It’s time to scrap the apprentice levy completely

Len Shackleton

May 11, 2021

A billion pounds of apprenticeship levy funds (a third of the total sum raised) went unused in the nine months following last May. This should provoke a rethink of government policy.

The levy, conceived in David Cameron’s time but not introduced until 2017, involves all employers with a payroll of more than £3 million a year paying 0.5 per cent of their wage bill into the levy fund. They can reclaim their contribution if they take on apprentices who conform to government-approved schemes.

The scheme was conceived at the time primarily as a means of cutting government spending. The taxpayer had been funding a large number of low-level apprenticeships which were often simply rebadging of basic skills provision. These were sold to employers by ‘providers’ – colleges and private contractors – who profited from the system. These schemes were poor value for money and did little to boost productivity.

The levy has failed in its official objective. Originally intended to increase the overall number of apprenticeships, it actually reduced them. And although there has been some growth in the numbers of higher-level apprenticeships, these remain a small minority, dwarfed by the numbers on ‘intermediate’ (the most basic level, despite the misleading title) schemes.

Apprenticeships have long been popular with politicians. Boris Johnson, for example, has put on his hard hat and high-viz jacket for many photocalls with apprentices. In a speech last year he seemed to offer the post-Covid prospect of guaranteed apprenticeships for all young people, only to have to backtrack when the implausibility of this offer was pointed out.

Whatever politicians say, apprenticeships are less popular with newer businesses where technologies are fast-moving and there is no static body of skills to be imparted to young people – the traditional apprenticeship model dating back to the middle ages and still popular (despite increasing domestic criticism) in countries such as Germany.

Those who do want to access levy funds complain that this is difficult and time-consuming and the levy scheme is inflexible, with only government-approved programmes eligible even though they may not meet specific employer needs. There is also a shortage of suitable candidates; schools and parents – who often regard apprenticeships as just the ticket for other people’s children, but want their own to go to university – do not push bright youngsters in this direction.

For those who cannot or choose not to access levy funding, the scheme simply acts as a payroll tax, something we don’t need at a time when unemployment is expected to rise sharply. It also effectively discriminates against smaller businesses.

Some businesspeople argue that the scheme should be liberalised to allow organisations to spend levy funds on any form of training needs they wish. But the money would often simply go to support activities which would probably be undertaken anyway – such as diversity training – and which may do little for the bigger picture of skill enhancement. It would also maintain an unnecessary government bureaucracy, continuing to take money from organisations and then give it back to them with little added value.

Far better for the government to scrap the apprentice levy completely. Rather than badgering businesses to train people in a government-approved manner, it should concentrate on things which it can influence more directly, such as schools and FE colleges. There is plenty of room for improvement in preparing young people for employment: it is still the case that too many exiting our costly education system are functionally illiterate and thus unlikely to benefit from apprenticeships or any form of career job.


  • Len Shackleton

    Professor Len Shackleton is an editorial and research fellow at the Institute of Economic Affairs and professor of economics at the University of Buckingham.

Written by Len Shackleton

Professor Len Shackleton is an editorial and research fellow at the Institute of Economic Affairs and professor of economics at the University of Buckingham.

One comment

  1. What a selective statistic! It would probably be best to judged things based upon one in which a pandemic does not impact the number quite so much.

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