What is AELP doing in light of the budget?
Last week’s budget was the first highly anticipated set piece event of the new government. Across a number of events since the General Election, MPs and Ministers have been telling audiences ‘wait for the Budget’. What we found in the Budget was a mix of optimism for the role of skills and yet further financial pressure brought to bear on training providers.
The Budget can be summed up in six words: higher spending, higher taxes, higher borrowing (or is that four words…?). It brings the share of tax as a percentage of GDP to a historic high at a time when other Western European countries are experiencing the same, due to a combination of ageing population and low growth. This highlights the need for the government to get the economy growing again, to increase tax take and reduce social security spending. With that in mind, the government changed its fiscal rules to allow significantly more capital spending, with Rachel Reeves emphasizing this focus with the mantra ‘invest, invest, invest’.
Emphasis on investment not much matched by investing in human capital
However, this emphasis on investment wasn’t entirely matched by investment in human capital – in skills. Yes, there were pots of money announced, but nothing that suggests a transformative role for skills in the next few years. We heard about £300m ‘for further education’, with little information beyond it being for revenue. We heard about £950m Skills Capital Fund, likely once more not available for independent training providers. We heard about £40m for Foundation Apprenticeships, a welcome initiative, which will see money better spent. We also heard about a further delay in the Lifelong Learning Entitlement until January 2027.
What we didn’t hear about was an ambition to bring revenue generated by the Apprenticeship Levy in line with the apprenticeship budget. According to the Office for Budget Responsibility the Levy is due to raise £4.7bn by 2029/30. Assuming the apprenticeship budget remains £2.7bn, that would mean a Treasury top slice of around £1.5bn. That is money raised for skills not being spent on skills, at a time when we want to be encouraging employers to invest in people. We also didn’t hear anything about the future of Bootcamps, or about lifting growth caps on 16-19 provision, allowing independent providers to expand provision, reach the most disadvantaged young people and ease the burden on the system.
Concern over employer National Insurance Contribution rises
Hearing from members, the biggest concern they have from the budget is undoubtedly the rise in National Insurance employer contributions. The rise, from 13.8% to 15%, will cost providers tens, possibly even hundreds of thousands, per year in tax bills for each provider. That is money that would have been spent on retaining staff, on supporting learners to get quality training and on bringing employers into the apprenticeship system. Though it is hard to be specific, AELP estimates the total cost to independent training providers as £25m - £35m. When you combine this with the rise in the apprentice minimum wage from £6.40 to £7.55 you get a challenging landscape for hiring and training apprentices.
In mitigation, the government has promised to reimburse public sector bodies, including colleges. However, this will not be a mitigation for independent training providers, who deliver 65% of apprenticeships. Once again, they are on the wrong end of a lack of parity with other education providers.
There is one silver lining to these changes. The increase in employer National Insurance contributions makes employing apprentices under the age of 25 and earning less than £50,000 a year more attractive because employers still do not have to pay National Insurance contributions on them. Its not much, but it is something.
AELP’s response
AELP acted quickly in response to the budget and met with officials at the Department for Education within an hour, seeking clarity on the announcements, and pushing to hear whether government had undergone an impact assessment for the changes. We managed to get a change in the language around the £300m for further education, which was initially badged for colleges, but now appears open to all further education providers (again, little information on delivery method etc).
AELP has also written to the Department for Education permanent secretary to outline why this lack of parity with colleges is so damaging for the economy, for learners and for employers. We have also highlighted the impact the National Insurance rise will have as a result of independent training providers not being reimbursed.
We have also written to key MPs to highlight the impact of the changes, and we urge our members to do the same. MPs will be keen to hear about providers, learners and employers in their constituency, and about the impact in their constituency. While one letter to one backbench MP won’t change policy, 650 letters to 650 MP might force some mitigation. At the very least we will continue to highlight the essential role independent training providers play in linking government funded skills programmes to employers.
While the government is keen to ‘invest, invest, invest’, rebuild public services, and get growth back into the economy, none of this will be possible without a well-funded, agile and connected skills system. The government recognises this – skills is one of its seven pillars for growth and a key part of its industrial strategy. What it now needs to do is support providers to help deliver.
What is AELP doing in light of the budget?
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