The research, by training provider City & Guilds and business training association The 5% Club, found just one in 25 (4%) employers that pay the levy make full use of their funds.
The total amount of funding that should have gone to levy-paying employers amounted to £3.5 billion over the financial years of 2017-18 and 2021-22, according to a freedom of information request made by the researchers.
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The underuse of companies’ apprenticeship levy will result in nearly half of the earmarked funds being redirected to the treasury.
Kirstie Donnelly, CEO of City & Guilds, told HR magazine that the apprenticeship levy needed reform. “
She said: "The apprenticeship levy, in its current form, isn’t fit for purpose.
“Businesses and HR departments are working hard to upskill their workforces. But they’re up against a system that clearly doesn’t work for them."
Almost one in five employers (18%) said access to funding involves too much bureaucracy or administration.
A similar number (17%) cited a lack of time to invest, and 19% said they could not commit to the length of time that an apprenticeship takes to complete.
Nearly all (96%) said they would like to see reform to the levy.
Donnelly added: “Our research reinforces previous calls that both we and the wider skills sector have made for more flexibility in the current system, for example through the introduction of a broader skills levy.
“By making funding easier to access and use, this would allow businesses and their HR departments to have more jurisdiction over how they spend their allocated funding, in turn helping them to be more effective in training up staff.”
Warren Page, apprenticeship manager at motor manufacturer Xtrac, agreed. He told HR magazine: “Overriding the current apprenticeship levy and introducing a broader skills levy would allow businesses like ours to offer a wider variety of training opportunities to our staff.
“This would allow us to focus our training on career progression and long-term development, rather than more ad hoc disconnected training courses. And, it would undoubtedly reduce the vast underspend levels we are currently seeing, as employers would have more flexibility to access and use their available funds.”
Apprenticeship starts remain significantly below pre-levy levels and employer investment in training has continued to decline, according to Lizzie Crowley, senior policy adviser at the CIPD.
She told HR magazine: “The CIPD has been calling for a reform of the apprenticeship levy into a broader skills and training levy and we welcome this research which underlines the critical and urgent need to reform the system.
“Recent CIPD findings also show that employers have spent up to £2 billion on generic management apprenticeships to upskill existing employees, while there’s been a drop in apprenticeships for young people, who would most benefit.”
