Over £3 billion in unspent apprenticeship levy lost to Treasury ‘black hole’ new data reveals

Apprenticeships experts warn that the Treasury must be more transparent on how it spends the billions returned to its coffers

Rigid apprenticeship system blamed for billions of skills funding going unspent by businesses and being returned to the Treasury

More than £3.3 billion has returned to the Treasury in the last three years under the Government’s use-it-or-lose-it apprenticeship levy rules, according to new data collected by apprenticeships experts the London Progression Collaboration (LPC).

A freedom of information request reveals that since May 2019, employers in England have been returning unspent levy funds earmarked for new apprentices to the Treasury, with businesses losing out on the equivalent of £1.1 billion per year or £95 million per month.

The LPC, which to date has helped transfer £10 million of unspent apprenticeship levy from large employers to support small businesses and create over 1,000 apprenticeships, says that it is not clear how the Treasury is making use of the £3.3 billion that it has received from businesses.

The apprenticeship experts warn that this lack of transparency means it is unclear whether the Treasury is using the unspent levy in a way that best supports the places most in need of levelling up, and whether it is helping create more entry-level apprenticeships, after numbers have plummeted in recent years.

To increase transparency, the LPC is calling on the Treasury to publish how many apprenticeships are being created through unspent apprenticeship levy, where in England that levy is being spent, at what levels and in what sectors – as well as where any surplus funds are being used.

The LPC argues that if the apprenticeship levy is to meet its objective of increasing employer investment in training, the Treasury also needs to give employers greater control over how their funds are directed, including by increasing the 25 per cent apprenticeship levy transfer cap. The LPC has seen at first hand the challenges the current system poses to businesses in their work helping firms navigate the complex apprenticeship system and transferring their unspent levy to small businesses.

These findings follow previous research by the LPC which shows that since 2014-15, ‘entry-level’ apprenticeships have fallen by 72 per cent in England, while apprenticeship starts amongst under-19s have fallen by 59 per cent, depriving those most at risk of in-work poverty and at the beginning of their careers the best start in life.

In the most recent three years that data is available, apprenticeship starts in the North have fallen most sharply, with apprenticeships falling by 26 per cent in the North East, 23 per cent in Yorkshire and the Humber and 21 per cent in the North West. 

Anna Ambrose, Director of the London Progression Collaboration, said:

“Apprenticeships are vitally important for ensuring people can get on at work and businesses can fill skills gaps, but the Treasury aren’t being transparent about where billions of pounds of apprenticeship funding is being directed.

“Since 2019, over £3 billion in funds that businesses haven’t used appear to have been lost to a Treasury black hole. This transparency deficit risks undermining confidence that money for apprentices is being used in the most effective and fair way.

“The fact that so much apprenticeship funding is being lost to the Treasury is a symptom of a system that is far too rigid and confusing to navigate for businesses.

“The system should be made more flexible and firms supported to use their levy funding to boost apprenticeship opportunities or transfer their funds to smaller businesses that could benefit from the investment.”

Richard Marsh, Apprenticeship Partnership Director at Kaplan UK spoke about this in 2020. Read the article here- £2bn Levy Underspend: Has the demise of the levy been much exaggerated?

Sector Response

Julie Hyde, Director of External and Regulatory Affairs at NCFE, said:

“Apprenticeships are a key part of the post-16 education and employment landscape and the system should mean that people of all ages are able to fill the skills gaps industry needs.

“To effectively lose over £3bn in apprenticeship levy to the Treasury without knowing where or what it is being spent on, certainly raises the need for more transparency. But we think the Government should go further and review the system for funding apprenticeships.

“Certainly the £3bn of employer funding should be invested in apprenticeships but we would also call for funding for 16–18-year-olds to be ring-fenced, and consistent with all other forms of training, funded directly by government for those aged under 18.”