Tax change could boost retraining says Directors groups

Rishi Sunak has been urged to introduce a tax “super-deduction” for companies that invest in retraining staff, linked to areas where there are skills shortages.

The Institute of Directors said that there had been a “clear market failure” in training staff to meet labour shortages after Brexit and the pandemic. It called for a tax incentive to encourage more workplace investment.

In a lecture at Bayes Business School last month, the chancellor proposed examining if the tax system was doing enough to encourage businesses to invest in the right kind of training.

Britain has fallen behind its international peers in adult technical skills, with only 18 per cent of those aged 25 to 64 holding vocational qualifications.

The institute said that members that were not intending to increase investment in skills training in the next year had responded positively when asked if a tax deduction would change their plans.

Kitty Ussher, chief economist of the IoD, said: “Reskilling an existing team member, as opposed to updating existing expertise, is not tax deductible. There is also the risk that the individual, once retrained in a skills shortage area, is more likely to be poached by competitors. This represents a clear market failure.”

The institute also called for apprenticeship levy funds to be used to subsidise companies to release individuals for external training in areas on the national skills shortage list. Jonathan Geldart, its director-general, said: “A sole reliance on apprenticeships as a policy tool also does nothing to incentivise firms to improve director-level and other forms of management training.”