Apprenticeship levy reforms: positive, but not enough

The government's latest round of apprenticeship levy reforms came into effect today. While these reforms offer some positive changes, particularly for small and medium-sized employers (SMEs), they are not enough to reinvigorate social mobility in the UK.

In a speech in mid-March, prime minister Rishi Sunak announced the following reforms to the apprenticeship levy:

1. The removal of SME co-investment payments for apprentices under the age of 22; and
2. An increase in the amount of funds that can be transferred from levy-payers to other businesses from 25% to 50%

These changes are likely welcomed by the over 5.5 million SMEs in the United Kingdom, but they still fail to address critical barriers to proliferating apprenticeship growth. One such barrier is how levy funding can be spent.

Restrictive spending = restricted growth

Here's what the levy can be spent on:

• Apprenticeship training and assessment (with an approved training provider)

And this is what the levy cannot be spent on:

• Wages
• Statutory licenses to practice
• Travel and subsidiary costs
• Managerial costs
• Traineeships
• Work placement programmes
• The costs of setting up an apprenticeship programme

"[The government will] fully fund apprenticeships in small businesses from April 1 by paying the full cost of training for anyone up to the age of 21”.

The apprenticeship levy, as currently designed, states that 95% of the training costs associated with apprenticeships provided by non-levy paying businesses are funded by contributions made by levy-paying employers. The new reform simply strikes the remaining 5% of training fees.

Some may argue that, to "fully fund" an apprenticeship, the government would need to support more than just the training costs. In many cases, the real barriers to SMEs providing apprenticeships are actually the hidden costs:

• Set up costs
• Administration costs
• Recruitment costs (especially if these programmes are meant to support young people from lower socioeconomic backgrounds (LSEBs)
• Wage costs

As such, I would argue that widening the criteria for what levy funds can be spent on would be a much more effective way to incentivise businesses to commit to, and deliver on, apprenticeship programmes which increase positive social mobility.

I raised this point to the Chair of the Education Committee, Robin Walker, during a parliamentary roundtable on Equity in Education and Employment in early March. While Mr Walker agreed that more must be done to attract more young people into apprenticeship pathways, I was disappointed by the significant trepidations he expressed in providing any flexibility to businesses on how to spend their levy funding.

His worry, of course, is that businesses would misappropriate that funding for some other business need. It seems that this concern outweighs another major challenge that apprenticeships are facing at the moment: the number of young people starting apprenticeships is decreasing.?

Getting young people into apprenticeships

In 2022/23 apprenticeship starts, across all levels, had fallen by 10% since the start of the levy programme in 2017. Additionally, the proportion of Level 2 and 3 apprenticeship starts - those typically targeted at young people and school leavers - was at it's lowest (a drop from 87% in 2017/18 to 67% in 22/23).

Unfortunately, neither of the two reforms announced by the government actually has a direct impact on educating young people about the opportunities that lay ahead of them. While the co-investment payments have been scrapped only for apprentices who are 21 and younger, the removal of those fees does not free up any money for SMEs to attract that young talent.?

Equally, the government’s Apprenticeships Support and Knowledge programme, designed to promote apprenticeships to young people, is only supported by ￡3.2 million of spend per year. That is simply not enough to reach the hardest-to-reach students, who would benefit the most from apprenticeship schemes. With schools crying out for more support and businesses unable to spend their levy funds on outreach programmes, how is the country meant to drive more young people into these schemes??

We must create greater incentives for businesses, particularly levy-paying businesses, to invest more deeply in collaboration with the education system, from secondary school through to university.

Recommendations

I agree with Mr Walker that blanket flexibility for levy spending would lead to a world of trouble. Instead, I propose a middle ground. The government should be broader, yet prescriptive. By defining clear parameters around a wider set of outreach, recruitment, administrative, and set-up costs, the government could simultaneously encourage businesses to create more apprenticeship schemes, while enabling them to educate the right talent to come and fill those roles.?

At the end of the day, businesses are those who stand to profit from filling their early talent pipeline with devoted and diverse talent. However, like with all strategies that have a longer ROI lead time, we must incentivise longer-term thinking correctly. Here’s a non-exhaustive list of what I would love to see:

1. Enable businesses to spend up to 5% of their levy funding on outreach and recruitment efforts (capped at ￡50,00 per annum). If we can also encourage businesses to spend that money by partnering with Social Mobility Commission approved providers to support targeted outreach, then even better
2. Allow businesses to use levy funding to hire, or convert an existing employee, into an Apprenticeship Programme Manager. Setting a minimum levy contribution threshold before this is possible would also be reasonable
3. Unlock levy funds to pay the wages of Level 2 apprentices to enable young people who are disillusioned by education to find more positive pathways

I am certain there are things that I've missed, or solutions that I've not explored. If you think of something, let me know in the comments!