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Apprenticeships: where next?

The story so far…

Introduced in April 2017, the apprenticeship levy was designed to generate additional apprenticeships. While large employers pay a levy - a fund that smaller employers can draw from - large employers committed to training are given an allowance of up to £15,000 to off set against the costs of training and development.

Some of the key aims of the levy included:

  • Increase the number of apprentices
  • Increase the number of young people into level 2 and 3 apprenticeships
  • Close the skills gap across industries

Apprenticeship Uptake

Recent reforms have resulted in a decline in the number of apprenticeship starts by more than 20% since it began - a statistic confirmed by the National Audit Office. And although there has been a rise in the uptake of higher-level apprenticeships there has been a significant drop in the number of level 2-3 apprenticeships, particularly among larger firms which are predominantly levy-paying.

In 2018-19 it was recorded that only 25% of apprentices were under 19, a drop from 58% recorded in 2002-3.

There is speculation across the sector that large employers are potentially misusing the levy to upskill staff that already hold senior positions; using up their allowance by essentially rebadging their existing training programmes as apprenticeships.

The Government has however, made some welcome reforms over the years, like increasing budgets, increasing internal targets within the public sector, independent assessments and ‘co-investment’ schemes, but these have fallen short of being able to achieve the set targets. Instead, the FSB suggest that these reforms have further impacted on the likelihood of SMEs opting to employ apprentices.

Additionally, the shift could mean the apprenticeship si heading for a projected overspend, possibly by more than £1 billion, squeezing out funding available for apprenticeships at smaller employers. This shortfall could result in a reduction of up to 75,000 apprenticeships at non-levy paying firms and evidence is already showing providers are scaling back engagement with SMEs due to a lack of funding.

Since the majority of level 2-3 (aimed at young people between 16-24) are offered by SMEs it is therefore likely that these two areas will continue to decline.

What we’d like to see.

For the apprenticeship levy to work and benefit everyone that uses it, we’d like to see the following reforms.

  1. Ringfence the apprenticeship budget for non-levy paying SMEs. A set allowance for apprenticeships at non levy paying SMEs would enable apprenticeships to grow across organisations of all sizes, at a rate consistent with the Government's overall ambitions for the apprenticeship programme. It would also enable SMEs to benefit from higher quality, higher cost apprenticeship standards.

  2. Simplify the digital apprenticeship service (DAS) system.
    We welcome the increase in the proportion of levy funding that employers can transfer to 25%, but employers may not make use of this facility, because of the complexity of the digital system. The Government should work with employers to review and improve the usability of the system, building on the testing that is currently being done with SMEs.

  3. Review the way in which level 6 and 7 apprenticeships are funded. Level 6 and 7 apprenticeships should not be allowed to account for a disproportionate share of apprenticeship levy spending and should therefore be capped. In the case of apprenticeships costing more than the cap, these could be co-funded, through an additional contribution from the employer and/or the apprentice.

  4. Increase base funding for English and maths for 16 to 18-year-old apprentices to £750. Gaining English and Maths is a condition for the successful completion of apprenticeships. We believe that with adequate funding would help to ensure that as many young people as possible gained these qualifications and completed their apprenticeships. Improving the quality of English and maths provision would make apprenticeships more accessible to young people from disadvantaged groups and help to reduce the number of young people who are NEET.

Where next?

If the government is serious about creating opportunities for young people, drawing apprentices from a range of social and demographic groups, and generating more apprenticeships within industry, we believe that these recommendations could make a real difference.

The biggest problem we face is the impact the levy has had on SMEs. Indirectly, the funding for SME has been reduced by levy-paying companies making smaller contributions, resulting in a decline in the number of young people doing apprentices because level 2-3 apprentices are no longer being offered.

The government can address this by capping the number of higher-level apprenticeships at levy-paying companies and stripping the DAS of unnecessary bureaucracy. We work with employers across key industries like Engineering, Construction, Retail Energy and Digital to utilise their apprenticeship levy to benefit the business and the industry.

We must remember that apprenticeships make a vital contribution to our economy and society. Studies have found that apprenticeships have a positive impact on economic growth, productivity and employment. The next Government should invest in increasing the quantity of apprenticeships and improving their quality, as a key component of its industrial strategy. If these recommendations are not taken on board, there is a risk that that the apprenticeship system will regress, leading to the diminution of opportunities for the next generation of young people.

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