How can the Government help boost apprenticeship starts and improve the apprenticeship levy?

By Jackie Chapman, Managing Director, Capital City College Training

For years we have heard the same line: ‘the apprenticeship levy doesn’t work’ – whether that’s because of the disengagement of Small and Medium Enterprises (SME apprenticeship starts are half what they were before the levy was introduced), the drop in apprenticeship uptake by 16-18-year-olds, or the amount of unused levy returned to the Treasury (according to the Financial Times, employers have handed back more than £3bn in unspent levy cash over the last three years).

This is ineffective for the economy and unhelpful for the workforce. Apprenticeships should be a central part of the employment landscape for people of all ages. They are a genuine alternative to T Levels or university for many young people who are eager to start their careers sooner or learn on the job; and they are invaluable for adults already in the workforce, who want to develop new skills and qualifications without having to give up work to study.

But apprenticeship starts are now far lower than before the levy was introduced back in 2017. What can be done to reverse this? How can apprenticeships become popular again?

Recently, we attended the Labour and Conservative party conferences, where we hosted breakfast events with the London advocacy group BusinessLDN – discussions with our guests addressed apprenticeships and other pressing skills challenges.

As we see it, the apprenticeships challenge is threefold: firstly, how apprenticeships are promoted – especially to young people; secondly, how they are funded; and thirdly, how flexible they are – for employers, educators and apprentices.

Promotion

If young people don’t know about apprenticeships, we can’t expect them to be interested in them. Many schools have failed to effectively point their 14–17-year-olds towards apprenticeships, as academic routes remain a central focus for schools.

The ‘Baker Clause’ should help this. Originally an amendment to the Technical and Further Education Act 2017 which was widely ignored by schools, the Baker Clause was made law in the Skills and Post-16 Education Act 2022. It requires schools to allow colleges and training providers access to every student in years 8 to 13 to discuss non-academic routes. It also states that schools need to impartially promote the full range of technical education qualifications and apprenticeships to their pupils.

The Baker Clause is an important part of a school or college’s careers education, information, advice and guidance (CEIAG) programme and, provided it is followed and enforced, it should widen pupils’ access to information about apprenticeships and other non-academic routes.

The introduction of T Levels may cause more confusion, so the message needs to be clear that apprenticeships are 80% in the workplace, whilst T Levels are 80% learning.

Funding and flexibility

The apprenticeship levy is the main mechanism for funding apprenticeships. Some £3.3 billion of unspent levy money has been returned to the Treasury over the last 3 years, so it’s fair to say that the level of funding is more than adequate.

Flexibility – what the levy money can be spent on and who can spend it – is where many of the problems, and opportunities, are. Businesses and apprenticeship providers have been calling on the Government to offer greater flexibility around the levy for years, but how would this look? And how would it work?

How do we improve the levy and encourage more apprenticeship starts?

It’s encouraging to see the Government responding to the sector’s conversations about the levy. In February of this year, Alex Burghart MP (then Skills Minister) introduced flexi-job apprenticeships and announced that businesses could transfer their surplus levy to other businesses to pay for their apprenticeship training.

Flexi-job apprenticeships aim to help sectors with short-term contracts to take on apprentices. Within this model, apprentices will be supported by their training provider to obtain multiple short-term contracts across different employers to complete their apprenticeship requirements.

We have already seen the benefits of this for small and medium enterprises (SMEs) at CCCG’s training arm, Capital City College Training (CCCT). For instance, in the creative industry, CCCT have been working in partnership with the NextGen Skills Academy to enable SMEs who only focus on one key skill to cluster together to take on an apprentice. Each apprentice is subsequently able to learn each skill through a different business to complete their apprenticeship. 

These initiatives are a positive step forward for helping to increase the number of apprenticeships, but there is a more fundamental issue for many employers which needs addressing – the cost of wages.

Employers tell us that they are deterred from taking on apprentices because they must pay their wages while the apprentice is still relatively inexperienced, especially when taking on 16–18-year-olds. In addition, many employers want to pay their apprentices more than the National Minimum Wage, because it’s the right thing to do and it would encourage more people to become apprentices.

So, we think that employers should also be able to use their levy funds to pay between half and two-thirds of their apprentices’ wage costs for the first year of their time with the company. Covering most of the salary for this period will help some employers pay their apprentices more and would be a powerful incentive to smaller businesses, as an extra pair of hands at a subsidised cost would never go amiss!

A levy reform along these lines could be structured like the Government’s Kickstart Scheme, released in September 2020. Kickstart provided funding to employers to create jobs for 16- to 24-year-olds on Universal Credit, covering 100% of the National Minimum Wage – based on the workers’ age – for 25 hours per week.

By supporting employers with their wage costs in the short term, Kickstart enabled many small businesses to engage with young people and provide adequate support whilst they were developing their basic skills.

If the levy allowed for the funding of such a scheme, a valuable proportion of the apprentice’s salary would be paid until the they become skilled enough to not need continuous supervision – the reason why employers prefer to employ individuals who have sufficient skills to undertake the job. This flexibility will encourage employers to take on apprentices and will guarantee the apprentice a job at the end.

We’d also like to see levy flexibility go further, by allowing the transfer of the apprenticeship levy to the organisation that provides the apprenticeship training (typically a further education college or a private provider), so they can continue to support an apprentice when they change jobs – currently as soon as an apprentice ends their studies or changes employer, the provider can no longer support them. This initiative will also help boost apprenticeship completion rates, as apprentices are currently leaving at the point of triggering the End Point Assessment. Such a change would not cost anyone money, will allow colleges and training providers to use their unspent Levy funds, and will decrease the administration required for providers to sign up additional employers to support the final stages of an individual’s apprenticeship.

Apprenticeships can and should be a bigger part of the employment landscape. We think that increasing the flexibility of the levy will allow more employers take on more apprentices and will encourage more people to consider an apprenticeship. We’ll be advocating for these changes to the levy over the coming months.

What is the apprenticeship levy? And what are the problems with it?

The apprenticeship levy was introduced in 2017 to create long term sustainable funding for apprenticeships. The levy is a 0.5% tax paid by larger employers (those with an annual pay bill of more than £3 million), which is stored in a fund and must be used to pay for the cost of apprenticeship training.

The idea was that the levy would encourage businesses to offer more apprenticeships, but unfortunately, the number of people starting an apprenticeship has fallen by around 50% since the levy was introduced. It also had some unintended consequences. For example, the House of Lords’ Youth Unemployment Report found that some employers use the levy to reshape existing roles into apprenticeships, benefitting those who already work for their company and are usually older and more experienced.

Other criticisms are that because the levy is only paid by large companies, small and medium enterprises (SMEs) don’t pay it but have to use the online system to engage with providers and pay 5% to the cost of the apprenticeship.  In addition, the apprenticeship system is considered too complicated and hard to navigate for employers and education providers alike. Perhaps because of these flaws, the number of SME apprenticeships has fallen since the levy started.