Briefing: Apprenticeships: reaping the rewards in a "failing" system

07 Feb 2022

The benefits of apprenticeships are clear – well-trained, highly skilled staff add value to all organisations, both directly and through their ability to coach, mentor and train other team members. As National Apprenticeship Week (7-13 February 2022) celebrates the success of apprenticeships, this briefing investigates where the UK system appears to be falling short.

Says Helena Baxter, Apprenticeship Lead, Walsall Council:

“Apprenticeships are good for business, as apprentices can be moulded and shaped in their area of expertise, to deliver the exact skills your business needs. Apprentices are the future decision makers, managers … and continuing to bring apprentices into the business, even in such difficult times, is important to protect our future, whilst ensuring we continue to deliver the vital services our communities depend upon.”

But despite the popularity of apprenticeships, some businesses appear not to be reaping the rewards and the UK’s Apprenticeship Levy has certainly received some bad press. So, why isn’t the system working to its full capacity and what can be done to boost it?

A lack of publicity
While the benefits of an apprenticeship are clear, many people just don’t know about the possibilities, meaning many young people don’t consider apprenticeships as an option for career development and progression. In fact, more than half of university graduates (52%) said they would have considered doing an apprenticeship instead of a degree had they known more about it, said a report from the CIPD. Yet official figures showed a 36% decrease in young people under the age of 19 starting apprenticeships in 2020/21 compared with 2018/19. This continues a long-term trend for a smaller proportion of apprenticeship starts going to young people.

Lizzie Crowley, Senior Skills Adviser at the CIPD, said:

“While half of graduates say they would have been open to doing an apprenticeship, the number of young people who are actually starting them continues to fall sharply. We need to do a better job of preparing young people for the world of work, so they can make an informed decision about what route is going to give them the best chance of having a long and fulfilling career. It’s crucial that young people receive effective careers advice at school, so they are aware of the different career choices and routes open to them that meet their interests, strengths and aptitudes, as well as the needs of employers.

“This is not just important for individuals, it’s key to our long-term productivity and competitiveness as recent skill and labour shortages have demonstrated. However, it’s not down to one stakeholder to achieve this: educators, policy makers and businesses all need to work together to help young people develop the skills they and employers need.”

Read the full report here.

The Levy so far
The Apprenticeship Levy saw its fourth anniversary last year, yet in March its performance was damned by the CIPD. Analysis by the professional body for HR and people development showed that, since its inception, employer investment in training has declined, overall apprenticeship starts have fallen and far fewer apprenticeships have gone to young people.

In fact, the apprenticeship hiring incentive in England was extended to September 2021, and the payment doubled to £3,000. A new £7m ‘flexi-job’ apprenticeship programme in England was also announced, enabling apprentices to work with a number of employers in one sector, while an additional £126m was put towards 40,000 more traineeships for 16-24-year-olds.

However, Neil Carberry, Chief Executive of the REC, expressed disappointment that there was no wider reformation of what he describes as the “failed” Apprenticeship Levy. He said:

“A flexible skills levy would deliver better apprenticeships for young people and allow older workers to do the qualifications they need, rather than the ones Government is willing to fund."

Key data used for the CIPD’s four-year performance assessment of the Levy showed that:

Total apprenticeship starts have fallen from 494,900 in 2016/17 to just 322,500 in 2019/20.
The number of apprenticeships going to under 19s has fallen from 122,800 in 2016/17 year to just 76,300 in 2019/20.
The number of apprenticeships going to 19-24-year-olds has declined from 142,200 per year to 95,300 per annum over the same period.
Overall employer investment in training, which the levy was supposed to boost, has also declined, with employer funded off-the-job training in England falling by £2.3bn between 2017 and 2019.
The current funding arrangements are also failing smaller organisations. In 2016, 11% of small businesses (fewer than 50 employees) had apprentices in their organisations, but by 2019 this had fallen to just 9%.

Putting staff through apprenticeships is a great way for employers to prepare them for a significant future in their business, by utilising Government funding to gain internationally-recognised qualifications. Yet, the CIPD believes that, without reform, the Levy will have further damaging effects on investment in skills by:

Further restricting apprenticeship opportunities for young people at a time they are most needed.
Undermining the Government’s Skills for Jobs further education reforms and the plan to boost employer engagement with colleges.
Reducing employers’ ability to invest in the skills their business needs for the recovery.

CIPD Chief Executive, Peter Cheese, said:

"On all key measures the Apprenticeship Levy has failed and is even acting to constrain firms’ investment in apprenticeships and skills more broadly. It appears to have achieved the opposite of its policy objectives. Without reform it will act as a handbrake on employer investment in skills, damaging firms’ ability to recover from the pandemic. A more flexible skills levy would mean employers could use it to develop existing staff through other forms of accredited training and skills development which are cheaper and usually much more suitable for employees aged 25 and over, leaving more money to invest in apprenticeships for young people who most need them.

"Levy flexibility would also help employers fund their employees through training in further education colleges as many technical and vocational courses are not apprenticeships. This key change would provide a big boost to meeting the ambition of the government Skills for Jobs white paper and boost employer engagement with their local colleges."

Read the full report here.

Spending the Levy funds
In May 2021, plans were revealed in the Queen’s Speech to create an adult education and training system that is fit for the future, however there was no decision to reform the Apprenticeship Levy. This came as new data showed employers had been forced to write-off £2bn of levy funds over the previous two years.

The CIPD obtained data using FOI requests, which showed that £1.999bn of employers’ Levy funds expired and were returned to the Treasury between May 2019 and March 2021, as they were unable to use them on apprenticeships. Nonetheless, as of 1 June, it was announced, employers of all sizes in England can now apply for extra funding to help them take on new apprentices, in another drive to revolutionise the skills and training on offer across the country.

The boost to the apprenticeship incentive scheme was confirmed by the Chancellor in the Budget in March, and is now available to claim. Businesses can apply to claim £3,000 for each new apprentice hired as a new employee from 1 April until 30 September.

Gillian Keegan, Minister for Apprenticeships and Skills said:

“Apprenticeships are a fantastic way for employers large and small to grow their businesses and will continue to play a key role in our economic recovery. This cash boost will help even more employers to invest in their future workforce, creating more high-quality apprenticeship opportunities so businesses have the skilled talent pipeline they need to thrive, not just today but also in the future.”

Read the full report here.

Furthermore, in October 2021, it was announced that large employers that pay the Apprenticeship Levy can now choose to transfer up to 25% of their Levy funds each year to other businesses, to pay for their apprenticeship training and assessment. Transferring Levy funds is a way of supporting other businesses and transferring businesses can decide which sectors, skills or local areas they’d like to fund.

The transfer allowance is calculated as 25% of a business’ previous financial year’s Apprenticeship Levy funds. The apprenticeship service calculates this amount as 25% of:

The total amount of Levy you declared in the previous tax year;
With the English percentage applied (the percentage of your employees that live in England);
Plus the top-up payment of 10% from the Government.

It is the transferring employer’s choice which businesses they transfer Levy funds to. Any business can receive a transfer of Levy funds, including businesses that pay the Apprenticeship Levy and those that do not. Transferred funds can only be used to pay for apprenticeship training and assessment up to the funding band maximum.

Transfers can only be used for a new apprentice start. This doesn’t mean the apprentice has to be a new employee. It means you cannot receive transfer funding for an employee who has already started their apprenticeship.

A transfer of Levy funds is not a one-off payment. By agreeing to transfer Levy funds to another business, transferring employers are committing to pay for a specific apprenticeship over the course of its duration until the apprenticeship has been completed. The business receiving the transfer of funds is bound by the apprenticeship funding rules for how they use the transfer funds and how they employ their apprentice.

Read the full report here.

Despite these developments, it is still thought that these tight rules around how the Levy can be used mean the funds are still not being used fully or to their full effect.

Ben Willmott, Head of Public Policy for the CIPD, said:

“A more flexible training levy would enable employers to invest in other forms of accredited training and development, and would maximise opportunities for employers to work with their local further education colleges and universities. Instead, employers are currently losing £1bn a year on Levy funds they can’t spend because the scheme is too inflexible. This money should be going towards other forms of adult skills investment and training and could supplement the new flexible loans for adult learners."

Where are we now?
Just last week it was revealed that fewer than one in five (17%) believe that the current Apprentice Levy system is working well and doesn’t require changes, according to a new survey. At the same time, employers are urging the Government to act now to boost recovery and reduce the volume of Levy funds going unspent, including by increasing the ability to transfer more money to SMEs.

The survey of over 500 HR professionals, undertaken by Survation on behalf of London First, found that while four in five (80%) surveyed planned to hire at least one apprentice in the next 12 months, almost half (48%) said they’d had to return unspent Apprenticeship Levy funding to the Treasury (compared to 52% who have not returned levy funds).

Challenges in spending the Levy mean only half (51%) are currently transferring unspent funds within their supply chain. Twenty-four per cent of businesses report that they have been unable to use any levy funding within their own organisation.

When asked about the barriers to transferring levy funding to the supply chain, the most common problem was its complexity, both for the firm doing the transfer (28%), and for the SME in the supply chain (27%). Twenty-six per cent said that the inflexibility with the existing rules prevents SMEs in the supply chain from taking up the funding on offer.

Businesses also said that the Apprenticeship Levy funds could be better used if:

The deadline for spending Levy funds was extended from two to three years (35%);
Employers were allowed to use some of the Levy to contribute towards the wage costs of new apprentices (35%);
Employers were incentivised to convert Kickstart placements into apprenticeships (35%); and
Larger employers were able to transfer more funds to SMEs (25%).

Commenting on the survey, Mark Hilton, Membership and Skills Policy Director at London First, said:

“Apprenticeships are popular, and there is broad support for the Apprenticeship Levy as a way of re-skilling the country. However, it is clear from the survey that employers are struggling to take advantage of all the opportunities on offer. Hundreds of thousands of people lost their jobs or had their education disrupted during the pandemic. By tweaking the system, to give SMEs more of an opportunity to access funding, we can get more people into work. Failure to support businesses risks the impression that the Levy is just another tax.”

Read the full report here.

Find out more about National Apprenticeship Week 2022.