Research from Learning and Work Institute (L&W) published today ahead of the autumn budget finds that a Skills Tax Credit could produce a £2.2 billion boost to skills across the economy by incentivising more employer investment in training.
Commissioned by the engineering and manufacturing skills charity, Enginuity, the report shows this measure could result in a £138 million prize for the manufacturing sector, where critical skills gaps are holding the UK back at a time when the Government says the industry is vital for growth.
The report argues tax relief would give firms financial support to invest more in skills, and prioritise workers with lower qualification levels who are more likely to miss out on training. Businesses would receive a 20p credit for each £1 they spend on eligible courses, qualifications and apprenticeships. The report authors estimate that with an initial £900 million backing from the Exchequer, this could unlock higher growth and prosperity right across the UK’s nations and regions.
Discover the full report
‘Tax bills and investment in skills: How can tax relief on training better support UK engineering and manufacturing?’
Find out moreOverall, firms are spending one third less on training per employee than in 2005, while the manufacturing sector invests less in training than the UK average. This is despite the research finding that nine in ten engineering and manufacturing firms believe additional investment would lead to the adoption of new technologies, increased productivity, improved employee satisfaction, and higher business revenue.
Enginuity previously estimated that skills shortages are costing these sectors £5.2 billion per year according to their 2026 report Mind the Gap. This highlights the need to look at the underlying drivers of investment and incentives in place, with tax relief one option for Government to support the Industrial Strategy.
The report also sets out that any tax relief needs to be set as part of a wider approach to improving the skills system. Strengthening collaboration between industry and both further and higher education providers will be vital to reaping the training dividend for workers, firms and the UK economy.
Stephen Evans, Chief Executive of Learning and Work Institute, said: “The UK’s economic growth depends on investment in our workers’ skills and talents. But present levels of investment in people and capital are too low and risk holding us back. We need to support employers who do the right thing by training their staff. There is no one single solution, but a Skills Tax Credit offers a £2.2 billion potential piece of the jigsaw.”
Ann Watson MBE, Chief Executive of Enginuity, said: “Skills challenges are already costing engineering and manufacturing £5.2 billion a year, holding back productivity, innovation and growth. Employers tell us they want to invest more in their people, but too many – particularly SMEs – face real financial barriers. A Skills Tax Credit could help unlock that investment, but it must be carefully targeted and form part of a wider effort to make the skills system simpler and more responsive to employers’ needs.”
