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Training is vital – but this scheme is risky

Newspaper article

There’s a problem. We must do something. This is something. We must do it. That pretty much sums up the UK approach to training and skills policy. And from this April we will be trying another something.

Well, good, we do need to do something. That there is a problem with low levels of skills in this country is undeniable. What’s happening in April is that larger employers – those with a paybill of more than £3 million – will be faced with a new apprenticeship levy of 0.5% of their paybill. In return they will be able to draw down on what they have paid so that there will be no cost to them of any apprenticeship training they offer.

With this, of course, goes a target. We are supposed to have three million apprenticeship starts over the next five years.

What’s not to like? Everyone loves apprenticeships. Employers will be forced to pay their way; they will have a clear, strong incentive to invest in training; the government is clearly committed to upskilling millions of young people. Marvellous.

Well, no. Pretty much everything about this policy gives comes with flashing red warning lights. Let’s take the levy itself. It should raise about £3 billion a year. So £3 billion extra for training? Not likely. More than £2 billion of that will simply fill the Treasury’s coffers. The plan is that there will be some extra money for apprenticeships, but most of this apprenticeship levy will not go to increasing training, it’s just a payroll tax – and as such will lower wages. Of course the government has to raise revenue, but introducing a payroll tax and calling it something else is certainly not an honest way to do it.

Perhaps not everyone will join me on my fiscal high horse about that. What about this though? The external costs of training will be essentially free for employers. That should certainly increase the number of things called apprenticeships. But it threatens to do two other things. It will lead employers to rebadge just about anything they can as an apprenticeship, and it will ensure they have absolutely no incentive to shop around for the lowest cost training. Now the government is perfectly well aware of this. That’s why they are putting in place a comprehensive and complex regulatory regime to control the costs and quality of the training on offer. I sincerely hope that works. If it doesn’t, the risks to the public finances could be substantial. The best case scenario, though, involves acres of red tape.

Then there’s the target. I have two problems with this. The first is about what counts as an apprenticeship. My arithmetic suggests that 3 million over 5 years makes 600,000 a year. That’s would be pretty much an entire cohort of young people every year. So if these apprenticeships were what you and I might think of as an apprenticeship, something aimed at young people as they set out in the labour market, we would need nearly every young person in the country to do one to meet the target. But actually that’s not what an apprenticeship is nowadays. Getting on for half those embarking on an apprenticeship last year were over the age of 25. That’s where all the growth has come from since 2010. Now don’t get me wrong. I’m all in favour of high quality training being open to people of every age. But simply rebadging training as apprenticeship in order to hit a target makes little sense. And it is for these older employees that the increase in subsidy is greatest.

My second problem with the target is just having a target at all. We’ve had lots of training targets in the last 20 years. They have not worked. Well they have worked in the sense that the targets tend to have been met. But they have not achieved much useful. All the effort has gone in to meeting the target. The last Labour government boasted about the huge numbers of adults getting level 2 (equivalent to GCSE) qualifications in pursuit of its targets. It made less of the evidence that many of these qualifications were often worth little in the labour market.

And then there’s another target even sillier than the main one. Every public sector body with more than 250 employees has to ensure that 2.3% of its employees start an apprenticeship each year. This is supposed to ensure the public sector does its “fair share”. But public sector workers are far more likely to be graduates to start with – think of all those doctors, teachers and nurses. The target makes little sense for the public sector as a whole. To impose it on each individual employer is absurd.

At best then this is a risky set of policies devised by a government which seems to have learnt little from the failures of recent years. But there is yet another thing which makes me despair: the use of evidence to support the policy. That ought not to be a problem. We know more training is needed and we know that many apprenticeships are excellent value. So why on earth does the government use misleading numbers to suggest that employer provided training has collapsed in recent years, when it absolutely has not? And why do they persist in making the patently absurd claim, based on deeply flawed analysis, that there is a return of £26-28 for every £1 of government money spent on apprenticeships?

If there’s one thing that upsets me more than a poorly designed policy it’s such egregious misuse of evidence. Policies can be fixed. Loss of trust in government use of evidence is harder to put right.

A shorter version of this article was first published by The Times and the content has been reproduced here in full with permission.

Paul Johnson is director of the Institute for Fiscal Studies. Follow him on @PJTheEconomist

Find out more

Book chapter
Chapter 8 of the IFS Green Budget, February 2017, focuses on the new apprenticeship levy and apprenticeship policy and has been pre-released.