The apprenticeship levy has failed the UK retail industry, with much of the money raised for it returned to the Treasury. As political parties outline the ways they plan to reform it, data shows that skills shortages in retail are as acute as ever. The 2023 Employer Skills Survey from the Department for Education (based on data from 2022) found that retail and wholesale was the sector with the third highest number of skill-shortage vacancies at 56,000. There is no doubt that this issue has worsened for retail in recent years, as 30% of all vacancies in 2022 were skill-shortage vacancies, compared to 18% in 2017, enlarged in part by the increasing need for digital skills as technology continues to change the landscape.

The issue in the retail sector is also being caused by a lack of skills in the manufacturing sector, where 42% of all vacancies are skill-shortage-related. More retailers want to reshore their manufacturing to avoid supply chain disruptions caused by geopolitical issues, or for the sustainability and quality credentials manufacturing in the UK gives them, but a lack of skilled labour in the UK threatens this. Additionally, as retailers want to increase their AI capabilities to enhance personalisation, improve customer service and aid forecasting, they need to upskill their workforce to achieve this.

How the political parties propose to deal with this will be a key point of interest for retailers, as skilled labour is essential for their growth. Many retail executives have already expressed the need for changes to the apprenticeship levy that was introduced in 2017. It has not succeeded in incentivising employer investment in training, nor has it enhanced the quantity and quality of apprenticeships, with any unused levy funds returning to the treasury after 24 months. Numerous retail executives including Nick Collard (chief executive at Bensons for Beds), M&S’s Stuart Machin and Tesco’s Ken Murphy, have all spoken out in favour of reform of the apprenticeship levy, highlighting how important retailers believe it to be.

Retailers’ fundamental concern is closing the skills gap

Its failure is largely, they argue, due to the balance of investment being wrong. Despite the intention of the levy being to distribute apprenticeship aid so that smaller firms can train new employees, the distribution does not work. Smaller companies often still do not have enough funding or resources to train employees, which is why unused funds are so often returned to the treasury. Then, large retailers such as Tesco give more to the levy than they have returned, when they do have the capacity to implement training schemes. Tesco states that every year the government more £20m from it through the levy but it only sees £3m in return. Tesco argues it would be able to do more if it could invest all the money itself instead of it being levied. The fundamental concern for retailers is closing this skills gap, whether that be through apprenticeships or training, and they feel the apprenticeship levy in its current form is hindering their ability to do that.

Labour proposes to replace the apprenticeship levy with a skills and growth levy, allowing employers to spend up to half their levy on training outside apprenticeships. A new body, Skills England, would help decide what training should be fundable. This could provide greater flexibility for retailers, allowing for training investment across employees, not just through apprenticeships. It could help solve the fundamental problem of the skills gap, as it would allow retailers to upskill colleagues throughout their careers, aiding staff retention and helping them adapt to major changes in the industry such as the implementation of AI.

The Conservatives have not directly addressed the levy yet but have pledged 100,000 more apprenticeships by 2029 if they win the general election. The policy, estimated to cost £885 million by 2029/30, would see apprenticeship starts rise to 440,000 by the end of the next parliament, paid for by shutting down “underperforming” university courses. For retailers, it is going to be about the policies that enable the greatest skills development – whether that be in manufacturing, digital or other skills needed in the retail sector, as opposed to the policies that only seek to up apprenticeship numbers.

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