Apprenticeship funding: 4 options to fix the system

The apprenticeship levy is running dry. There are no easy options left - but urgent action is needed, says Stephen Evans

Apprenticeship funding is inadequate - 4 options remain, says Stephen Evans

A problem shared is a problem halved. As in life, so in government policy. It’s usually better to be open and honest about how things are working in practice and the trade-offs that limited resources mean. Yet that’s not been the case with the apprenticeship levy, as a new Learning and Work Institute report shows.

I support the apprenticeship levy and many of the other recent reforms. They have resulted in a new conversation with many employers about training and are built on sound principles. And a levy – if it works effectively – could help to boost employer investment, improving both productivity and social justice.

However, introducing a number of big reforms at the same time never works out exactly as you expect. Our new report shows that in the first four months of the new system, levy payers spent 80 per cent of their levy funds, compared with the 60 per cent that the government expected. This was the result of the rapid growth of more expensive higher-level apprenticeships for levy payers, plus the fact that standards are generally more expensive than the previous frameworks.


Background: Apprenticeships: Providers face cash shortage for SMEs

More: Apprenticeship levy needs reform, UCU urges

Opinion: 'The apprenticeship levy is set to run out. Changes are needed'


Apprenticeship funding 'inadequate'

So far, so good, you might think – the levy is working and employers are engaging more in apprenticeships. Well, yes and no. Under the new system, funds left unspent by levy-payers are used to cover most of the cost of apprenticeship training at small and medium-sized enterprises (SMEs). So, if large employers are using more of their levy funds than expected, that means less funding is available for training at SMEs. We estimate that up to 75,000 apprenticeships at SMEs could be at risk as a result of this funding squeeze. This is bad in its own right, but particularly troubling given SMEs are more likely to offer apprenticeships to young people.

This isn’t just an abstract risk for the future. It’s something that’s already happening. A survey by the Association of Employment and Learning Providers showed that three-quarters of providers with non-levy contracts thought the amount of funding was inadequate.

What can we do about this? Ultimately, there are only four options. One is for the government to plug the funding gap. But it feels unlikely that it will stump up around £1 billion and, if it did, would this best be invested in protecting the current pattern of apprenticeships or on adult learning more generally? The second option is to extend the levy, either asking more employers to pay it or increasing employers’ contribution rates. Particularly in the current political climate, this feels unlikely to happen quickly enough for the current funding crunch. And if we were asking employers to pay more, wouldn’t we also look at the structure of the levy, including the case for making it a wider skills levy?

No perfect options left

The third option is to require employers to make a bigger contribution to the cost of some apprenticeships. That could be by age, level or salary of apprentice. But this would be a blunt tool that could prevent some valuable learning and, by definition, limit employers' choices. The final option is to limit funding for apprenticeships at SMEs. This is what happens in the absence of making any other choices – that’s why we term this the “hidden rationing” of SMEs.

None of these choices is perfect or easy. But our argument is that we should confront the situation head-on, making the choices that maximise the impact of the limited funding available on productivity and social justice. It is better to have that debate than to stick our heads in the sand and hope it all goes away.

We set out a balanced set of proposals to close the gap. We argue for some additional public investment, with an extra £150 million per year for apprenticeships at SMEs. We call for apprenticeships for 16- to 18-year-olds to be funded from the main education budget, rather than the levy, in line with other education options for that age group and at a cost of £400 million per year.

Alongside this, we’ve suggested that employers who want to take on higher and degree-level apprentices aged 25 and above should be asked to make an extra contribution to their costs, reducing pressure on the apprenticeship budget by around £300 million per year. This would mean apprenticeships for people of all ages learning at all levels could still be funded from the levy and non-levy systems, but that large employers would have to make an additional contribution for some older employees training to a higher level. It should also make it easier to focus more on young people.

Agree or disagree with that proposal. But agree at least that we should be open about the budget pressures and the trade-offs we need to make in a world of limited funding. Doing nothing isn’t an option.

Stephen Evans is chief executive of the Learning and Work Institute

 

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