SMEs losing out on apprenticeship levy funding

There need to be urgent reforms to the apprenticeship levy, including additional funding, to prevent the loss of up to 75,000 apprenticeships at SMEs

Analysis by the Learning and Work Institute indicates that large employers are using more of their levy funds than forecast, with the amount left for SMEs being only half as much as expected.

The policy, research and development organisation warns that based on current trends the levy could be over-spent by £1bn in the next year, despite the fact that the number of apprenticeships has been lower than expected and the government is at risk of failing to hit its target of three million apprenticeships by 2020. 

A recent survey by the Association of Employment and Learning Providers (AELP) found that this year a quarter of apprenticeship training providers have had to turn away a prospective new SME employer of apprentices, while 17% of providers have stopped recruiting apprentices altogether for new and existing SME employer customers.

A further 25% have had to cut back on apprentice recruitment for their employer customers due to a lack of funding and a third of the providers need up to 25% of additional funding on their government funding contract to meet current demand.

The Learning and Work Institute says overspending by big employers risks leading to a creeping rationing of apprenticeships at SMEs, with its analysis suggesting that on current trends, this could result in up to 75,000 fewer apprenticeships at SMEs.

It says the overspend is driven by two factors. First, there has been an exponential growth in higher and degree level apprenticeships – which tend to be far more expensive – as levy-paying employers seek to recoup as much of their funds as possible.

In the two years since the introduction of the levy, the number of apprenticeship starts fell by a fifth, but the number of higher apprenticeships more than doubled, with the number of degree apprenticeships increasing by a factor of 12. 

Second, the new and more rigorous apprenticeship standards, introduced at the same time as the levy, are significantly more expensive than expected. 

SMEs are more likely to take on young apprentices and provide entry level training opportunities. However, a larger proportion of funding than planned is being spent by large employers on higher level apprenticeships for older workers and for existing staff.

The Learning and Work Institute is calling for an additional £150m per year for apprenticeships at SMEs, and wants funding apprenticeships for 16 – 18 year olds from the education budget, rather than the apprenticeship levy, requiring an additional £400m per year.

The institute also say employers or individuals should be asked to provide top-up funding for higher and degree level apprenticeships for workers aged 25 and over. This would require employers to provide 50% of the cost of apprenticeships at level 4 and 5, and 75% of apprenticeships at level 6 and 7 for this age group, from outside of their levy funds. This would reduce levy spending by around £318m per year.

Stephen Evans, chief executive of Learning and Work Institute, said: ‘The government was right to introduce the apprenticeship levy, but they are at risk of both missing the target and busting the budget.

‘Ignoring this problem is not an option. It would just lead to a creeping rationing of apprenticeships at the small employers that make up the backbone of our economy, and it would limit opportunities for young people.

‘Our balanced approach would plug the funding gap, and it would support employers to train young workers and upskill adults with lower levels of qualifications. Beyond this, we need to look at how to ensure the levy can deliver our long-term skills needs.’

Pat Sweet

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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