Apprenticeship boom a poor use of public funds, says IFS

The Institute for Fiscal Studies says the Government is moving too quickly, and most of the money raised by the Apprenticeship Levy won't be spent on apprenticeships.

The Government wants to create 3m new apprenticeships in just five years (sturti/Getty)

Improving the skills and training available to young people through a sharp increase in the number of apprenticeships is one of the Government's better ideas in principle.

So is taxing big businesses to pay for it. Given the way in which that the Treasury has been steadily decreasing their corporation tax burden, they ought to be able to afford it.

Unfortunately, as is so often the case, it is the way ministers propose to achieve their aims that is flawed.

For a start, the sheer scale of the plan is problematic. As the Institute for Fiscal Studies has noted in a new report, the creation of 3 million new apprenticeships in just five years was always going to create problems, not least with ensuring that they are all worthwhile to the people who take them up.

It also raises questions about the method of funding. The Apprenticeship Levy is a payroll tax which affects employers with wage bills of above £3m. It therefore only applies to 2 per cent of employers.

Unfortunately, no less than the Government’s own Office for Budgetary Responsibility estimates that it will hit wages, to the tune of 0.3 per cent, and at a time when the Brexit induced weakness in sterling is stimulating inflation.

The OBR has also raised concerns that most of the £2.6bn raised won’t actually go towards funding apprenticeships - the budget for the plan is considerably lower.

Both employers and employees might therefore find they're equally as unhappy about it.

However, if it achieved a good result, if the levy were to result in a more highly skilled and productive workforce, and created lots of opportunities for young people who have borne the brunt of austerity, then their unhappiness could easily be borne. The levy would be justified.

Unfortunately, the IFS points out further flaws. For example, much of the training the Government is proposing to fund through it is training that would have occurred anyway. Businesses could get some of their levy back by simply re-packaging what they already offer. The IFS also questions Government claims of a collapse in employer based training. If there's a lot more training going on than the Government thinks, then there might just be a lot of re-packaging going on.

The issue of funding, however, pales by comparison to the issue of quality. If lots of these new apprenticeships fail to come up to snuff, it could de-value the good ones that already exist and dissuade young people from taking up valuable opportunities.

That is a real danger with 600,000 a year coming on stream. Ofsted has already expressed concerns about some recent schemes and the IFS frets that the Institute for Apprenticeships may find itself under pressure to approve new standards too quickly.

While the IFS questions the potential returns from the investment of public funds into apprenticeship it (rightly) concedes that apprenticeships still provide better outcomes than other forms of vocational training and admits that there is a good case for expansion. At issue is the pace of that expansion.

Ideally ministers' grandiose targets should to be moderated to allow the programme to proceed at a more gradual pace that would allow for more effective quality assurance.

Altering the plan in line with this recommendation would result in the Government taking some flak. But it would be the grown up response. It would be novel for ministers to behave like adults. But they might be rather surprised at the goodwill it engenders.