Apprenticeship funding needs transformation not tweaks!

Apprenticeship funding needs transformative changes rather than the current minor tweaks being made by the government. Rising delivery costs aren’t matched by funding increases, despite growing apprenticeship levy revenue. While some positive changes have occurred, the system needs overhauling to address escalating costs and ensure adequate support for apprenticeship programmes.

The Simple Idea

It should be simple, shouldn’t it?

As costs of delivering apprenticeships inflate, those increases should be covered by corresponding inflation in funding for delivering apprenticeships.

Furthermore, the way that the apprenticeship levy contributions rise in line with inflating payroll costs should nicely lend itself to supporting that inflation in funding.

Inflation in Delivery Costs

For example,

Training providers have seen significant inflation in delivery costs in recent years, much of which is inflation in payroll costs. At First Intuition costs associated with employing staff tend to make up around 57% of our total cost base, and salary costs have increased by 35% to 40% since 2017 when many current funding bands were set.

This inflation in payroll costs is also inflating the value of apprenticeship levy contributions being collected by Treasury. This ‘levy take’ is growing fast (8% in the last year) towards an annual total of £4billion.

The Missed Opportunity: Levy Contributions Not Channeled to Funding Bands

Inflation in Levy Contributions

This inflation in levy contributions could (or should) be channelled into supporting annual inflationary increases in apprenticeship funding bands. In reality, far too many funding bands are still based on estimated delivery costs identified back in 2017 before the recent period of extraordinary cost inflation.

Benefits of Inflation in Funding Bands

This inflation in funding bands would give colleges and training providers security and certainty to maintain the delivery of high-quality apprenticeships that policy makers all seem to agree is critical to the future of the economy.

Furthermore,

Shouldn’t inflation, the very economic trend that is driving rising delivery costs, be what supports increases in the funding required to allow colleges and training providers to cover those costs?

The Short Circuit in the System

But this is where the problem lies and the ‘short circuit’ in the system is taking place; although receipts from the Apprenticeship Levy are growing strongly, the amount of that which is allocated to the DfE’s apprenticeship budget increases at a much slower pace. The Treasury is currently keeping as much as £500m a year, predicted to rise to more like £800m in 2024/25. As a result, employers are being short-changed.

Recent Positive Steps Forward

Yes, there have been some positive steps forward in the last year, such as:

• The removal of the non-levy reservation cap allowing SMEs to start as many apprentices as they want. In 2021, all non-levy reservation levels were reset to nil allowing non-levy employers to continue recruiting and starting apprentices. In early 2023 the non-levy reservations ‘cap of ten’ was thankfully abolished.   
• Increased funding bands for a handful of apprenticeships standards, such as the level 3 Assistant Accountant in my sector. As of the 1st of August 2023, the Institute for Apprenticeships and Technical Education (IfATE) updated the Level 3 Assistant Accountant Apprenticeship Standard. The funding band for the standard was increased from £8,000 to £12,000 to reflect new content. Since the increase to the level 3 funding band, First Intuition has seen the highest number of students on the level 3 apprenticeship programme in five years. 
• The very recent announcement of full funding for apprentices up to the age of 21 employed by SMEs. The Government will fully fund apprenticeships in small businesses from 1st April by paying the full cost of training for anyone up to the age of 21. This will remove the need for small employers to meet some of the cost of training and saves time and costs for providers. 

But these feel like tweaks being made to a fundamentally sound system, rather than the transformation that is urgently needed at a time when skills gaps remain the biggest limiting factor suffered by most employers. 

The transformation in apprenticeship policy that we really need to see should include: 

• The full amount raised by the Apprenticeship Levy should be allocated to the DfE Apprenticeship Budget and used for the purpose it was intended; supporting apprentices. The government should ensure they spend the entire amount raised from the apprenticeship levy on the training and development of apprenticeships that it was designed for which is not currently the case. This change would ensure that levy funds raised for skills development are spent on what they were intended for rather than returning a significant proportion to Treasury.  
• Urgent increases to those apprenticeship funding bands that haven’t risen since before recent cost inflation. Increases to the funding bands are urgently required to prevent providers and employers from abandoning them. All providers have experienced rapid inflation in costs of delivery, and it is becoming more difficult for them to cover these costs with funding bands that remain unchanged. 

• Automatic annual inflationary increases in all funding bands, perhaps based on average salary growth. Inflationary increases to funding bands should be an automatic annual process across all apprenticeship standards so that providers are not expected to do ‘more for less’. 

By Gareth John, Director of accountancy training firm First Intuition