As part of a House of Lords Economic Affairs Committee hearing, Hammond was grilled on the outcome of the apprenticeship levy as well as whether the student loan system is currently fit for purpose.

Prior to the introduction of the apprenticeship levy on 6 April 2017 there were 457,000 individuals starting an apprenticeship, this number dropped to 320,000 in the first year of the Levy.

The levy was supposed to increase the number of people training at work by imposing a 0.5% tax on UK employers with payroll costs in excess of £3m. Businesses with 50 or more staff now have to find 10% of the cost of training and also release staff for a day a week of off-site training.

Hammond told the committee that the Treasury always expected to see an initial drop in starter numbers as the levy took effect.

‘It is a concern, but we always expected that there would be a dip in apprenticeship starts after the introduction of the levy. Businesses have two years to spend the money that they are accumulating in their levy accounts and we always expected that it would take some of them some time to work out what their strategies were,’ Hammond said.

The trend that the Treasury did not expect to see was a qualitative change in the type of apprenticeships being undertaken. ‘We are seeing a shift from level two to level three apprenticeships and there has been a 23.7% increase, to date, on the number of apprenticeships starters that are at the higher level of level four plus,’ Hammond told the committee.

‘To put it in plain English, now that people are using their own money they are choosing higher level apprenticeships. These types of apprenticeships have a significantly higher cost attached to them but in term of skills they deliver to the economy they are significantly higher.’

Student loans

The committee also discussed how the withdrawal of the maintenance grant has deterred disadvantaged students from going to university, however the Institute of Fiscal Studies (IFS) calculated that the reintroduction of these grants would increase the deficit by 1.7%. When pressed on whether Hammond would consider reintroducing these grants he said: ‘We have a review into post 18 education ongoing and I do not think it would be sensible for me to comment ahead of the delivery of that review.’

However, the Lords then pointed out that the terms of reference of the review prevent those involved from making any recommendation which increases the deficit meaning that it is not possible to put forward the idea of reintroducing maintenance grants. Hammond said that they would be able to comment on how the system is working instead.

Report by Amy Austin