Can the apprenticeship levy be saved?

The apprenticeship levy can be fixed - but none of the solutions is painless, writes Stephen Exley

Stephen Exley

Apprenticeship levy

When you look at the hard facts, it’s hard not to conclude that the apprenticeship levy has been a policy disaster.

This is the subtext behind parts of all three of the main parties’ manifestos, all of which implicitly or explicitly propose surgery of some kind. The Liberal Democrats would expand the apprenticeship levy into a wider “skills and training levy” – with 25 per cent of the funds raised going into a “social mobility fund” targeted at areas with the greatest skill needs.

Labour, meanwhile, would "make it easier for employers to spend the levy by allowing it to be used for a wider range of accredited training”.

The Conservatives came up with a vague plan to “look at how we can improve the working of the apprenticeship levy”. 

Lib Dem manifesto: Skills wallets and funding

Labour manifesto: A National Education Service and adult education

Conservative manifesto: Conservative manifesto: £3bn for ‘national skills fund’

Whoever forms our next government will have to make some speedy decisions on how to rescue it – and the costs will be high, whether politically or financially.

3m apprenticeships? Not going to happen

The levy was introduced to get millions more in funding flowing into the apprenticeship programme – with the aim of achieving 3 million apprenticeship starts during the current Parliament.

Figures released last week make clear that this just isn’t going to happen. Starts are down by around a fifth since the levy was introduced.

And that’s not the only issue. It is also plain to see that the programme is on course for a massive overspend – as much as £1 billion in the next year.

This is a problem – particularly for small to medium enterprises (SMEs). Small businesses (those with a payroll of less than £3 million a year) don’t contribute towards the levy, but the pay-off is that they rely on the leftovers from big businesses to fund their own apprenticeships.

And very soon, the levy will be running dry. A report published last month by the Learning and Work Institute revealed 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”, chief executive Stephen Evans explained.

The consequence, the report concluded, was that up to 75,000 apprenticeships at SMEs could be at risk as a result of this funding squeeze.

Apprenticeship levy: can it be fixed?

The Learning and Work Institute helpfully suggests four alternative solutions:

  1. The government plugs the funding gap.
  2. Extend the levy, meaning more employers have to contribute – or contributions are increased.
  3. Ration funding. This would mean that employers could have to contribute more towards some apprenticeships. The line could be drawn according to level, age, sector or – as former skills minister Anne Milton suggested – salary.
  4. Limit funding for SMEs. Simply accept that small businesses – the bedrock of the apprenticeship programme before the levy came in – will simply have to go without.

So, besides the noncommittal statement in the Tories’ manifesto, what would the party be likely to do should it be re-elected?

Given the manifesto’s focus on “small and family businesses [being] the backbone of the economy”, making more of them fork out for the levy – or leaving them to go without – would be surprising. Rationing apprenticeships could still be an option; many would be quietly supportive of asking employers to pay for MBAs for their graduate employees, for instance.

I suspect the decision could well come down to the balance of power between the different government departments. The Department for Education would be likely to favour extra investment to bolster the flagging apprenticeship programme. The Treasury would be naturally wary of this – and likely to demand other savings from elsewhere in the DfE’s budget in exchange for getting it out of this hole.

Where these cuts would be made is anyone’s guess at this juncture. But one controversial solution could be to delay the implementation of T levels from the current start date of 2020 – effectively pushing back the funding needed to implement them, which will eventually rise to some £500 million a year. Could this explain the mysterious absence of the Conservatives’ flagship technical education policy from their election manifesto?

It would be a big call. But, irrespective of what solution is picked, the levy question cannot be delayed for much longer. Whichever party forms the next government will have to make a tough decision – and quickly.

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Stephen Exley

Stephen Exley

Stephen Exley is a freelance writer, director of external affairs at Villiers Park Educational Trust and former FE editor at Tes.

Find me on Twitter @stephenexley

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