A Tax in Search of a Purpose
When the Apprenticeship Levy came into force in April 2017, it represented one of the more ambitious skills policy interventions in a generation. Large employers — those with an annual wage bill exceeding £3 million — would contribute 0.5 per cent of that bill into a digital account, accessible only to fund approved apprenticeship training. The logic was elegant: force employers who benefit from a skilled workforce to invest in producing one. Ring-fence the money. Watch the skills gap close.
Eight years later, the reality is considerably less inspiring. Billions of pounds in levy contributions have lapsed — returned to the Treasury rather than spent on training — because employers either could not find suitable apprenticeship programmes or, more revealingly, chose to redirect the funds toward training that had little to do with the vocational skills the levy was designed to produce. The Institute for Fiscal Studies estimated that by the early 2020s, hundreds of millions of pounds in annual levy contributions were going unspent. Meanwhile, starts in traditional skilled trade apprenticeships — construction, engineering, electrical installation, plumbing — have remained stubbornly flat or declined relative to pre-levy levels.
Something has gone badly wrong. The question is what, and who bears responsibility.
The Graduate Scheme Dressed Up as an Apprenticeship
The most egregious distortion produced by the levy has been the systematic reclassification of existing graduate and management training programmes as apprenticeships. Because the levy funds can only be drawn down against approved apprenticeship standards, large employers — particularly in financial services, consulting, and the public sector — have worked with training providers to have their existing programmes accredited under the apprenticeship framework.
The result is a category of so-called 'degree apprenticeships' and 'higher apprenticeships' that in many cases differ only cosmetically from the graduate schemes they replaced. A management consultancy whose trainees spend four days a week in a client office and one day attending MBA modules has, in the language of the levy, an apprenticeship programme. The bricklayer spending four days on a building site and one day at a further education college also has an apprenticeship programme. The word has been stretched to the point of meaninglessness.
According to data from the Department for Education, the number of higher and degree apprenticeship starts increased dramatically following the levy's introduction, while intermediate and advanced apprenticeships — the level at which most skilled trades operate — fell. In 2011-12, before the levy, there were over 520,000 apprenticeship starts in England. By 2021-22, the total had fallen to around 349,000. The mix had shifted decisively upward in level and, crucially, away from the manual and technical trades that the economy genuinely needs.
This is not an accident. It reflects a deep-seated institutional bias in British public policy toward university-level education — a bias that has distorted the levy from its inception.
The University Bias and Its Consequences
Britain has spent thirty years treating the expansion of university attendance as an unambiguous social good. The result is a country that produces more graduates than its graduate-level labour market can absorb, whilst suffering chronic shortages of electricians, plumbers, welders, and civil engineers. The Construction Industry Training Board has consistently warned that the sector faces a shortfall of tens of thousands of skilled workers over the coming decade. The engineering sector reports similar pressures.
Photo: Construction Industry Training Board, via www.hjmartin.co.uk
These are not peripheral concerns. They are central to the government's stated ambitions on housebuilding, infrastructure, and the energy transition. You cannot build 1.5 million homes — Labour's target — without the tradespeople to build them. You cannot decarbonise the grid without the engineers to wire it. And you cannot produce those workers through a levy system that has been quietly colonised by management consultancies and HR departments looking to subsidise their graduate intake.
The strongest counter-argument from defenders of the current system is that degree apprenticeships represent a genuine widening of participation — that young people from disadvantaged backgrounds can now access higher-level qualifications through a work-based route rather than accumulating student debt. This is not without merit. The degree apprenticeship route has opened doors for some who would not otherwise have attended university, and that is a legitimate good.
But this argument conflates two separate policy objectives. Supporting access to higher education is one goal. Addressing the skilled trades deficit is another. The levy was designed for the latter. Using it to achieve the former — at the expense of the latter — is a category error that has cost the country dearly.
What a Conservative Skills Policy Looks Like
Reform must begin with an honest acknowledgement that the levy, as currently structured, has failed its primary purpose. That means several things in practice.
First, ring-fencing a meaningful proportion of levy funds — at least a third — for apprenticeships at intermediate and advanced levels in designated shortage occupations: construction trades, engineering, manufacturing, and energy. Second, tightening the apprenticeship standards framework to prevent the continued reclassification of graduate schemes. Third, and perhaps most importantly, reforming the further education funding settlement so that colleges can actually afford to deliver the workshop-based, equipment-intensive training that skilled trades require — currently, many FE colleges lose money on every engineering or construction apprentice they take on.
Underpinning all of this must be a cultural shift that conservatives are uniquely placed to lead: the rehabilitation of skilled manual work as a respected and economically rewarding career path, not a consolation prize for those who did not make it to university. A plumber in London earns more than most humanities graduates. An electrician with their own firm earns more than many middle managers. Britain's policy establishment has spent a generation pretending otherwise.
The Apprenticeship Levy was a sound idea executed in a system rigged against it — and until that system is confronted directly, no amount of tinkering will fix the skills crisis it was meant to solve.
