The introduction of the apprenticeship levy could lead to employers scheming to "exploit the system" to access funding or reduce their wage bill, according to an influential parliamentary committee.
A report published today by the Public Accounts Committee (PAC) concludes that the levy "may incentivise some employers to exploit the system, for example by artificially routing other forms of training into apprenticeships or hiring apprentices as a way to avoid paying the minimum wage".
The levy will apply to all businesses with a payroll of £3 million or more, and has been set at 0.5 per cent of an employer's pay bill. The government has said that, as a result, funding for apprenticeships will reach £2.5 billion by 2019-20.
Misuse of the apprenticeship levy
But the report highlights concerns about potential misuse of the money raised.
It states: "For example, employers and training providers might collude to recover and share levy funds while offering little or no genuine training, or employers might artificially route other forms of training into apprenticeships.
"The Department [for Education] must not repeat the sorts of mistakes that were made when individual learning accounts were introduced in 2000 which suffered from a lack of checks on learners, providers, and the quality of learning; and poor contract management which led to substantial fraud and abuse."
The PAC calls on the DfE to "systematically identify the full range of risks associated with potential abuse of the system and ensure that they are addressed from the start”, and make it clear “who is responsible for managing the risks, detecting problems as they arise, and taking action quickly should concerns emerge".
The report also raises concerns that the target of creating 3 million apprenticeships during the current Parliament is “only real measure of success”.
It says it is unclear how the DfE will monitor success in important areas, such the programme’s ability to meet the needs of employers and whether it is improving opportunities for under-represented.
The report also points out that, as of April, only 2,600 people had started an apprenticeship under the new standards, and that the timeframe for having all 1,600 standards in pace has been put back by three years to 2020.
It adds: "It is not clear how the Institute for Apprenticeships will operate and whether it will have the capacity and capability to fulfill its functions."
Meg Hillier, chair of the PAC, said: "Businesses, apprentices and taxpayers in general will not consider this policy a success simply because the Department for Education has hit its take-up target.
"The government must demonstrate it is delivering real value throughout the programme and, where weaknesses are identified, address them promptly."
She added: "Our report highlights the potential risks of the new levy system being exploited and will expect the government to show leadership in safeguarding against these."
Apprenticeships and skills minister Robert Halfon said: “We are committed to not only achieving 3 million apprenticeship starts by 2020, but also to driving up the quality of apprenticeships. That is why we are doubling funding for apprenticeships to £2.5 billion by 2019-20 - twice what was spent in 2010-11 - and giving employers more power than ever before to design training standards that meets their needs.
“Quality is at the heart of all of our apprenticeship reforms. We have introduced new apprenticeship standards which are developed by employers themselves and rigorously checked and from next April, the new Institute for Apprenticeships will be charged with approving standards to ensure they are high quality."