Apprenticeships: When the Levy Breaks

Catherine McKinnell MP, Co-Chair of the All-Party Parliamentary Group on Apprenticeships, argues that the Government's Apprenticeship Levy is failing to deliver its intended outcomes and requires a fresh approach.

It's also evident that the Apprenticeship Levy is still not close to delivering its intended outcomes and Ministers at the Department for Education need to do more to ensure this funding doesn't just disappear back into the Treasury pot.  So, perhaps some thinking outside the box – as would be expected of any good apprentice – is now in order?

It's now two years since the Apprenticeship Levy – the Government's flagship policy for boosting the number of apprenticeships being created and delivered – came into force.

Launched with the aims of creating long-term sustainable funding for apprenticeships and giving employers more control over the training opportunities they can provide, the levy was expected to underpin delivery of the Government's ambitious, but laudable, 2015 target of creating three million apprenticeship starts by what was expected to be the end of the Parliament, 2020.

Since May 2017, all employers with an annual pay bill over £3million have been required to pay 0.5% of their payroll costs into the levy pot – after which they can access this funding to pay for apprenticeship training, via an online apprenticeship service account.  Organisations can transfer a proportion of any unused levy funds to other employers, such as firms in their supply chain, or to Apprenticeship Training Agencies – and this percentage was recently increased from 10 to 25 per cent. 

Crucially, however, if levy-paying organisations fail to access this funding within the Government's strict timeframe of 24 months, they will simply lose it on a month by month basis – to be ultimately clawed back by the Treasury.  But is this 'carrot and stick' approach really working?

As co-chair of the All-Party Parliamentary Group (APPG) on Apprenticeships, I know the aims of the levy, its benefits and downsides, have certainly been a central part of our regular discussions with a wide range of stakeholders over the last two years.

Many organisations are clear that the levy is a good idea in principle, as it has forced employers across all sectors to take the training of their workforce seriously – and to recognise that high quality apprenticeships must play a fundamental part in this.

However, time and time again, we've heard real concerns about the inability of employers to use their levy funds because the policy simply isn't considered flexible enough to meet businesses' ever-evolving needs.

The Government states it doesn't anticipate all levy-paying employers to use up all of their funds (although it's theoretically possible for this to happen), not least because income from the levy is used to fund apprenticeship training for both levy and non-levy paying employers.

Ministers originally estimated that organisations would only use around half of the levy funds available to them, on average, once the changes to the apprenticeships programme had bedded in.

However, the findings of the March 2019 National Audit Office report into this issue were both clear and concerning: in the first year of the Levy's operation, 2017/18, levy-paying employers used just 9 per cent of the funds available to them to support new apprenticeships, equating to £170million of almost £2.2billion they could access from the levy pot.

More recent figures produced by the Skills Minister indicate that the take-up rate of levy funds has since increased – with 22 per cent of funds available to levy-paying employers, or £523million of some £2.36billion paid in – having been drawn down in the twelve months to January 2019.

That proportion could well rise even further as a result of the increased percentage of unused funds employers can transfer to others as of this April, and as more 'apprenticeship standards' are developed, approved and subsequently become available for employers to use. But what more could the Government do to make the system work?

Ministers have so far been keen to keep a tight rein on what the Apprenticeship Levy can be used for. But, given it seems many – particularly large – organisations are now effectively writing this cost off as a 'tax', perhaps it's time to think more creatively about what these funds could be used to support?

Instead of allowing potentially hundreds of millions of pounds intended for apprenticeship training to be lost forever to Treasury coffers, why not consider using it to break down some of the barriers people face in accessing apprenticeships in the first place?

That could, for example, mean ensuring all schools have the right resources and expertise to be able to promote the hugely exciting apprenticeship opportunities available in their area and further afield, so that apprenticeships are genuinely competing on a level playing field with the enormous marketing budgets and brand recognition of universities.

It might mean developing a proper, nationally-recognised UCAS-style application system for apprenticeships – instead of the difficult-to-navigate patchwork quilt that exists now – and one which genuinely means teachers can easily support students with their apprenticeship applications, during school time, in the way they have done for decades for those applying to university.   Because increasing the number of people actually applying for apprenticeships is surely one of the most important parts of this jigsaw, and would bring enormous benefits to employers too.

It's clear there's now little prospect of the Government achieving its 2015 apprenticeship target – with recent analysis by FE Week suggesting that an average of 85,246 apprenticeship starts would be required every month over the next fifteen months to achieve the three million goal.

It's also evident that the Apprenticeship Levy is still not close to delivering its intended outcomes and Ministers at the Department for Education need to do more to ensure this funding doesn't just disappear back into the Treasury pot.  So, perhaps some thinking outside the box – as would be expected of any good apprentice – is now in order?