Low productivity is the Achilles’ heel of the British economy. Despite vigorous growth and employment levels which have defied gravity, it still jeopardises a sustainable recovery and impedes the development of better living standards. Indeed, last week’s extensive Treasury report highlighted the fact that if the UK’s productivity were commensurate with that of the US, its GDP would be raised by a staggering 31%, leaving every household £21,000 better off per annum.
Apprenticeships are a valuable way of enhancing productivity, and it is unsurprising that the government has pledged to generate three million more over the course of the next five years. Yet this policy will have only a negligible impact if these placements fail to deliver the scientific and technical skills necessary for UK businesses to thrive. The existing funding system would probably lead to this disappointing outcome: Level 2 Construction Civil Engineering and Level 3 Engineering Manufacture apprenticeships cost £10,449 and £14,292 respectively, yet according to Professor Alison Wolf, the funding of three million new apprenticeships would equate to expenditure of just £2,567 on each individual. It is therefore imperative that robust action is taken to supply adequate funding for all apprenticeship frameworks, and to align the apprenticeship system with the demands of the labour market.
The government has now unveiled its plans to tackle this issue: imposing a levy on all large UK firms to fund the apprenticeship starts. Conditional on their training a sufficient number of apprentices, employers will be able to recoup more than they contributed; they will also be directly responsible for their own funding decisions through the digital voucher scheme. This policy was mooted by Professor Wolf in her report, albeit in a slightly more radical guise, and will enable both the quantity and quality of apprenticeships to rise.
In a political climate where cuts seem to fall disproportionately on the apathetic youth, sweeping measures to restructure the apprenticeship system are a welcome development. Indeed, if the levy is a success, then it will not only boost productivity, but will also empower more 16 – 24 year olds to forge rewarding vocational careers for themselves. Yet this radical overhaul has already failed a crucial litmus test after eliciting strong criticism from the Confederation of British Industry. This organisation represents around one third of the private-sector employed workforce, and its annual Education and Skills survey revealed that 68% of businesses anticipated an increased need for staff with higher-level skills over the next three to five years. Moreover, demand for more highly-skilled employees was particularly marked in sectors integral to growth, such as construction (73%), manufacturing (69%) and engineering, science and hi-tech (52%). These statistics have led the CBI to express concern that ‘while [the levy] may fund more apprenticeships to meet the Government’s target of 3 million, it will not deliver the high-quality, business-relevant training needed, and do little to help small or medium sized businesses.’ Yet the government and Professor Wolf surely have arithmetic logic on their side: higher-skilled apprenticeships are also the most expensive, thus requiring greater levels of funding which can be secured simply through the levy.
The scheme will remain shrouded in speculation until the next Spending Review outlines further details of the way in which the mechanism will be implemented. A recent study set out some of the central issues requiring clarification: the criteria for a ‘large’ company, the method of determining the levy rate, and the question of whether it will vary by sector. The government must pay heed to the recommendations of the business community and ensure that the training delivered is financially worthwhile and tailored to the needs of learners and businesses. It might be beneficial, for instance, to draw lessons from the CITB, which has been operating a levy and grant programme in the construction sector for the last fifty years. What is clear, however, is that ambitious and far-reaching reform could make a genuine contribution to the UK’s lamentable productivity levels, whilst relieving the pressure on public finances and providing more young people with access to high-quality training. Guaranteeing future funding levels and incentivising employers to take on more apprentices through the levy is certainly a step in the right direction.