Sunak should act on the failing apprenticeship levy as youth unemployment crisis deepens

The government shouldn’t apologise for trying to get businesses to invest more in training young workers but the levy has coincided with a sharp decline in apprenticeship starts, writes James Moore

New apprenticeships have fallen since the introduction of the levy (Getty)

If the chancellor is serious about raising business taxes, which has become one of the more contentious pre-Budget talking points, there is one way he could both throw them a bone and maybe do some good. It would be to signal plans to reform the apprenticeship levy. 

The intentions behind the policy – which imposes a payroll tax of 0.5 per cent on businesses with wage bills of £3m or more – were good. 

The money raised goes into a “digital fund” which payers can redeem against the cost of training apprentices on the basis of use it or lose it. It was later tweaked to allow them to share their levy funds with other companies. Those in their supply chains, for example.

Yet businesses remain unhappy. They continue to complain that accessing the funds is complex and unwieldy and that there were too many restrictions on how they can be used. 

When I’ve previously raised the issue with the Department for Education, which oversees the scheme, the response has been blunt; some variation on “we’re not going to apologise for getting businesses to spend money on training young people”. 

The trouble is that the numbers support former CBI director general Carolyn Fairbairn’s contention that the policy is a “failed experiment”. 

Prior to the levy’s introduction, apprenticeship starts had been on an upward curve, reaching a high of 908,700 in 2016-17.

The encouraging trend went into reverse shortly after companies started paying it and by 2019-20 the number had fallen to 719,000. While new apprenticeships were falling long before Covid-19 landed on these shores, it has only served to exacerbate the issue. 

Businesses have come to see the levy not as a resource they can use to help them draft and develop young workers but as just another tax. 

The government is right to say that it shouldn’t apologise for taking steps to improve the skills and training available to British workers, and especially younger British workers. Nor was it wrong to try and force the hands of businesses.

Britain has long needed to invest more in the skills of its workers and if businesses had recognised that and attended to the issue themselves, the government wouldn’t have felt the need to act and they wouldn’t have been left with a failing system they intensely dislike. 

But those numbers tell their own story. 

“Crisis” is an overused word but it’s entirely appropriate to describe the plight of young people in the current jobs market.

They have borne the brunt of the recent sharp rise in unemployment, representing six in 10 of those getting laid off. They disproportionately work in the sectors that have been hit hardest by the pandemic – hospitality is a good example – and it will be harder for them to find new employment than it is for those with more skills. 

There is worse to come. The Bank of England thinks unemployment – currently at a five-year high of 5.1 per cent – will peak at 7.6 per cent. A sharp increase is expected when Mr Sunak calls time on the job retention scheme. 

The government’s kickstarter scheme – through which it funds work placements – is another well intentioned programme but the numbers so far created represent only a tiny fraction of those currently getting laid off. Businesses are supportive but it remains to be seen whether these placements will produce a return in the form of sustainable jobs. 

Apprenticeships ought to do better at creating those.

The pandemic presents Mr Sunak and his colleagues with the opportunity to press the reset button as part of efforts to address the jobs crisis among young workers. The bush telegraph indicates something may be on the way.

One way forward might be to offer levy payers a carrot as well as the stick of a tax. Perhaps they could be allowed to use some of their levy to fund wider training initiatives if they create more apprenticeships. But business groups have put forward other ideas that are at least worthy of consideration.