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Apprenticeship Levy — [Caroline Nokes in the Chair]

Part of the debate – in Westminster Hall at 3:37 pm on 11th February 2020.

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Photo of Emma Hardy Emma Hardy Labour, Kingston upon Hull West and Hessle 3:37 pm, 11th February 2020

It is a genuine pleasure to sum up on behalf of the Opposition, and I thank Richard Graham for securing the debate. He gave a thoughtful and considered overview of concerns about apprenticeships. I was particularly interested in his points about the concerns of small and medium-sized enterprises and that businesses paid the levy before many of the standards had been developed and they were able to use their money efficiently.

My hon. Friend Gerald Jones made a clear and convincing argument about why policing needs to be funded effectively in Wales. I hope the Minister will address those specific concerns about the apprenticeship levy in in Wales.

I am delighted that my right hon. Friend Robert Halfon is back as Chair of the Select Committee on Education. I pay tribute to him for the work he has done. His protégés are here in this Chamber. He is passionate about apprenticeships, and the Education Committee has been committed to using them as a tool for social mobility. He made many interesting points. I hope the Committee will delve into the concerns about the apprenticeship levy and investigate them further.

Jim Shannon made an important point about the diversity of skills and equality of access to apprenticeship opportunities. He also made an interesting point about SMEs. Northern Ireland does not have many large industries, so how can companies there benefit most effectively from the levy? Will the Minister comment on regional differences and how they impact on the levy’s effectiveness?

Damian Hinds was marking his own homework by commenting on the apprenticeship levy, but he made some excellent points. I agree that the levy should not be seen as a tax. Using the levy as a way of dealing with the free rider problem is an excellent incentive. I also agree that we need to examine the flexibility. Given that it has been running for three years, it is time for a general review of the apprenticeship levy. I echo his calls for review and reform.

John Howell spoke passionately about social mobility, which many Members have addressed, and about the importance of engineering apprenticeships and how the levy has been used in a more imaginative way in his constituency. I wish all the apprentices well on their route forward. Jo Gideon paid credit to the fantastic Staffordshire University, which sounds like it deserves a visit from our Front Benchers.

If they are done well, apprenticeships can provide employees with the skills, knowledge and behaviours required to survive in today’s workplace. They create new pathways for employment and can be a lightning rod for social mobility, but data from the Office of National Statistics show that our country currently has a huge productivity gap—productivity is 30% higher in France and 35% higher in Germany. The widening gap cannot be ignored as we stand as an independent nation and try to obtain the easy post-Brexit deals promised by the Government.

Given that the Government’s own skills adviser, Alison Wolf, who is hugely respected across the sector, stated to the Education Committee in June 2016 that she “suspected” the decision to make the levy applicable only to large businesses with £3 billion of staff costs was

“one of the things that was decided the night before”,

it is fair to say that the Government’s rushed implementation of the apprenticeship levy has resulted in unforeseen consequences and perverse incentives.

Although I agree that the 2017 reforms have started a national conversation on apprenticeships, and I agree with Carol Monaghan that we should look at prestige and whether we would want our children to follow that pathway—I would definitely encourage my girls to go forward with a degree apprenticeship model—we have to recognise that the overall number of apprentices has dropped since the levy was introduced. Some 509,000 apprentices started a programme in 2015-16, and only 393,000 started in 2018-19—a drop of 23%.

The levy has been overspent and the funds have been rationed for smaller employers. The fall in the number of SME apprenticeships is about 171,000—down an estimated 49% since the levy was introduced. Many colleges ran out of funds for new starts in SMEs, and by the end of 2019 they were not able to meet the demands, particularly in construction and engineering, which are the industries that the apprenticeship levy was meant to support. The Association of Employment and Learning Providers estimates that there are about 30,000 to 40,000 unfilled apprenticeships in SMEs due to the lack of funding.

A recent newspaper report states that the Secretary of State has said that this issue could be solved by moving to the Digital Apprenticeship Service. However, it makes no difference what system is used if there is not enough money in it to start with. The hon. Member for Gloucester commented on passing on part of the levy funds, but SMEs and large businesses have found it overly bureaucratic, complicated and difficult to find a partner to match up with. If the Minister wants to pursue that avenue, we need to consider simplifying the process and making it run a lot more smoothly. The change in the number of apprentices—and the level at which they start, which I will come on to—has been disastrous for some sectors, particularly the care sector. Many care homes are SMEs, and the sector is low margin and low wage. They have been hit really hard by the difficulties in finding apprentices to work there.

Young people have been affected more than anyone else. The number of those starting on level 2 and level 3 apprenticeships, which are predominantly provided by SMEs, has fallen by about 20%. That will not help social mobility. We are not giving our young people the access required to climb the ladder of opportunity. They cannot even get on the first rung.

I am also concerned—this has been echoed by other Members— about the apprenticisation of existing training courses. Chief executive officers have reduced or replaced other training so that they can use the levy. The right hon. Member for Harlow alluded to today’s report in the TES that since 2017 more than £104 million of apprenticeship levy money has been spent on putting senior managers through masters degrees and apprenticeship programmes. David Hughes of the Association of Colleges said:

“This is draining a fixed pot of money dedicated to apprenticeships.”

I support degree apprenticeships and masters apprenticeships, and I support retraining the workforce, but there always needs to be a balance. At the moment it appears that the system is designed to help existing employees who already have higher-level qualifications—sometimes degree and management qualifications—at the expense of 16 to 18-year-olds who are just beginning their careers and need to start at the lower levels. Does the Minister agree with Amanda Spielman of Ofsted, who says there need to be more reforms to the levy to ensure that it is used effectively? I would not want to limit businesses’ freedom and flexibility to use the levy in a way they see fit, but it seems that its design creates perverse incentives for it to be used it at the top end of the levels rather than at the bottom.

As we face our post-Brexit future, we need to look at level 2 starts. I have found some quite scary figures. If we continue on our current trajectory, by 2024 there will be more than 4 million too few people to take up the high-skilled jobs available. There will be 2 million too many with intermediate skills, and more than 6 million too many who are low skilled. Rather than waiting another year or so for the apprenticeship levy review, we need to do it immediately in order to avoid ending up with a problem by 2024, when so many people will be unable to access quality work.

I will make a few comments about social mobility. Before the introduction of the levy, the most deprived 20% of the population accounted for more than 21% of apprenticeship starts at level 4 and above. By 2018 the figure had dropped to 16.4%. With the current levy design, people from more deprived backgrounds are less likely to be able to access higher-level apprenticeships. I wonder whether that is because we have pulled away level 2 and 3 access points, which would previously have enabled them to move up to level 4.

I will now give a list of recommendations, which I am sure the Minister will jot down enthusiastically. We should consider providing guaranteed funding for 16 to 18 year-olds who want to do apprenticeships, be they levy funded or non-levy funded, and they should be treated in the same way as 16 to 18 year-olds who attend college and continue into sixth form. Their apprenticeship should be funded, and I would like to know how we are going to resolve that.

The Treasury should increase the overall spending in schools to match inflation. SMEs should be involved in the standard designs and funded under the current levy system, and the Government should commit to a ring-fenced and guaranteed non-levy budget of at least £1.5 billion, and to separate segregated funding approaches between levy and non-levy employers. Apprenticeships need to be more flexible so that they are able to adapt. We need to consider a three-year cycle of standards reform, and that should involve businesses as well.

I have huge respect for the Minister, with whom I served on the Education Committee, but I believe the Government could show their commitment to FE and skills by appointing a separate FE and skills Minister.