I was speaking to one of our employers last week, who isn’t a levy payer and they asked me, “Where has all the money gone?”
This was not the first time someone has asked me that in the last few months.
The confusion arises as people hear constantly that there has been a decline in apprenticeship starts across the industry, currently 24% down on the same period prior to the apprenticeship reforms of 2017, but we are also hearing now that there’s not enough money to fund starts for non-levy paying employers.
Let’s start with why apprenticeships are a good thing
- Raise productivity and ability to continually upskill throughout a person’s career
- Gives a route into qualifications and work often closed off to young people who were failed by the education system
- Raises the earnings of learners
- Improves retention, job satisfaction & performance of employers valuable people resource
- Improves social mobility
These points they are not contentious and apprenticeships are a rare policy area all politicians seem to agree is worth investing in for these reasons.
So what was the government trying to achieve with the apprenticeship reforms in 2017?
Firstly let’s not ignore it, they wanted to save money.
On the surface this was a clever policy that not only increased the annual spend on apprenticeships from around £1.5bn in the UK to over £2.5bn, but also reduced the cost to the treasury as the £2.5bn now came from employers in the form of a levy and would in theory cover the cost of the £1.5bn that was being spent previously. Therefore increasing the funding for apprenticeships which we all agree is a great thing.
In order to sell this policy to the 2% of employers in the UK who would now be funding the programme via the levy, there were two worthwhile promises:
- Employers would be in the driving seat, designing standards and deciding what they wanted to spend their levy on.
- They could get back more than they put in in the form of 10% uplift on their contributions and uncapped apprenticeships above their levy pots funded 90% by government.
This is great for those 2% of UK employers and a fair deal for their levy contributions.
However prior to the Levy introduction I, alongside many others in the sector, warned government that with all the focus on levy paying employers, there was a lack of focus on SMEs, who actually make up 96% of our businesses, and who are big generators of productivity and wealth in our communities.
Traditionally, these small businesses tended to bring on more entry level apprentices and gave more opportunities to young people.
By putting the large employers in the driving seat we were gambling that there would be enough underspend from employers levy pots to continue to fund our SME’s, and with them our younger apprentices and entry level skills.
Another aim of the apprenticeship reforms is to develop and deliver higher level apprenticeships, putting these apprenticeship programmes on a par with more traditional academic routes.
This is so important, many of us working with apprentices have wanted this for years. We want every parent to be proud when their child becomes an apprentice and not insist that it is something for other people’s less gifted children.
However here is where we run into funding difficulties. What we’re seeing are levy employers spending their levy money on upskilling employees and a focus on higher apprenticeships, which is of course a great thing, but the cost of delivering these higher level programmes is crippling the system.
Quite simply one level 7 Management apprentice costs the same as nine level 3 health & social care apprentices.
This is how we have less apprentices and are spending more money than before the reforms.
The gamble is not paying off and we are leaving less money for level 2 & 3 learners and younger people creating a growing skills gap at entry level.
Getting employers to have skin in the game via the levy is great it has driven employers to questions what they are buying in more detail, which in itself is a good thing as there is more focus on quality and the value of the qualification.
The downside however, is that employers are now much less likely to gamble on entry level 2 and 16-23 year olds, as it is seen as safer to pay for progressions rather than invest in new talent.
If nothing changes:
- We will not raise productivity and continually upskill people in SME’s
- We will close off a route into qualifications and work to young people who were failed by the education system
- Our SME’s will not get the benefits of improved retention, job satisfaction and their people will not get the earnings improvements other apprentices benefit from
- Far from improving social mobility the system starts to damage it.
So what are the solutions to these issues?
The gamble hasn’t worked, the levy in its current state will not fund SME apprentices.
So we have two choices as a nation:
1. Change Nothing
We could change nothing and:
- Accept the benefits of more higher level learners in our largest 2% of employers, but
- Write off hundreds of thousands of young people,
- See a widening skills gap at level 2 & 3,
- See productivity reduce in SME businesses and
- See our NEET numbers explode as a nation.
If we do this I wish you luck finding the highly skilled level 2 & 3 staff to look after your children in nursey or your parents who need care.
2. Fund SMEs
If we like what we are getting from higher apprenticeships in levy employers, great then treasury must fund SMEs and not rely on the scraps of unspent levy.
AELP consistently say we need to ring fence £1bn specifically for our SMEs. I agree, this will allow more entry level and more progressions in these smaller businesses and gives us all the benefits of the new system but doesn’t depart from the reasons for doing apprenticeships.
How to make this possible?
Of course there is not an infinite budget for this, so we would need to find ways to fund these solutions there are ways to do this that don’t just have to be more money from the treasury:
- We could increase the levy contributions for larger employers
- Reduce the £15k offset so employers with payroll below £3m contribute to the system
- Reduce the costs to the apprenticeship budget– make levels 4 and 5 a higher costs or even less government funding for higher level apprenticeships
- Move money from the HE budget for degree apprenticeships or follow a loan system for some or all of the cost.
The most important thing is that we continue to fill the skills gap and that people grow their careers and get opportunities.
Is putting managers through degree apprenticeships really what we want the system to be doing at the expense of funding and supporting at entry level?
Although starts are reported as being down across the country and particular in SME’s, this isn’t universal at Aspiration Training apprenticeship starts are up, we continue to grow level 2-5 learners especially in childcare and dental sectors.
So the appetite for these apprentices has not gone away, yes there are other challenges like off the job training and SME contributions but the crisis is the money is running out. By the autumn we will be turning away learners and not be able to support our employers.
Apprenticeships are so important for our country and our young people. We really need to enable our SMEs to take on more apprentices and train our workforce of the future.
We are within grasp of a good system, but the Government must act now before it is too late.
Iain Salisbury, CEO, Aspiration Training Ltd