Changes needed to the Apprenticeship Levy

Gareth John, Chief Executive of accountancy training firm First Intuition, shares his views on the Apprenticeship Levy ahead of the Chancellors’ budget announcement in the Autumn Statement 2022.

Apprenticeship Levy - What's Needed?

Changes needed to the Apprenticeship Levy

Gareth John, Chief Executive of accountancy training firm First Intuition, shares his views on the Apprenticeship Levy ahead of the Chancellors’ budget announcement in the Autumn Statement 2022.

Gareth John shares his views on the changes required to the Apprenticeship Levy ahead of the Chancellors’ budget announcement in the Autumn Statement 2022

Whilst organisations across the UK face varied challenges in the current economic environment, resourcing seems to be the most consistent issue in virtually every sector. Shortages of workers with required skills mean that employers are struggling to recruit and retain high-quality staff at every level.

Apprenticeships play a critical role in providing the talent and skills that fuel our economy and provide transformational life opportunities across communities. However, in areas of the UK apprenticeship starts have been declining at a time when they are needed most. This has been a result of a perfect storm of static apprenticeship funding bands in the face of delivery cost inflation, limits on the number of apprenticeship starts available to SMEs, and a lack of flexibility in the use of levy funds that makes it difficult for employers to benefit from apprenticeship programmes that could otherwise meet their needs.

Difficulties in recruiting and starting apprentices are not only jeopardising the future of young adults but the future growth of the economy as well.

At the recent AELP Autumn conference Peter Mucklow, Director of Apprenticeships at the Department for Education, spoke of how “we want more apprenticeships, especially for young adults, and especially in SMEs”. He followed up by saying that the department is “committed to doing all they can do to support apprenticeships” and “high-quality training that individuals and their employers need to build a brighter and more prosperous future”. David Withey, CEO of ESFA, echoed this sentiment when he talked about how the pandemic had “shone a light on the importance of skills to the future of the economy” and Jennifer Coupland, CEO of IfATE stated how “massively important skills are to business success.”

Whilst it was reassuring to hear such consistent messaging on the importance of the skills sector in supporting economic growth, it is clear that the Chancellor faces a difficult balancing act of raising taxes and controlling spending to reassure financial markets, whilst investing in key areas to keep recession as short and shallow as possible. It is to be hoped that post-16 skills, such a consistent issue for employers, is an area that will benefit from fiscal support at this important time.

Optimism can be found in the familiarity with adult education and training of the new Ministerial team, including former Minister for Apprenticeships and Skills, and an ex-apprentice herself, Gillian Keegan taking over as Education Secretary, and Robert Halfon returning to his previous role as Skills and Apprenticeships Minister. The Prime Minister, Rishi Sunak, was also a solid supporter of apprenticeships in his time as Chancellor; the apprenticeship incentives he introduced during the pandemic did a great job of giving employers the confidence to continue recruiting and training apprentices during uncertain times.

Here are the three key changes to the Apprenticeships Levy I believe are required to get the most out of apprenticeships:

1. Increase apprenticeship funding bands to cover inflation in delivery costs:

Apprenticeship funding bands remain the same as when they were first set. During the intervening period, there have been substantial increases in the costs of delivering apprenticeships, particularly recent rises in salary costs and energy bills which form a significant proportion of the cost base of providers. As a result of the failure of funding bands to account for inflation, providers either cannot afford to deliver the programmes needed in their locality or are forced to pass additional costs onto employers, which is driving them away from hiring and starting apprentices.

In the accountancy sector where uptake of apprenticeships has been strong in recent years, a failure to increase apprenticeship funding bands to cover inflation in delivery costs threatens to undo years of success. There must be immediate action to increase funding bands to allow providers to maintain the quality of training and support that learners deserve.

2. Set a date for when the apprenticeship funding reservation cap for non-levy employers will be reviewed and reset each year:

There is significant confusion and uncertainty among non-levy employers about plans for the reservation cap of ten learners on the Apprenticeship Service. Many employers welcomed the reset of learner numbers that took place in June 2022, but the lack of forewarning about this decision meant some were not able to take full advantage of it to hire more apprentices, having already made strategic workforce decisions. Given the acute shortages of experienced workers in the labour market, employers need to be able to plan a year or more in advance, and for SMEs this requires clarity over how many apprentices they will be able to start in 2023 and even into 2024.

There must be clarity and certainty over when the non-levy reservation cap will be reset each year. Setting a regular date each year would allow SMEs to create workforce recruitment and training plans which include apprentices with confidence.

3. Give employers greater flexibility in how they use Apprenticeship Levy funds to drive skills development:

Employers want the flexibility to use Levy funds to support and upskill people outside the rigidities of an apprenticeship programme. Short, modular training interventions could provide far more dynamic skills development across needed areas like digital, sustainability and interpersonal management skills. This could benefit a wide range of workers whether they are entering the workforce for the first time, being promoted, re-entering after a period of absence, or looking to maintain their knowledge and skills in their current role. Given the large amount of levy under-spend that is returned to the Treasury each year rather than benefitting the skills sector it was intended to support, we need to see greater flexibility that allows Levy funds to be used for delivering entry-level employability skills, pre-apprenticeship training, lifelong learning and on-the-job training outside an apprenticeship standard.

I strongly believe that making these changes will help reverse the decline in apprenticeship uptake, fill skills gaps in the workforce, and ensure continued growth to our economy. If the Chancellor addresses these issues in the Autumn Statement on Thursday 17 November, there is a huge opportunity to see our workforce, our businesses and our economy benefit.