there from some of the biggest in the country to some of the really small ones, especially, the GTA network, who do an amazing job. And I think we hear so little of that versus when it all goes wrong.

And I do think there is something about government regulating and managing the training provider network that would really help employers, whether they’re big or small, but particularly small employers understand where they should go to purchase their apprenticeship support from. So, we think we should defend the best of providers, but I understand that there’s more to do.

Matt Hamnett

Advocates always talk about the best, as though they all are. All three of us, I think have worked with employers, that are genuinely committed to training their workforce and playing a role in the community.

We’ve know that there are employers that want to make a P&L book out of the skill system. And I’ve always thought that it’s a weakness of the kind of advocate position on the demand side, not to acknowledge that good wedge of employers who are where they need to be on this stuff. And it strikes me that the same true on the supply side, I’ve been a kind of sceptic and at times critic of supply, and I think the data that dropped quite recently on apprenticeship achievement rates is a really stark moment for us. A third of apprentices don’t achieve. In what other part of the education system would we think that’s okay?

But the best of providers are fantastic. I can think of the advocates and the representatives of the supply side, which I’ve slightly separated myself from in, in public discourse, because I don’t think we can say that all supply is great because it isn’t.

Neil Carberry

I’ve made that point to the to the AOC Conference, which is, you know, I love the college sector. I think it’s fantastic in lots of ways. But I do think one of its weaknesses is its inability to just say: some provision is fantastic, some provision is great and can develop, and some provision, we need to address. And I think that level of openness on both sides of the debate is absolutely critical to making some progress.

Do I think that British employers take skills seriously enough? Well, I think they take it more seriously now than they did maybe 10-15 years ago. But there’s a long way to go. And I think lots of businesses are currently in the throes of being taught some hard lessons by the labour market. We can’t ignore the issues of labour and skills supply.

I think, coming to Jaine’s point about what where does it stop? Well, this is my point about market design. What you don’t want is anything that looks like a free for all. And I think on both sides of supply and demand, you’ve got people who will try and make a book of stuff driven by what they perceive to be a gap in the market, or we might call it a loophole. I think government needs to get better at commercially understanding incentives on employers and providers.

For most CBI members, for instance, the levy made the cost of each individual apprenticeship higher, not lower, which you might not mind if you’re the HR director, but you’re going to mind if you’re the finance director. When you fully load the costs, you might choose to make some differences to how the levy works even for apprenticeships. For me, I think you just make sure that you tightly control what other things come into the into the band if you expand it.

Coming to Jaine’s point, that again, that specification of holding the quality mark, and making the quality the measure rather than the vehicle itself is super important to protecting apprenticeships, enhancing the standing of apprenticeships, building on the progress we’ve made, and making sure that we don’t have a large group of relatively disenfranchised employers who feel they’re paying for something they’re not getting. I’ve said to two Secretaries of State passing, what I’d like to be in a position where secretaries of state came to business groups and said we’re putting the levy up. And for that not to be a problem because the system is working.

My go to example of this is there is no business campaign against automatic enrolment into pension schemes. And it costs far more than the levy. And it’s been around for 10 years and there never has been. And it’s because businesses can see the point. I think some of that is perhaps we didn’t sell how the levy was structured effectively enough to leadership at the time of introduction. Some of it, I think is actually just making sure that levy paying businesses have a menu of tightly controlled, high quality things that they can pull on.

Matt Hamnett

Neil, thank you. As you know, I’m always incredibly protective of my former colleagues and friends in the department, I think it’s incredibly easy to overlook how hard it is to reconcile the set of things you have to reconcile, to settle on national policy for anything.

That said, the thread that I’ve pulled with departmental colleagues a number of times over the 10 odd years since I left, has been your point, what’s the blueprint that we’re working towards for this market? What are the solutions that we want in this market?

Because they get us where we want to get. You know, do we want heavily private equity backed suppliers? Do we think that apprenticeships are the only solution in the market? Do we think that the apprenticeship program getting older and higher level is what we want? And if it isn’t, how are we going to regulate and change the market to do that?

So, when we might characterise some of the discourse about whether we’re in fact reviewing the levy in the next six months, or not as a sort of Josh Lyman’s secret plan to fight inflation matter.

What I’m really interested in final thoughts from each of you is what’s going to happen in the next nine months? Who’s going to push to what and what are they going to get? I’ll come to you first Jaine.

Jaine Bolton

I think there will be a push for government to do more to ensure that the supply side is good and getting better. And that those that are pulling the system down are taken out of the system. Sounds quite dramatic, doesn’t it? But that’s what’s needed. We need to whittle that out.

I think there will be a lot of support for retaining the levy just for apprenticeships, because the connection between the two has a massive impact on the reputation of apprenticeships and what we mean by them. And I hope that there’s an adult conversation about why apprenticeships aren’t just for young people, it’s about the stage you’re at and not the age you’re at. They are so important for young people. And I think there’s much more we can do around incentives there to stimulate more demand from smaller employers.

But I hope that the apprenticeship brand is really protected. I don’t want to go back to that point at which I started the National Apprenticeship Service, where we were fighting for it to be seen as a worthwhile opportunity for young people, because I think it’s proven itself. With so much investment from employers in the standards and the assessments, and so much investment in employees in making delivery work where they can. I think it would be a shame to go backwards from that.

Matt Hamnett

Thank you Jaine, Neil:

Neil Carberry

So, I agree with that last point. I mean, if we go back 11 years, lots of the apprenticeship system was rebadged Train to Gain and it wasn’t doing us any credit, I think we’ve come a long way on the apprenticeship system.

I look, I’m a bit of a sceptic of Chancellor’s who announce spring statements with full of cost increases for business and then say: Oh, I might think about something about productivity in the autumn, as a salve to make it not quite as challenging a statement. And we’ve heard this before. And sometimes things have happened, the ability to share a levy came out of one of these commitments in the past.

I think there are two big things that mean, the skill system might finally be getting more top-level political attention. Because I think at the Treasury, it’s just it’s seen as just a way of funding something that they no longer have to fund through the tax bases. One of those things is just we are in a world where we are going to be massively labour and skill short for quite a few years. And that will increase the incentives on employers to invest. If it doesn’t happen, it would massively decrease the growth potential of the UK economy.

So, I think you’re getting a different angle on the kind of cultural and economic significance of skills, which I hope will lead us to that kind of big tent discussion of the place of apprenticeships in the wider skill system, their importance, and also the other things that we need to do. A levy is just a levy, the levy is here to stay. It’s a question of how we then structure that.

I think there is always a division in the business community. And I remember from my days doing pensions at the CBI, that if you ask the pensions manager in a FTSE 100 something, and you ask the chief executive one thing, you get different answers. Let’s be clear, whatever people say at the, at the skills level inside companies, the levy is perceived as a major public policy problem by almost every C suite executive who isn’t in one of the sweet spots of benefit from where we are now.

In an environment where government business relations are strained, there will be a little bit of pressure there to do something that looks like moving, even if it’s not changing the terms of the levy to fund some things, which aren’t apprenticeships. I think broadly, we should think about how that’s structured. but through the through the lens of ultimately business’s interest should not be in somebody else paying, it should be in the system meeting the needs of the learners that they need to put through qualifications.

Matt Hamnett

Thank you now and I think there’s a there’s a really important point in there for me about the prevailing kind of political, small B big B context with business.

My concern is that the next nine months, generate a momentum that leads to a relaxation of the apprenticeship rules in a way that is politically astute, but that isn’t great strategic policy given the need to upskill the workforce. I say this as a child of the Leitch Review some 15 years ago, I think we’re quite a long way off our 2020 target in 2022. The risk for me as a political tie takes us to a relaxation that isn’t good strategic policy.

And I think I just finish on a point just to reinforce the demand side guys strategic policy wisdom, at the point where you let people use the levy to pay for wages, we should just give up.

Thank you both so much for your time today, thoroughly enjoyable speaking to each of you, let alone, both together. Some really interesting points in there and I think a number of points that we’ll want to go back to in future MH&A podcasts, pieces, articles, graphs, charts and other things for our friends at FE News.

So, look forward to your feedback in what I’m sure is a comments section under the podcast and to future discussions over some topics that we may have touched on here, and other over the year to come. Thank you all.

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