How a graduate levy on employers could help pay for higher education - new HEPI paper

The Higher Education Policy Institute is today publishing a new paper,Increasing Employer Support for the Tertiary Skills System in England (HEPI Report 189) by Professor David Phoenix, Vice-Chancellor of London South Bank University. The report argues that, despite being one of the primary beneficiaries of our tertiary skills system, many employers do not make a significant financial contribution to educating their employees nor have they, in general, facilitated workplace-based training in significant numbers.

The new report argues that the current situation is no longer tenable, given increasing employer skills needs (with skills shortages now accounting for more than one-third of vacancies) and the powerful arguments for rebalancing the costs of higher education across the key beneficiaries of state, individuals and employers.

Professor Phoenix draws on lessons learnt from government initiatives of the last 60 years and builds on recent Government proposals to make a series of recommendations on how employer involvement in the tertiary skills system could be increased and balanced, with state support for lower level gateway qualifications and facilitation of greater engagement by educational institutions.

The specific proposals include:

1. mandating that the non-apprenticeship element of the Skills and Growth Levy can only be used for credit-bearing courses related to regional skills needs, as identified by Mayoral Combined Authorities or Strategic Authorities;
2. replacing Level 2 Levy-funded apprenticeships with publicly-funded Foundation Apprenticeships;
3. supporting the creation of best practice guides for Professional, Statutory and Regulatory Bodies' engagement with universities; and
4. introducing a tax credit mechanism for employers that take on placement students (at Level 3 and above) and using the flexibility of the Lifelong Learning Entitlement to encourage education providers to engage with employers on delivery of work-based provision at Levels 4 to 6.

The report suggests the Government should also consider asking employers to make a more direct financial contribution to the tertiary skills system, given students and graduates are taking on more debt to fund higher education and universities are reporting a loss on publicly-funded teaching, leading to course closures.

Professor Phoenix argues the most equitable way of determining an appropriate level of employer contribution would be to have employers match fund the graduate tuition fee repayments made by their employees, with this money being invested back into higher education. This would raise around £3.6 billion for higher education each year.

The Report includes a Foreword by Professor (Emeritus) Ewart Keep and Professor James Robson of the Centre on Skills, Knowledge & Organisational Performance (SKOPE) from the Department of Education at the University of Oxford.

Professor David Phoenix, author of the report and Vice-Chancellor of London South Bank University (LSBU) and Chief Executive of LSBU Group, said:

‘For too long employers have taken a back seat in our tertiary skills system instead of being true partners in creating the talent they rely on. If the Government is serious about kickstarting economic growth then they must encourage employers to facilitate workplace-based training in much more significant numbers than we have seen historically. In addition, they must create a framework whereby educational institutions are encouraged to engage in the delivery of programmes that address place-based skills needs as well as national skills priorities by working in tandem with employers.'

In a Foreword to the Report, Professor (Emeritus) Ewart Keep and Professor James Robson of the Centre on Skills, Knowledge & Organisational Performance (SKOPE), Department of Education, University of Oxford, write:

‘Successive governments have talked about employer-led skills policy, but the reality is that this leadership has mainly meant asking employers to help design new qualifications and construct ever-more detailed “skills shopping lists” of what they want from providers. Employers have essentially become relatively passive customers of an education and training system rather than an integral partner in and component of that system.

‘This report offers a helpful analysis of the issues and a set of recommendations that can help get a policy debate started. It is an extremely timely intervention and deserves to be widely read and discussed.'

Nick Hillman, Director of HEPI, said:

‘Almost 30 years ago, the Dearing report considered the case for employers contributing more to higher education, but not much happened. Now, Ministers are promised swift reforms to higher education in England and have called for innovative new ideas.

‘Professor Phoenix's latest report shows exactly how employers could be encouraged, even compelled, to contribute directly towards the costs of educating the graduates they employ. His ideas should be discussed, debated and considered urgently as one plausible way to inject new funding into our creaking higher education system.'

Notes for editors

1. Professor David Phoenix is Vice-Chancellor of London South Bank University (LSBU) and Chief Executive of LSBU Group.  His previous reports for HEPI are: Making a Success of Employer Sponsored Education (2016); Filling in the biggest skills gap: Increasing learning at Levels 4 and 5 (2018); Designing an English Social Mobility Index (2021); and Connecting the Dots: The Need for an Effective Skills System in England (2023).
2. LSBU Group, which includes London South Bank University, South Bank Colleges and South Bank Academies is a collection of like-minded but distinct specialist organisations, which work together under one academic framework to provide educational pathways for the learners of south London.