Reuse wasted Apprenticeship Levy funds to plug £63 billion digital skills deficit

Wasted government funds should be directed to nearly half of engineering firms suffering from a digital skills gap, says the Institution of Engineering and Technology (IET), as a digital skills deficit is costing the UK economy £63 billion a year(1).

In a fresh review by the IET of skills within engineering and technology – a key sector to help the UK reach its net-zero targets – shockingly 47% of employers report a technical skills gap within their current workforce, with 45% of those specifying a lack in adapting to new equipment or IT skills.

Almost all (92%) engineering and technology employers with a digital skills strategy require additional skills to deliver the strategy across innovation, agile thinking and management skills.

With many skills gaps resulting in vastly reduced productivity, innovation and growth (2), the IET’s Skills for a Digital Future survey calls for government to look at ways to prioritise unspent funding to meet demand for the future. This could involve making the Apprenticeship Levy more flexible for employers, so that they can upskill and reskill employees to plug the UK’s growing digital skills gap.

Over £2bn raised by the Apprenticeship Levy has been returned to the Treasury since its introduction in 2017(3). In that time, the number of new apprentice starts has fallen and employers are spending less on training per employee in real terms (4). In many cases, the levy is transferring money away from training opportunities – up to two-thirds of employers are not using their levy entitlements (5).

Skills in emerging technologies are expected to be more important than ever in the future, such as artificial intelligence (36%), extended reality (22%) and quantum engineering / computing (22%).  Looking ahead to the future, 31% of employers say that artificial intelligence / machine learning will be important to sector growth. However, 50% of these employers say they do not have don’t have the necessary skills in this area.

Dr Graham Herries, chair of the IET’s Innovation and Skills panel, said: “The UK’s digital skills strategy must align with the needs of employers. The findings of this survey point to three key actions for government. These include funding for upskilling and reskilling – which could come from using the unspent apprenticeship levy; providing sustained support for skills in emerging technology by seeing training as an investment; and providing targeted support for SMEs, who may find it more challenging to provide training.

“While digital skills must be integrated into STEM learning, over 80% of 2030’s workforce is already in work. Reskilling the current workforce must be a major part of the solution. Most employers support this – 74% of engineering employers view their staff as ‘agile’, and generally respond to skills gaps by providing more training, rather than hiring externally. Boosting the UK’s digital skills capability can unlock our huge technological potential and boost growth.”

To address the skills shortage, employers think on-the-job training (63%) is more effective than formal qualifications (35%) or e-learning (21%), with 44% of employers already giving their employees digital skills training. However, large companies (58%) are more than twice as likely as SMEs (27%) to provide this.

This is the sixteenth year that the IET has published a skills report. The fieldwork was conducted online with 1,235 senior decision-makers in engineering organisations between 27 September and 30 October 2022 by market research agency YouGov.

The IET will be presenting the findings of its survey to parliamentarians at The Parliamentary and Scientific Committee on Tuesday 7 February. The IET’s Skills for a Digital Future is available on the IET’s website.