Apprenticeship levy: where next in its evolution?

The apprenticeship levy has been thwarted by challenges and many suggest there ought to be a better alternative. But is the perfect solution out there? Dan Cave writes

Since its introduction in 2017, the apprenticeship levy has been a magnet for criticism.

A toll on employers with a wage bill of £3 million or more, the intent of the levy was to encourage the use of apprenticeships as a democratised route into work via sustainable funding, giving all employers access to a levy pot, while also improving both the quality and awareness of apprenticeships.

It hasn’t entirely gone to plan.

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The levy was intended to encourage 600,000 new apprenticeship starts a year, but the average has been nearer 330,000. There has been a collapse in starts from the demographics it intended to serve, including entry-level and under-25 apprentices, and £3.3 billion of levy funding has gone unused.

Independent reporting has found that the socially inclusive intent of the apprenticeship levy is being diluted with higher-level and degree-type apprenticeships starts more than tripling in the period 2016-17 to 2021-22.

As such, it appears that 2019 tweaks to levy rules, to improve fund sharing and curtail higher-level course spending, haven’t remedied levy problems.

Critics say further reform is needed, noting inflexibility (funds must be used on courses longer than a year, include employers partially giving up their employee resource and use external providers), difficulty in understanding how to use it, bureaucracy, and issues with how narrow apprenticeship training is.

But there are different arguments as to what the perfect apprenticeship levy would look like; whether any change is needed at all, or if a different system could work.

As it stands, government apprenticeship funding will more than double between 2010 and 2025. Some small businesses can access almost total apprenticeship funding, and 2019 levy changes have made it easier for businesses to share funds with each other.

Therefore, Robert Halfon, minister for skills and higher education, says that the levy, just one among many government-backed skills initiatives, will evolve to give employers backed what they need.

"In theory, it’s a good model it just needs surgery"

He says: “We work with employers to make improvements to the levy, including creating flexible training models so apprenticeships are accessible for all sectors.”

Others are less sure. Shadow chancellor Rachel Reeves says the UK’s current approach to skills can be linked to poor economic growth, while the Liberal Democrats want to overhaul the apprenticeship levy to create a broader training and social mobility-focused fund.

However, Anthony Painter, director of policy at Chartered Management Institute (CMI) is wary of calls for a radical broadening of the levy, as any change would be intensive and there is little evidence employers would invest in training as high quality as levy-funded courses.

He explains that the levy needs to be understood not as a fix-all but as a part of the UK’s skills development ecosystem – a part that  meets some employer needs, has a projected ROI of £1 billon over the next decade, and ensures quality – and any changes should come as tweaks to ensure funds are used more equitably and learner support is on hand.

He adds: “To improve it we need to analyse levy rates and consider how a different structure could increase investment in high-level skills and we need an apprenticeship opportunity fund to support those who are struggling financially or practically with completing their apprenticeship.”

With CMI data showing that managers believe apprenticeships are currently more effective than degrees at preparing young people for work, Jo Burgess, director of apprenticeships at Teesside University says better levy guidance is better than an overhaul.

She explains: “Training and education on the benefits of the levy need to come first before scrapping the entire thing altogether; in theory, it’s a good model it just needs surgery.”

However, others want its utility to be changed more dramatically.

Julia Kermode, founder of IWork, says there are many employers missing out on the benefits for the levy, though they are being charged for it.

She explains: “Recruitment agencies and umbrellas are required to pay this levy but [as their own staff are only a small part of their payroll] can’t spend it on their workers.

“Furthermore, temporary workers, who are the very lifeblood of the economy, are cut out.”

Luisa Gomes, employment and skills adviser at the British Retail Consortium, would also like to see a flexible skills levy that delivers a pipeline of learners to apprenticeships; financially aids employers as they support apprentices; delivers shorter courses; and focuses on capabilities employers actually need, like digital skills.

She says: “By making these changes to the levy system, it will help retailers increase the number of apprenticeships they offer, fill skills gaps, and create new opportunities – especially important for the more deprived parts of the UK.”

With chancellor Jeremy Hunt using the March’s Spring Budget to unveil his plan to get over-50s back into work using apprenticeships, Simon Reichwald, a fellow at the Institute of Student Employers similarly believes that rather than wholesale reform it could be improved by targeting under-served individuals.

He says: “What may be worth considering is where a percentage of the levy has to be used for young people, ex-military and carers and the over-50s to address labour market challenges.”

Separately, Beth Whittaker, chief HR officer at Veolia Northern Europe, believes the levy needs to be made more elastic so funds can be repurposed to growing future-oriented capabilities, such as green and digital skills, at pace and without barriers to access, such as mandatory maths and English qualifications.

She explains: “Veolia supports a skills levy that will give the system flexibility for both learners and employers and ensure that shorter, technical courses receive adequate funding.

“Better collaboration between businesses, learners and the government can help us accelerate the development of green skills but the funding has to be fit for purpose.”

Nichola Hay, director of apprenticeship policy and strategy at BPP Education Group, agrees with Whittaker that any changes to the levy need to meet employer usability, skills and training-style demands with a key focus being on ensuring the proliferation of higher-level courses don’t come at the expense of entry and intermediate apprenticeships.

She adds: “We need to work with employers to make sure apprenticeships work for them: whether businesses are looking to attract new talent or develop a coaching culture.”

"We need to work with employers to make sure apprenticeships work for them"

Like others, Jonas Keat, policy advisor at Logistics UK, is an advocate for a broader training levy so employers don’t get stuck using unsuitable apprenticeship courses, can self-solve skills gaps and create capabilities need to adhere to new regulations, such as business-focused climate policies.

He says: “Employers know what the best course of action would be for solving their own skills gaps, but they are unable to spend their levy funds to train for the skills that they really need.”

It’s this type of change that Kate Shoesmith, deputy CEO of the Recruitment and Employment Confederation, explains is most likely to help employers solve ongoing talent acquisition and retention issues, kickstart a lagging economy, and help the most at-need individuals.

She says: “The levy is currently not fit for purpose. We can see unfilled entry-level roles and we need to be able to take levy funding for generic training to help people do some of these jobs.

“The levy is not helping people who are further away from the jobs market and so the reform needed is an apprenticeship and skills levy as there are still growing numbers of job vacancies, but until we’ve trained individuals, they won’t be able to access these roles.”

While strongly worded criticism exists for the levy and there is widespread consensus for levy funds to have wider utility – to be used for shorter, more-focused, non-apprenticeship training – there appears to be little appetite for something radically different than a generic training levy which can be accessed by more parties.

Despite loud calls for better funding safeguards to ensure levy use doesn’t harm access to work for the under-served, there is also wide understanding that the levy has at least ringfenced funding for quality-assessed training; that it is only one solution in the skills ecosystem, and the model has at least shown it can evolve.

Indeed, the range of criticism from business and skills leaders shows that it is unlikely a universal solution for the UK’s skills needs exists, at least not one that wouldn’t throw up further issues with access and funding.

BPP’s Hay concludes: “The apprenticeship levy should be seen as an asset, but some refinement is needed to make it work harder for businesses.

“Scrapping it all together, however, is not the answer.”


The full article of the above first appeared in the March/April 2023 print issue. Subscribe today to have all our latest articles delivered right to your desk.