Is the new Growth & Skills Levy a NEET solution to grocery’s labour crisis?

”One million lives.” Just over a month ago, the review by Alan Milburn into why so many young people are economically inactive began with these three simple but impactful words. The former health secretary described the fact that almost one million 16- to 24-year-olds in the UK are not in education, employment or training (NEET) as “a chronic problem”. And it’s getting worse. Within five years, that number could hit 1.25 million, or one in six young people.

While there are hundreds of schemes to help young people into work – Milburn memorably called it a “spaghetti soup” – one has provoked the ire of fmcg bosses more than any other: the Apprenticeship Levy.

Introduced in 2017, the levy was a real labour of love for former prime minister David Cameron, but it has failed to produce the requisite labour and received very little love. Trade bodies including the BRC and UKHospitality described it as “broken”, while M&S boss Stuart Machin called it “maddening”.

But changes are afoot. Its replacement, the Growth & Skills Levy, was described by the government as “the biggest transformation of apprenticeships in a decade” and comes as part of a £1bn youth employment drive that will “help create 200,000 jobs”. So, with the NEET problem critical and fmcg a key employer, how has the industry reacted to the changes? Will the new levy address its predecessor’s issues? And can it help to solve the NEET employment crisis?

The Apprenticeship Levy required businesses with payrolls of more than £3m to pay 0.5% of that payroll into a centralised pot to fund apprenticeship training. However, the funds expire after 24 months, with businesses unable to access any unspent cash, and the sector has been littered with stories of problems.

In February, Asda claimed it was unable to use £11.7m in expired levy funds in the previous year. The following month, Tesco revealed it was diverting £650k of unspent levy funds into training paramedics. In April, Aldi gifted £300k of its funds to a childcare provider. Retailers complained the levy didn’t recognise the practical skills development needed by the industry, making it difficult for them to draw on the fund.

“The retail industry alone contributes £250m a year toward the Apprenticeship Levy, around half of which it’s unable to use. Plus, 55% of food manufacturers say they can’t use half of their levy funds,” says Harshal Gore, director of economic & workforce programmes at IGD, which last month relaunched its Feeding Britain’s Future programme with a “bold” new approach to tackling the workforce crisis threatening the food industry’s future.

But it’s not just allocation of funds, the Apprenticeship Levy has actually led to a huge decrease in the total number of apprenticeships started (see table, right).

“The Apprenticeship Levy has not delivered on its aims. Since it was introduced, the number of apprenticeships has fallen by a third,” says Joe Dromey, general secretary of the Fabian Society think tank and co-author of a 2025 report titled ‘Levying-Up: How to make the Growth & Skills Levy work’. “We need the new levy to be both more flexible and more strategic, with employers able to invest their funds in high quality training other than apprenticeships.”

‘A cautious welcome’

While Dromey argues the Growth & Skills Levy is “in effect a rebranding” of the Apprenticeship Levy rather than a completely new system, numerous changes have been taking place since it went live on 1 April, with more to come in August and beyond (see box below).

Richard Pennycook, former chair of Skills England and former CEO of The Co-op, says the overall feeling he’s picked up from industry stakeholders has been “a cautious welcome”.

One element of the new levy that’s been broadly welcomed is the introduction of short courses, known as ‘apprenticeship units’. These offer government-funded upskilling to existing employees in 10 critical areas, including AI leadership, battery manufacturing and welding (mechanised) without the long-term commitment to a full apprenticeship.

Louisa Hogarty, chief people & impact officer at Noble Foods, says the shift to the new levy “is a positive step. Greater flexibility, including shorter and more targeted training, better reflects the pace of food manufacturing and supports a ‘little and often’ approach to continuous learning.”

While most employers told The Grocer they wanted to see the units offered go beyond the areas announced so far, shorter, job-focused training should be useful for a sector with a large frontline workforce. But there are risks here, too, according to Billy Huband-Thompson, head of research & policy at the Sutton Trust, which last year released ‘A World of Difference’, a report comparing international approaches to apprenticeship systems with those of the UK.

“If flexibility simply means more levy money used for existing staff training, it may do little to widen opportunity for young people”

Department for Education

“If ‘flexibility’ simply means more levy money being used for existing staff training, rather than creating new apprenticeship starts, it may do little to widen opportunity for young people,” he says. “The test will be whether fmcg companies use the reforms to build genuine entry-level routes into the sector, not just to rebadge training they would have offered anyway.”

For the fmcg industry specifically, the levy will introduce new entry-level foundation apprenticeships at Level 2 in catering & hospitality, and retail service, supply and administration. These, however, have received a more lukewarm response. One retailer says they’re causing confusion and could end up replacing entry-level apprenticeships currently available to all ages with a programme only available to those aged 16 to 24.

Plus, according to Ben George, skills lead at the BRC, there “isn’t too much clarity” on what the apprenticeships will actually look like yet.

“The government is pointing to them as a big new flexibility but, to be honest, they’re not necessarily a priority for the industry. I think there’s enough entry points as it is for entry-level retail apprenticeships that young people can take if they’re just starting out,” he adds. “The progress so far has been underwhelming.”

Further reforms to the new levy aimed at improving flexibility include, in some cases, the reduction in the minimum duration of an apprenticeship from 12 to eight months. Huband-Thompson “can see the rationale”, but points out the Sutton Trust’s research shows that even a 12-month minimum was low by international standards.

“We do need to improve starts and achievement numbers, but it’s vital that apprenticeships maintain a strong currency,” he says.

The government has also removed completion of Level 2 maths and English qualifications as apprenticeship exit requirements. Sarah Wilkinson, central people director at Morrisons, says: “We welcome the Growth & Skills Levy and its commitment to reducing red tape, particularly the removal of mandatory English and maths requirements for apprentices.”

More controversial, though, has been the new levy’s restrictions on some management and leadership programmes and particularly on Level 7 (master’s level) funding for older apprentices. Individuals aged 22 and over are no longer funded at this level through the levy, in an attempt to “refocus investment towards young people at the start of their working lives”.

“The additional flexibility around short courses is to be welcomed, as is the focus on youth and early-stage careers,” says Pennycook. “There’s regret from some in the industry that more mature workers are not going to have that flexibility, but then employers can fund that training anyway. Mature people in the workforce are very often loyal people looking to stay through their career, so why wouldn’t employers invest in them?”

The Level 7 restrictions have already drawn the ire of James Goodman, chief people officer at Asda, who says it will make it harder for apprentices to move from the shop floor into management. This was echoed by numerous sources, who pointed out that with retail and its supply chain accounting for a quarter of all youth employment – making it the largest employer of young people in the UK – removing funded leadership pathways could worsen long-term retention and stability.

“The levy should not force a choice between training young people and upskilling existing staff at higher skill levels,” says Caroline Keohane, head of industry growth at the FDF. “These programmes offer a proven pathway for developing future leaders. Removing them from the levy risks closing off progression routes that work for employers and employees.”

This defunding resulted in a last-minute “rush” from large employers to get employees on to Level 7 apprenticeships, according to Huband-Thompson. “While you can understand the incentives for employers here, this is potentially diverting funds away from opportunities for young apprentices. Even after accounting for this spike, our apprenticeship budget [in the UK] is far too skewed towards more experienced workers,” he says.

“Having a large number of employers not spending all their funds is not a fault of the system – this was the design”

Joe Dromey, general secretary of the Fabian Society think tank

Problems with employers spending levy funds, and the sector’s complaints over a lack of transparency from the Treasury over where unspent money was going, also look set to rumble on. And those voices could get even louder, given the window for employers to spend their money has been halved from 24 to 12 months.

Numerous employers told The Grocer this would add extra pressure to an already-tricky business area, as well as impact their ability to share their levy with the emergency services and other businesses.

Pennycook, though, disagrees with the transparency over unspent funds complaint. “I’m not sure there really was a lack of transparency – it was always: ‘If it’s unspent, the Treasury keeps it.’ Simple as that,” he says. “I’ve always said to colleagues in the industry: ‘Spend your levy. Because otherwise you lose it.’ Employers are going to have less time to spend their levy now, so they’re going to have to be on it. I think as long as employers are planning consciously, it should be OK.”

Dromey also gives retailer complaints over unspent funds short shrift. “The changes will make it marginally easier for employers to spend their levy funds. But it’s important to recognise that having a large number of employers not spending all their funds is not a fault of the system – this was the design,” he explains. “Unspent funds are used to fund the cost of apprenticeship training for SMEs. Looking at the levy fund overall, relatively little goes unspent each year.”

Help for SMEs?

The government has made much of the impact the new levy will have on SMEs. Key changes include apprenticeships for people aged 16 to 24 becoming fully government-funded, rather than SMEs paying 5% of training costs. And from October, SMEs will be eligible for an incentive payment of up to £2,000 when recruiting new apprentices aged under 25.

“We’ve long called for stronger financial incentives to help SMEs hire apprentices under 25, so we welcome the £2,000 payment for employers,” says Tina McKenzie, policy chair at the Federation of Small Businesses.

She adds that while fully funding apprenticeships for SMEs will “really help” and short courses will be “attractive” to many small business owners, “uptake remains low as there aren’t many currently available”.

The incentives still fall short of covering the true cost of taking on an apprentice. Affordability, bureaucracy and the lack of resource to support apprentices through their journey to remain barriers for SMEs in particular.

“Overall, apprenticeships need to be less onerous for small business owners,” McKenzie adds. “Our research shows that over a third of SME employers (36%) who currently employ an apprentice say reduced admin or paperwork would encourage them to take on more.”

“Apprentices I meet are some of the most high-energy, enthusiastic, committed people you can find in the workforce”

Richard Pennycook, former chair of Skills England and former CEO of the Co-op

It’s not just SMEs looking for more help, either. When announcing last month that by 2030 it would offer a further 1,000 roles to young people who have experienced care, the John Lewis Partnership called on the government to allow employers to access Growth & Skills Levy funding for short pre-employment programmes targeting marginalised groups.

“This would enable employers to fund the practical foundations that many young people from difficult backgrounds have not had the chance to build: CV writing; interview skills; IT upskilling; and practical life skills,” said JLP chairman Jason Tarry.

The FDF’s Keohane also regards it as “critical” that more is done to ensure young people are “work-ready” through support for pre-apprenticeship training. She points out that “our industry needs an estimated 197,000 replacement jobs between now and 2035”, according to the National Skills Academy for Food & Drink. “But if we miss the opportunity, businesses will struggle to invest and grow. The government’s apprenticeship reforms have the potential to support more young people into work, but only if the system works for employers,” she adds.

As someone who’s “always been a huge supporter” of apprenticeship programmes, Pennycook hopes it will. “The apprentices I meet are very often some of the most high-energy, enthusiastic, committed people you can find in the workforce,” he says. “So, the more the merrier, frankly.”