National Audit Office Report: Higher-cost Apprenticeships Could Lead to up to £1 billion Levy Overspend

The Department for Education has some way to go before it can demonstrate that the apprenticeships programme is achieving value for money, with numbers of apprenticeships below pre-reform levels, says the National Audit Office.

In 2017, the Department for Education implemented several changes to its apprenticeships programme to shift the focus towards meeting employers’ needs, improve apprenticeship quality, and make the programme more employer-funded.

The Introduction Of The Levy

This included a levy scheme whereby larger employers pay 0.5% of their annual pay bill, which they can reclaim along with a 10% government top-up. An allowance of £15,000 means only those with a pay bill of more than £3 million currently contribute.

The apprenticeships programme is intended to help address two important problems:

1. Poor productivity in the UK compared with many international competitors; and
2. A sharp fall in employers’ investment in training over recent decades.

The Department also successfully launched an online apprenticeship service for employers, despite the significant challenges involved.

In its report, published this month (6 Mar), the NAO states that since introducing its reforms the Department has improved how it assesses the benefits of the programme.

However, it has not set out clearly how it measures whether the programme is boosting economic productivity – the ultimate aim of the programme. It therefore has some way to go before it can demonstrate that resources are being used to best effect.

Amyas Morse, the head of the NAO, said:

“Despite making changes to the apprenticeships programme, the Department has not  enticed employers to use available funds or encouraged enough potential recruits to start an apprenticeship. It has much more to do to meet its ambitions.

“If the Department is serious about boosting the country’s productivity, it needs to set out clearly whether its efforts are on track to meet that aim.”

Drop In Apprenticeship Starts

Since funding reforms were introduced, apprenticeship starts have fallen substantially. The NAO highlights that the introduction of the levy significantly changed the pattern of apprenticeship starts.

There was a spike in starts in April 2017, before the reforms took effect, but the number of starts fell after this and has not recovered to previous levels. Some of this change may be explained as indicating a move away from apprenticeships that do not meet quality requirements such as apprentices spending at least 20% of their time doing off-the-job training.

The number of starts in 2017/18 was 375,800, 26% lower than the 509,400 starts in 2015/16.2 As a result, the rate of starts would need to double for the government to meet its target of 3 million new starts by March 2020, which it is very unlikely to achieve.

From Underspend To Overspend

The take-up of levy funds is below what the Department expected. In 2017-18, levy-paying employers used 9% of the funds available to them to support new apprenticeships, equating to £170 million of almost £2.2 billion available. Partly because of this, the Department spent less on the programme than it budgeted. In 2017-18, it spent £1.6 billion, which was £0.4 billion less than budgeted.

However, the NAO reports that if demand picked up and employers continued their preference for higher-cost apprenticeships, the Department could overspend against its budget in future.

Under current funding arrangements, the Department and HM Treasury had expected levy-paying employers to access up to around half of the funds in their levy accounts to cover both new starts and existing apprenticeships.

The Department has recognised there are ways in which it could  seek control of spending if necessary – such as limiting the number of new apprenticeships or reducing the level of public funding for certain types of apprenticeship – but these measures are likely to be unpopular.

Frameworks To Standards

The content of each apprenticeship is set out in either a framework or a standard. Apprenticeship frameworks are being phased out and replaced with standards, which are intended to meet employers’ needs better as they are designed by employers to cover all the key knowledge, skills and behaviours required for a specific occupation.

Under a standard, the apprentice is assessed at the end of their apprenticeship. In comparison, under a framework, the off-the-job training consists of a package of supporting qualifications and the apprentice is assessed continuously.

Since 2017, there has been a significant rise in the proportion of apprenticeships started under a standard. When the apprenticeship levy was introduced in April 2017, 2% of starts were on a standard, but by July 2018 this had risen to 53%.

Employers generally have a positive view of standards – a survey by the Department in 2017 found that almost two-thirds of employers who had some involvement with standards considered them to be an improvement on frameworks.

Higher-level Apprenticeships

The introduction of standards has also increased the number of higher-level apprenticeship starts. In 2017/18, 12.8% of starts were at level 4 or above (equivalent to a higher education qualification), compared with 5.3% in 2015/16. This increase looks set to continue.

The Department hopes that higher-level apprenticeships will deliver more value in terms of long-term wage return to the apprentice. Training for these apprenticeships absorbs more public funding, so there is a risk that the value of the apprenticeship to the economy is not proportionate to the amount of government funding.

Apprenticeships also now cover a wide range of professions and types of training – such as accountants, actuaries and solicitors – which raises questions about whether public money is being used to pay for training that already existed in other forms.

Concerns For Long-term Financial Sustainability

The Education and Skills Funding Agency (ESFA) is responsible for apprenticeships policy and for overseeing the delivery of apprenticeships. The NAO found that the EFSA has limited assurance that apprenticeships are spending at least 20% of their time on off-the-job-training, which is a key requirement of being on an apprenticeship. This is an important gap, as providers continue to be paid as long as their apprentices remain on the programme.

The NAO report concludes with concerns about the long-term financial sustainability of the programme. The NAO  recommends that the Department and HM Treasury should determine what action they can take to deal with the risk of overspending should demand pick up in a way to meet the programme’s objectives. It also urges the Department to set out clearly how it measures the impact of the programme on productivity, and indicate the level of impact that it is aiming to achieve.

Key facts

In 2016, NAO published a report on Delivering value through the apprenticeships programme.

Financial years are written as, for example, ‘2017-18’ and run from 1 April to 31 March; further education sector academic years are written as ‘2017/18’ and run from 1 August to 31 July.