How to make the #apprenticeship levy fit for purpose

With the second anniversary of the apprenticeship levy fast becoming a distant memory, it is fair to say the Government’s flagship apprenticeship service has not worked out entirely as expected.

The theory behind the apprenticeship levy is a good one – a 0.5% levy on UK employers with annual paybills in excess of £3 million, to fund new apprenticeships. In exchange, employers can access funding to select Government -approved training providers and pay for apprenticeship training.

It was thought this would bring forth a great revolution in post-16 education. For the first time in decades young people were going to have a viable alternative to a conventional degree at university.

Yet the results so far of the levy have been decidedly mixed. The number of higher-level apprenticeships starts (that is apprenticeship starts at Level 4 or above) has increased substantially from about 27,000 just before the levy was introduced in 2017 to 48,100 last year, a 56% increase.

However, according to the National Audit Office, many small firms have given up on schemes and larger ones are failing to even claim back the money they paid in, leaving £2bn unspent, leading to a fall in overall apprenticeships.

But the apprenticeship levy is not beyond redemption: there are practical measures that the Government could take to make it more of a success.

Absolutely key to expanding apprenticeship opportunities is to get employers on board, and that means thinking about the barriers they face, especially SMEs.

One approach would be to make the levy fairer for SMEs. While for many larger firms the apprenticeship levy is seen as little more than an extra tax on their wage bill, findings released by the Higher Education Commission found that SMEs haven’t benefited as intended from the levy.

It revealed that out of 51 approved degree apprenticeship standards, 43% have no providers that are delivering to SMEs. 63% of degree apprenticeships have no or just one provider offering provision for non-levy payers (SMEs). This is despite over 99% of UK businesses being SMEs.

Greater flexibility for SMEs around the 20% rule

A good start would be to allow greater flexibility for SMEs around the 20% rule, where companies are still required to pay a 5-day weekly salary to degree apprentices who are required to spend one day a week learning. That’s a 20% productivity loss and many SMEs run on small margins and cannot afford to pay an apprentice a full salary for the hours they are not working.

One solution could be allowing SMEs to pay their apprentices in proportion to the hours that they are working would allow them to take on more apprentices without incurring significant costs. Another tack is to use work inspired projects as part of the formal learning, tailored for the individual employer, as we do at Pearson Business School. This helps ensure the apprentices remain of value to the SME five-days a week.

The End-Point Assessment (EPA) presents another administrative burden for SMEs

The EPA is a heavy piece of work, and can require that the apprentice evidences criteria that aren’t always directly related to the management role undertaken. In a small company it may not be possible to move an apprentice to another department to cover extra learning outcomes.

The EPA should be simplified and be made more flexible so that employers can adjust it to their needs.  

Funding

Funding is also of critical importance. Our interactions with SMEs show that they are eager to take on more apprentices but lack the resources under the current system to do so. In fact, traditionally there have been many more apprenticeships in SMEs than in larger companies. But the reforms around the levy have been largely focused on larger companies.

It has been extremely difficult for SMEs to expand their places, as numbers have been effectively frozen since the levy was introduced. We know this at Pearson Business School because we have SMEs who want to take on more apprentices but cannot get funded places to do so. Creating many more SME places is crucial if we are to really grow apprenticeship numbers.

£700 million apprenticeship reform package

The Chancellor’s announcement, in the Spring Statement, to bring forward a £700 million apprenticeship reform package is a welcome first step. The plans include a commitment to see the amount SMEs are expected to contribute towards training apprentices as part of the co-funding arrangement drop from 10 to 5 per cent, estimated to bring a £695 million saving for businesses. However, that doesn’t mean more places.

The Chancellor also vowed to increase the amount of levy funding that organisations will be allowed to share with their supply chain, from 10 to 25 per cent. That supply chain could include SMEs and therefore possibly more SME places, but they will be beholden to a large company rather than being able to make their own decision.

Further support needed

These reforms are very much welcomed, however the government should go further to support businesses that want to take on apprentices. This means greater flexibility on how to spend the money for SMEs.

At Pearson Business School, the SMEs that we work with have told us that it’s not the cost of the apprentice’s wage which is the only barrier, but the human resources (HR), legal, and set up costs which they are not always equipped to deal with.

Even things like travel costs for the apprentices to their classes cannot be covered. Flexibility to spend money on some of the costs incurred in administering apprenticeships would be welcome.

The idea behind the apprenticeship levy is a hugely important one. We need greater diversity of education and training and apprenticeships can be brilliant for both apprentices and employers.

If the apprenticeship levy is to fulfil this ideal, it must be reformed to allow SMEs to take on more apprentices without incurring significant costs. Only then will it begin to revolutionise post-16 education as intended.

Roxanne Stockwell, Principal, Pearson Business School, part of Pearson College London, the first higher education institution in the UK to be founded by a FTSE 100 company – Pearson Plc