How the apprenticeship levy is gambling with FE’s future

13th May 2016 at 00:00
The new policy offers many positive opportunities, but there is also a danger of some unintended consequences

I’ve just got back from Las Vegas. While I was briefly tempted to put our Skills Funding Agency (SFA) allocation on red or black, I have to admit that I’m not a gambling man. As a naturally risk-adverse MD, I tend to look at new initiatives such as the apprenticeship levy with a degree of scepticism. I believe that the levy is a game-changer and has more positives than negatives. However, as the clock ticks down to implementation, there are still some potential consequences, perhaps unintended, that I believe might worry some providers, employers and the government.

1 The levy will increase subcontracting, not reduce it

It’s obvious that subcontracting will increase. Imagine you’re a large levy payer with sites all over England and a range of complex needs. While there are a few large providers that might be able to solve everything for you in-house, the vast majority of the network is geographically defined. Colleges will be constrained by their local infrastructure, and most independent providers are not big enough to take on levy business in one bite.

Do we now surrender the field to an oligopoly of a few mega-providers? Absolutely not. Levy payers will contract with a main provider and that “contractor” will develop a supply chain to provide the solution. This is called (you guessed it) subcontracting. Subcontracting will be the only way that smaller providers and colleges can get a slice of the action. However, unlike with the current arrangements that police subcontracting, we can assume that the new “levy leads” will have even greater power over the terms and conditions that their supply chain must adhere to.

I imagine that the levy will herald a new age of subcontracting that might end up making the current landscape appear utopian. In spite of the statements from those most senior in the SFA that there is no need for subcontracting under the levy, the simple fact is that it will exist and will probably grow. It’s time to accept this and begin scoping some robust rules that ensure levy subcontracting doesn’t undermine confidence in the new system.

2 The levy will result in some shocking and prevalent examples of fraud

The government has set its face against levy funds being used to pay employers for any part of the training. This may prove to be a mistake: employers in some cases will have the infrastructure to contribute positively to some aspects of delivery. A transparent and audited approach to this would be healthy and help to engage the employer base. It stands to reason that the biggest levy payers will already have excellent in-house training staff and facilities. Why wouldn’t we seek to use such resources?

By ruling employer payments out, I envisage some questionable work-arounds – not just from reputable companies. The levy creates an environment in which the volume of cash and the ambiguity of the rules will facilitate dubious activities. For example, employer A and provider B get together to spend the levy. Employer A has a whizz idea. Why doesn’t provider B charge the absolute maximum amount under the appropriate cap (let’s say, for example, £18,000 per learner)? Provider B replies that it only costs £12,000 to actually deliver the full service. Employer A smiles and replies: “Don’t forget I’ll be invoicing you for £6,000 room hire.”

There is huge scope for money to change hands if this new landscape is not policed properly. That concept of policing will rely on a robust threshold for “approved provider status” to prevent disreputable organisations abusing the new system. Further, I believe some flexibility to enable employers to contribute to the training side themselves, in return for appropriate payment, should be considered. As long as it is audited properly, I believe it could actually enrich the apprenticeship experience and encourage more employers to invest in their own internal infrastructure for training.

3 The levy could put some commercial providers out of business

While speaking with a prospective levy-paying employer recently, it became clear that it will struggle to spend its levy allocation. The Treasury will love this sort of scenario, because it will be relying on underspend to finance the non-levy-paying base.

However, the employer stated that it would look at cutting “commercial spending” on training in preference for similar courses classed as apprenticeships.

This will kill off many independent commercial organisations that have, for decades, been oblivious of apprenticeships. Many employers will want to avoid paying twice for their training needs. Now, a few commercial companies might be able to make the transition into apprenticeships, but most won’t. Isn’t this situation akin to the government distorting a supposedly free market?

As larger employers tally up their levy contribution, it will be challenging for them to spend 100 per cent of their account, 100 per cent of the time.

And financial directors will seek to slash their training budgets in order to offset this new tax. It just strikes me as an unjust effect of the levy that other businesses will suffer in such a way.

These are merely three potential unintended consequences of what is a huge opportunity. The SFA may need to reconsider some post-levy rules on subcontracting, ways to prevent serious fraud and avoid destroying currently successful training businesses which have nothing to do with apprenticeships.

We all want it to work and, generally, we are all excited about the benefits of the levy. However, slow and steady wins the race. The government should ensure that it gets the policy right first time.

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