Calls for Apprenticeship Levy Reform Grow as Peterborough Faces Skills Shortages

March 18, 2025

Businesses and policymakers are increasingly calling for changes to the apprenticeship levy, as concerns grow over its effectiveness in addressing skills shortages. In Peterborough, where employer training has declined sharply, local businesses are struggling to recruit for key roles in healthcare, construction, and logistics.
The debate over levy reform has intensified following comments from Skills Minister Jacqui Smith, who acknowledged that the Department for Education was working within “a constrained resource.” She reiterated that the government’s focus remained on young people, highlighting a significant 40% drop in apprenticeship starts for under-25s since 2015.
However, employers argue that the system’s inflexibility is limiting investment in workforce development.

Peterborough’s Perspective
In Peterborough, apprenticeship achievements have risen over the past year, bucking the national trend. However, local businesses are still facing major challenges. Labour market data shows that the city’s employment rate has fallen to a 12-year low, while economic inactivity has risen to 26.4%, driven by long-term sickness and increasing numbers of students. Meanwhile, the average time to fill vacancies has climbed to 28 days—the joint highest across Cambridgeshire and Peterborough.
Peterborough MP Andrew Pakes has called for greater flexibility within the levy system to ensure businesses can access the skills they need. Speaking recently in Parliament, he said:
“We should allow flexibility on functional skills requirements, focusing on workplace-specific competencies rather than mandatory qualifications that block completion.”
He has also supported calls for more Level 2 apprenticeships to provide clear entry routes into industries struggling with vacancies.

Uncertainty Over Reform
The British Chambers of Commerce (BCC) has warned that uncertainty surrounding the future of the apprenticeship levy is causing some employers to pause training plans. Jane Gratton, deputy director of public policy at the BCC, called for a “clear timeline for reform” and said threats of cuts to the levy before any replacement is introduced are “worrying and destabilising.”
With Labour proposing a shift towards a “growth and skills levy”—allowing businesses to spend contributions on a wider range of training—the debate is likely to continue in the lead-up to the next Budget. Ministers are considering removing Level 7 apprenticeships from levy funding, which could free up £240 million. However, some industry leaders argue that such changes won’t yield short-term savings.

Aligning Apprenticeships with Local Skills Needs
As the debate continues, it is crucial that apprenticeship and general skills provision are aligned more closely with local needs, particularly in areas like Peterborough, where sectors such as manufacturing, construction, and healthcare require targeted workforce training. The Cambridgeshire & Peterborough Chamber of Commerce, through the Local Skills Improvement Plan (LSIP), has been working closely with businesses and educators to ensure training aligns with employer needs.

Charlotte Horobin, CEO of the Chamber, said:
“Businesses across Cambridgeshire and Peterborough have told us they need greater flexibility in workforce training, particularly in key sectors like manufacturing, construction, and health. That’s why we’re driving initiatives like the LSIP to bridge the skills gap and support long-term economic growth. While national policy evolves, we’re committed to working with businesses to develop practical solutions that work now. The proposed changes to Level 7 apprenticeships should not mean a blanket scrapping of these opportunities, but rather a focused alignment to local skills needs, ensuring that apprenticeships at all levels can address the specific demands of businesses in our region.”

Supporting Local Skills Growth
Peterborough businesses and education providers are watching closely, as the outcome of this debate could significantly impact skills development in the region. As discussions continue, the Chamber will continue to support businesses in navigating apprenticeship opportunities and advocating for reforms that work for the local economy.