Driving-up employer investment in training - pressing the right buttons

‘Driving-up employer investment in training – pressing the right buttons’ includes analysis and recommendations on how to boost the demand for skills and employer investment in training from twenty-one leading organisations and experts.

The report concludes with key messages and recommendations from Campaign for Learning.

Contributors to Driving-up employer investment in skills – pressing the right buttons’

Louise Murphy, Economist, Resolution Foundation
Dr Vicki Belt, Deputy Director, Enterprise Research Centre, Warwick Business School
Becci Newton, Director, Public Policy Research, Institute of Employment Studies
Neil Carberry, Chief Executive, Recruitment and Employment Confederation
Ewart Keep, Professor Emeritus, Education Department, University of Oxford
Sam Alvis, Head of Economy, Green Alliance
Dan Lucy, Director of HR, Institute of Employment Studies
Natasha Waller, Policy Manager, LEP Network
Jovan Luzajic, Acting Assistant Director of Policy, Universities UK
David Hughes, Chief Executive, Association of Colleges
Paul Bivand, Labour Market Consultant
Aidan Relf, Skills Consultant
Stephen Evans, Chief Executive, Learning and Work Institute
Robert West, Head of Education and Skills, CBI
Lizzie Crowley, Skills Policy Adviser, CIPD
Anthony Painter, Director and Daisy Hooper, Head of Policy and Innovation, Chartered Management Institute
Jane Hickie, Chief Executive, AELP
Mandy Crawford-Lee, Chief Executive, UVAC
Ian Pryce, Principal, The Bedford College Group
John Widdowson, Board Member, NCG
Stephen Isherwood, Joint Chief Executive, Institute of Student Employers

CFL's ten 'takeaways' from the report are:

1. Employer spending on training is a large share of GDP.

In 2019, employers spent £39bn on training in England. This is equivalent to 1.8% of UK GDP and the same budget as the Ministry of Defence in 2019/20. 

2. Employer spending on training must be viewed in the context of business investment in capital and R&D.

Between 2015 and 2019, UK businesses performed poorly on capital investment and R&D investment whilst employer spending on training stalled. Employers, therefore, seem to have performed relatively weakly on both capital investment and spending on training.

3. Employer investment in training must be seen in the context of a highly dynamic labour market.

There are between seven and eight million job changes each year, equivalent to 20-25% of the workforce.  Nearly one in five of the workforce are temporary workers, have jobs with low-or-zero hour contracts or are self-employed. In addition, net worker migration into the UK is in excess of 200,000 a year. Clearly, there are strong signals for employers to recruit skilled workers from the external labour market rather than invest in skills training.

4. Employer skills are a ‘derived demand’.

Policies should focus first on increasing business investment in capital - including R&D - and the shift to net zero, which will drive up employer demand for skills. Simultaneously, we need to improve the quality of British management so that organisations introduce new product development and service delivery strategies, which in turn will also boost skills demand.

5. Skills policy is in a funding cul-de-sac where skills are needed to boost growth, but growth is needed before more public funding is available for skills.

A mix of fiscal Incentives and extra public spending is required to nudge employers to invest more in training which increases labour productivity. Too much attention is currently focused on the average number of training days per trainee provided by employers which in 2019 was 6.0. Six days is not sufficient to develop the skills necessary to boost labour productivity. For example, using the benchmark of a minimum of 46 days off-the-job training for apprenticeships in the year, we need to know how many employees received a) 46 days training; b) 23 days training; and c) 11.5 days per year. Training of these durations is more likely to boost productivity.

6. Employer investment in skills training is a costly business. There are two costs to employer expenditure on skills training.

The first is the cost of provision, and the second is the cost of wages paid to trainees. In 2019, employers in England spent £39bn on training. Half of this was spent on the wage costs of trainees. In 2019/20, DfE spent £1.9bn on apprenticeships. There is no official estimate of how much employers spent on the wage costs of apprentices, but a rough calculation is £5.9bn. For employers, having ‘skin in the game’ is more than making a contribution to the cost of training; it also includes the wage costs of trainees and apprentices.

7. There is no consensus on the operation of the apprenticeship levy and the funding of apprenticeships in England.

Both politicians and stakeholders in the post-16 education system have differing views over the future of apprenticeship funding. Before any radical change is introduced, policy makers should recognise that the apprenticeship budget is the only large-scale, employer-facing programme that seems to encourage employer funding of skills training that can contribute to labour productivity. 

8. We need a transparency review of how apprenticeships are funded in England.

At the time of each Spring Budget, the Chancellor should set out a) the forecast yield from the UK Apprenticeship levy for the forthcoming year b) the allocation of public spending to the devolved nations (Scotland, Wales and Northern Ireland), and the allocation to the DfE for spending of apprenticeships in England. This will provide a clear baseline of the aggregate funding available for apprenticeships to both levy and non-levy paying employers.

9. There is a strong case for funding apprenticeships for 16-17 year olds in England through general taxation.

Employers do not contribute to the cost of 16-18 academic and vocational education, and nor should they towards apprenticeships. It is estimated that the cost to the Treasury is in the region of £300 - £350 million per year.

10. The dynamism of the UK labour market means that employer-driven skills policies can only achieve so much of the upskilling and reskilling required by the workforce.

Employer-driven skills policies need to be balanced by the development of strong, individually-driven skill strategies, so that adults can train and retrain for new jobs, change careers and work longer as the state pension age rises.

Download the full report.