Apprenticeship training and the levy: The importance of increased flexibility

At the start of June, Boris Johnson told the nation young people "should be guaranteed an apprenticeship”. In reality, the government have introduced an incentive payment to employers of £2,000 for every 16 to 24-year-old apprentice they hire. This will do little, if anything, to increase the numbers of apprentices.

The introduction of the levy did not stimulate the number of starts and the Covid-19 crisis has led to a significant fall in the number apprentice vacancies (by nearly a third according to our survey of employers in May). SMEs have been hit particularly hard.

The government needs to recognise that apprentice hiring, employment, and training costs are high. Even levy paying employers incur significant on-costs well above their levy spend. This is why we believe that to increase apprenticeships, as well as improved financial incentives, employers need to be given greater flexibility in the range of costs that can be supported with the levy.

How flexible is the levy currently?

At present the levy funding can only be used to pay for training and assessment costs. In recent years, many employers have repeatedly told us that these costs represent a very small component of their total investment in the apprenticeship system. They want their apprentice infrastructure costs, e.g. appointing an apprenticeship manager, travel costs for apprentices, recruitment costs and the salary costs of the apprentices themselves, recognised as being equally important as other areas of expenditure.

We recognise that there are potential dangers in broadening what the apprenticeship levy can be spent on. It is important that the levy does not just get absorbed back into businesses in ways that do not incentivise engagement with apprenticeships. However, at present what it can be used for does not fit particularly well with the costs that firms are incurring when they employ and train apprentices. Allowing a proportion of the levy to be used to support infrastructure costs will encourage employers to engage more. The levy is designed to incentivise a step change in the volume of apprenticeship provision in England. At present it is not achieving this step change, in part because it is does not offset enough of employers’ costs to act as a genuine incentive.

What needs to change?

In its response to the Covid-19 crisis, we have called on government to cover the costs of the 20% off-the-job (study) time for all new apprentices under 24. Ultimately apprenticeships are jobs which only employers can provide, and they will only do this if apprentices are financially viable. But government can support those employers who continue to invest in apprentices throughout the recession we are now in by offering this new wage subsidy. And by targeting all new apprentices under the age of 24, the government is supporting a generation of young people that are likely to be hardest hit by the crisis.

The apprenticeship system was always very vulnerable to recession. By making the existing system more flexible and freeing employers up to spend their apprenticeship levy on the real costs of apprenticeships, government will help employers and the apprentices they hire recover quicker from the economic effects of Covid-19 and build a more resilient system for the future.