Top-end apprenticeships should no longer be levy funded to stop levy going into the red

Apprenticeship training providers have called for the radical step of removing the highest and degree level apprenticeships from the scope of levy funding in order to relieve growing pressures on the levy.

Funding for these apprenticeships should instead be consistent with whatever the Post 18 Education and Funding Review proposes for full time higher education with a combination of student loan, government grant and employer support where appropriate. 

Even under a different funding approach, degree apprentices will still have the advantage of earning while learning and applying up-to-date knowledge and skills, making them years ahead of their full time HE peers when they receive their degree and apprenticeship.

The pressures on funding should also make the government consider increasing the levy receipts by either raising the rate of the levy or expanding the number of employers who are required to pay it.

The calls from the Association of Employment and Learning Providers follow the National Audit Office’s warnings about the long-term sustainability of the levy funded skills programme and come prior to a Public Accounts Committee hearing on the matter in the House of Commons on Monday. 

The NAO report highlighted the reduction in new apprenticeship starts being offered to young people by employers because the levy is being used up by levy paying organisations to fund more costly apprenticeships at levels 6 and 7.

Tough choices required

With clear evidence from the government’s Institute for Apprenticeships (IfATE) showing that the levy is being overspent, AELP argues that tough choices have to be made to preserve apprenticeships as a vehicle for social mobility and a driver for increased workforce productivity in smaller businesses. 

The association proposes that no levy funding should be available for level 6 and 7 apprenticeships irrespective of whether the employer pays the levy or not; instead the funding should come from the employer and/or the apprentice via a student loan along with any government grant made available to full time HE students.

AELP is an enthusiastic supporter of degree apprenticeships and it is encouraging to see so many universities across the country now using their open days to promote them. 

However unless the government decides that it wants to levy more money from employers, the apprenticeship budget will soon be exhausted and therefore a new way of funding the highest level apprenticeships has to be found.

AELP believes that the appeal of degree apprenticeships will not diminish if a change is made, because there were already 135,000 employer-funded degree apprenticeships prior to the levy’s introduction. 

But the most recent official data confirms a long-held belief that level 6 and 7 apprenticeships would end up consuming more than half of the levy if left unchecked.  Furthermore if anecdotal evidence of universities’ programme expansion plans is realised, the consumption could even exceed the entire levy budget.

SMEs’ apprenticeships need funding

Some defenders of the current levy system argue that the levy paying employers should be free to decide which level apprenticeships they should allocate their reclaimed money to but levy payers only account for 2% of total employers in the country. 

Unchecked the present system may soon leave the other 98% with little or no funding for new starts at any level, which cannot be justified.   

Cost of level 6 and 7 apprenticeships to the levy

Official data shows that there have been apprenticeship 25,439 starts at either levels 6 or 7 since August 2016 (the apprenticeship levy began in April 2017).  This relatively small number in a programme with 376,000 annual starts represents a total possible funding commitment of circa £573m. 

The growing trajectory of higher level starts in the second half of 2018-19 and the expanding number of universities now on the apprenticeship provider register mean that the cost of funding this level of provision will continue to grow significantly and quickly.  Levy receipts are expected to be £2.2bn this year. 

Keeping apprenticeships as a ladder of opportunity after collapse in intermediate starts

With new level 2 starts less than half than their pre-levy number, the availability of intermediate level apprenticeships for young people in SMEs across the country is the biggest problem we face.  Starts for young people at all levels have fallen by nearly a quarter. 

In the light of these alarming developments, politicians can’t claim that apprenticeships offer a ladder of opportunity if the bottom rungs are being chopped away.

Therefore in its latest submission to the DfE called ‘A Sustainable Future Apprenticeship Funding Model’, AELP has proposed in addition to the removal of level 6 and 7 apprenticeships from levy funding the following:

• full funding by government of level 2 and 3 apprenticeships
• a return to the pre-levy funding band uplift for the apprenticeships of 16 to 24 year olds
• a guaranteed minimum budget for non-levy SME employers of at least £1bn per annum irrespective of whether there is enough unused levy funding to fund this.

As IfATE is projecting a £500m overspend on the £2.2bn levy proceeds for 2018-19 and a possible deficit of £1.5bn by the end of 2021-22, AELP believes that this level of employer demand for apprenticeships warrants government consideration of increasing the levy’s scope. 

This could be achieved by a combination of reducing/removing the £3m payroll threshold and/or by increasing the current 0.5% levy rate on those currently in scope.

The government seems to have lost sight of the importance of SMEs offering apprenticeships when they have been the bedrock of the programme over the last two decades. 

They are the ones who have consistently been making a positive impact on social mobility and productivity by investing in fantastic apprenticeship opportunities at all levels of the programme, especially for young people. 

The AELP proposals would restore a proper balance to what the priorities of the programme should be.

Mark Dawe, Chief Executive, the Association of Employment and Learning Providers (AELP)