New English Apprenticeship incentives – Is it a sustainable way to increase opportunity?

How many more Apprentices will this generate?

That’s the million dollar question but no initial target seems to be present but there is an initial 6 month time period.For comparison, there were just under 50,000 starts for under 19s between August and December 2019.More realistically though, this is about preventing a collapse in opportunities at this point and any increase in numbers would be very welcome.

However, we will have to see these roles being advertised soon or potential applicants will be on courses in Colleges (not that this is a bad place to be!) and it will be too late for this summer’s education leavers.There is of course also the obvious concern that Apprentices might be released after their 6 month wage subsidy ends.

 The return on Apprenticeship investment

There are many good reasons to create Apprenticeships. They can be used to increase Social mobility and Diversify workforces or to retrain for Technological advances.

However at their core Apprenticeships are based on creating Returns On Investment (ROI) and there is no evidence of any large-scale Apprenticeship programme lasting for the long-term if these returns are not clear to all parties: 

• Apprentice – Invests their time and effort. Accepts a potentially lower short-term wage in return for skills and experience; in the expectation of increased future earnings and career prospects.
• Employer – Invests in the individual; in the expectation of future productivity / profit / other returns
• State – Regulates for quality, equality of opportunity and invests in the core Educational costs; in the expectation of increased future tax returns.
• Education provider – Invests in course materials, facilities and tutors; in the expectation of profitable outcomes  

What these new incentives do is to recognise that it is employers that create jobs (inc. Apprenticeships) and so it seeks to boost their ROI, by making their return both larger in size and quicker to realise. 

Therefore increasing the attractiveness of the investment and (hopefully) the number of investors. The introduction of the Levy had the same intention. It forced larger employers to invest in Apprenticeships; and then to try and recoup that investment. But crucially the Levy allowed employers to decide who they wished to train and employers do not always prioritise younger workers or job seekers.

The new incentives have sought to address this by making these schemes age restricted.  Understanding the ROI of Apprenticeships in the UK The famous German and Swiss Apprenticeships systems have become part of the fabric of those societies; but they are supported by employers there because they deliver a well understood and proven profit.

The ROI of Apprenticeships is much less well understood in the UK. As Hogarth noted in the seminal Apprenticeship ROI 2010 study; In countries such as the UK, where the work-based VET pathway is less well established than in, say, Germany, but where there is commitment to increase the number of apprenticeship places, the emphasis is very much upon communicating the potential economic benefits to employers and young people to be derived from participating in this type of training.Warwick’s Institute for Economic research (IER) 2010 All of this is as true now as it was in 2010.

Indeed a recent (2019) IER study into the ROI that employers of Level 3 Accounting Apprentices can expect found that:

Initial costs of employing an Apprentice can be up to £14,615 in year 1 but that this becomes:- a net benefit ranging from £67 (for a levy payer recruiting an existing employee as an apprentice and retaining them for five years) to £25,784 (for a non-levy payer recruiting a new employee as an apprentice and retaining them for eight years). 

This COVID response incentive will cushion these initial costs and then only increase the long-term return that employers might expect to see. Giving them the confidence to recruit now and providing the opportunities that this summer’s Education leavers desperately need.

Richard Marsh, Apprenticeship Director, Kaplan Financial