Apprenticeship funding reform a step in the right direction, but long road ahead
Yesterday, government measures to boost apprentice numbers and support for SMEs came into play. While a positive step for closing acute skills gaps, the National Centre for Universities and Business is calling for comprehensive reform to the Apprenticeship Levy.
Apprenticeship Reforms Come into Effect
Measures to increase apprentice numbers, announced by the Prime Minister in his first economic speech following the Spring Budget, came into play yesterday (1st April).
The reforms will fund the full cost of small and medium-sized enterprises (SMEs) taking on an apprentice aged 21 and under. This move is backed by £40 million of government funding and was announced alongside an increase in the amount of unused Apprenticeship Levy funds larger businesses can transfer to smaller ones.
The Growing Importance of Apprenticeships
Apprenticeships have been high on the Government agenda in recent years, with Universities Minister Robert Halfon referring to ‘Degrees’ and ‘Apprenticeships’ as his “two favourite words in the English Language” and stating an ambition for half of all university students to be studying on an apprenticeship programme.
Numbers progressing through the route have gradually risen, particularly in higher and degree programmes hosted in Higher Education Institutes (HEIs). Across the board, apprenticeship numbers at levels 4-7 have increased since 2017/2018, and the number of starters on a Higher Apprenticeship rose by more than 9% in 2023/24 from 2022/23.
The Value of Employer Engagement in Education
These figures demonstrate how impactful direct engagement with employers is within learning, and the value employers place on accessing students at this education level. These qualifications fill the levels 4 and 5 attainment gap, commonly referred to as the higher technical education’s ‘missing middle’ between commonly studied college level 3 courses and degree qualifications. Increasing qualification achievements at this level is pitched as a solution to skills gaps across sectors, creating capabilities and know-how whilst moving people into workplaces.
The Potential Impact of the Reforms
The Government hopes the reforms now in place will continue to increase apprenticeship starts and completions. By reducing the training costs that the apprenticeship model places on SMEs and enabling them to take on more young apprentices, it hopes to unlock career opportunities. The move will likely have a positive impact in achieving that, and the prominence and timing of this announcement sends positive signals of continued support for co-delivered education models across education providers and businesses. It is a welcome vote of confidence in our education system, and the role of collaboration within it.
Co-Delivery Education Models: A Win-Win Solution
This approach is rightly seen as one part of a solution to acute skills gaps across sectors. Co-delivery education models help meet both employer and student learning needs, and collaboratively provide students with paid, employer-relevant and future-ready skills and capabilities, supported by professional educators and directly delivered in workplaces.
Importantly, they also equally create value for workplaces through their long-term placement length, allowing students to on-board, settle in and deliver, running counter to shorter-term placements and work experience which employers, particularly SMEs, can find difficult to support, and which yield lower business impact. It’s a win for employers and students alike.
The Elephant in the Room: The Apprenticeship Levy
The announced support for the pathway is therefore welcome, but reforms to rules around the transfer of unspent Levy funds ignores the elephant in the room.
The move has amended rules around transferring unspent Apprenticeship Levy fees between large, Levy paying businesses and smaller organisations. Large employers who pay the Apprenticeship Levy can now transfer up to 50% of their funds to support other businesses to take on apprentices. This transfer allowance is a 100% increase – with previous measures allowing businesses to transfer 25% of their unspent funds.
Whilst this change will help SMEs hire more apprentices by reducing costs, it fails to address the skills needs of large businesses with large workforces and a myriad of skills needs, who equally face enduring vacancies. These organisations have a significant need for training resources and budgets and can see the Levy as a burden, failing to meet this demand and absorbing costs.
The Challenges Faced by Levy Payers
Businesses with a pay bill of over £3 million pay the levy, which is set at a rate of 0.5% of their total annual pay bill. These businesses report a range of challenges, top of which include the complexity and inflexibility of the Levy, as well as a lack of apprentices and little appropriate training.
For many Levy payers, this funding comes from their training and skilling budgets, however, there are strict criteria as to which courses and qualifications qualify for Levy funds, meaning many struggle to access this funding. Evidence shows that employers have surrendered at least £3.3bn in unspent funds since 2019.
The Need for Structural Reform
In an increasingly challenging and tight financial landscape, and as skills needs are quickly evolving, demanding greater volumes of adult learning and re-skilling, this is unsustainable. Against this challenge, training budgets and their use need thoughtful planning and every pound matters.
Inflexibility in the design of the Apprenticeship Levy has long been criticised by the National Centre for Universities and Business (NCUB) and the wider sector alike. There is a chorus of calls to evolve the Levy into a resource that supports wider learning, which can also be used by businesses of all sizes to re-and up-skill their existing workforce, whilst protecting part of the Levy to create new apprenticeship opportunities for young people.
Conclusion: A Comprehensive Plan is Needed
The nation needs a comprehensive plan to address the skills crisis. Reforms to apprenticeships must be at the heart of this, and it is clear the provision is a top priority for the government, who predict that yesterday’s changes will create up to 20,000 more apprenticeships.
Yet the measures fail to meet the scale of the challenge. The Apprenticeship Levy needs structural reform to evolve into the effective skills lever it could be. Only then will it enable businesses of all sizes to develop and ready their workforce for the demands of tomorrow.
By Danni Croucher, Policy Lead for Skills and Talent at the National Centre for Universities Business (NCUB)
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