The government must urgently reform the apprenticeship levy and provide additional funding to prevent the loss of up to 75,000 apprenticeships at SMEs, according to research from the Learning and Work Institute.
New data shows the assumptions that underpinned the apprenticeship levy are flawed. Large employers are using more of their levy funds than forecast, with the amount left for SMEs being only half as much as expected.
On current trends, the levy could be over-spent by £1bn in the next year. This is despite the fact that the number of apprenticeships has been lower than expected. Apprenticeship starts have fallen by a fifth since the introduction of the levy, meaning the government are on course to miss the target they had set of three million apprenticeships by 2020.
The over-spend risks leading to a creeping rationing of apprenticeships at SMEs. Three in four (74%) apprenticeship providers working with small firms said in a recent survey that the level of funding was insufficient to meet demand, with many being forced to reduce or cease recruitment as a result. Learning and Work Institute analysis suggests that on current trends, this could mean up to 75,000 fewer apprenticeships at SMEs.
The overspend is driven by two factors. First, there has been an exponential growth in higher and degree level apprenticeships – which tend to be far more expensive – as levy-paying employers seek to recoup as much of their funds as possible. In the past two years the number of apprenticeship starts fell by a fifth, but the number of higher apprenticeships more than doubled, with the number of degree apprenticeships increasing by a factor of 12. Second, the new and more rigorous apprenticeship standards, introduced at the same time as the levy, are significantly more expensive than expected.
These changes risk limiting opportunities for young people. SMEs are more likely to take on young apprentices and provide entry level training opportunities. However, a larger proportion of funding than planned is being spent by large employers on higher level apprenticeships for older workers and for existing staff. This learning has value, but it should not come at the expense of opportunities for young people or training at small firms.
Learning and Work Institute has called for urgent action to prevent the imminent over-spend and ensure funding is available for SMEs and young people. This includes:
- Investing an additional £150m per year for apprenticeships at SMEs;
- Funding apprenticeships for 16 – 18 year olds from the education budget, rather than the apprenticeship levy, requiring an additional £400m per year;
- Requiring employers or individuals to provide top-up funding for higher and degree level apprenticeships for workers aged 25 and over. This would require employers to provide 50% of the cost of apprenticeships at level 4 and 5, and 75% of apprenticeships at level 6 and 7 for this age group, from outside of their levy funds. This would reduce levy spending by around £318m a year.
David Hughes, chief executive officer at Association of Colleges, said: “The apprenticeship levy has successfully engaged many large businesses in the programme for the first time, but the higher costs are resulting in young people and SMEs missing out.
“That has to change if the productivity and social justice aims of the programme are to be achieved. This timely report should be carefully considered by the Government before the Budget when the Chancellor will need to put the programme back on track.”