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Lunchtime Reading: Does the Apprenticeship Levy need reforming?

  • 29 May 2024
  • By Mandy Crawford
  • Following discussions in the national media this morning about increasing the number of apprenticeships, we are publishing this piece discussing the Apprenticeship Levy and options to reform it.
  • This HEPI blog was kindly authored by Dr. Mandy Crawford-Lee, Chief Executive of the University Vocational Awards Council (UVAC). UVAC is a leading voice on all aspects of higher and degree apprenticeships and represents over 90 university members across the UK.

Scarcely a month goes by without businesses, political figures or employer representative bodies demanding significant changes and reforms to the Apprenticeship Levy.  But are these demands justified, what impact could drastic reform have on the higher education sector and are the original core principles and benefits of the levy being overlooked in the quest for change?

Introduced in 2017, the levy was designed to boost apprenticeship numbers, incentivise increased training and invest in future workforces across an increasingly diverse array of sectors. In principle, increased investment in apprenticeships via the levy can only be a good thing, given they are proven to improve training quality and social mobility, tackle the skills gap felt across many industries and ultimately drive economic growth.

Unfortunately for many businesses, the compulsory contribution of 0.5% to fund the levy – by employers with payroll costs of over £3m – was met with some understandable resistance. Since its introduction, it has been regarded as another form of business taxation and this opinion largely hasn’t changed during what has been a tough economic period. It has been viewed even less favourably by those firms which pay the levy but don’t take on apprentices.

So, what benefits could reforms bring? There have been calls for the scope of the levy to be extended beyond apprenticeships. However, I’d always argue that it should first and foremost be used to fund them. 

Another major stumbling block, widely viewed as in need of reform, is that any unused levy funds expire after 24 months and return to the Treasury, creating further employer dissatisfaction. Since its introduction, almost £2.7 billion of funds raised by the levy has been retained by or returned to the Treasury and not spent on apprenticeships. We’re continually urging employers to explore all opportunities to upskill their workforce via an apprenticeship and maximise opportunities presented by the levy. Extending the length of time levy funds are spent by employers could also surely be reviewed.

If more levy funds are collected than are used to pay for apprenticeships, then excess funds should be used to pay for other nationally recognised skills programmes and not put back into the government’s coffers. The use of excess funds to provide greater support and incentives for SMEs to engage with apprenticeships via universities could also be considered. 

There is a danger that some of the suggested reforms go too far. For example, there have been numerous calls to restrict spending on certain types of apprenticeships and types of learners. Since the introduction of the levy, there have been calls to restrict employers’ use of levy funds on degree apprenticeships for older workers, for individuals earning above a certain salary, for employees with a degree, or for apprenticeships at higher levels. Such measures, if introduced would cause havoc with the apprenticeship system, undermine its focus on productivity and social mobility, as well as severely restrict employers’ ability to use the apprenticeships their organisations need.  Imagine the NHS not being able to use its levy payments to train a nurse simply because the individual had a history degree or was aged over 24. 

Other suggested reforms to the levy could include a graduate ban which would prevent funding from being spent on young people pursuing a degree apprenticeship via higher education. This would be unthinkable and conflicts with our view that apprenticeships should always be available through an academic route.

We’ve also campaigned for every pound paid into the levy by employers to be spent on apprenticeships or nationally IfATE-approved training programmes and would urge all universities and businesses to join UVAC in this campaign to support positive change.

We’re also closely aligned with our university members that the uncertain future of the levy or changes to the annual apprenticeship budget should not stifle the outstanding growth of degree apprenticeships over the last few years. The budget, largely funded by levy payments, currently dedicates around a fifth of spending to degree apprenticeships. We feel that should be doubled to nearer 40% of the total budget, given the integral role degree apprenticeships play in addressing the skills gap.

For example, they’re critical in the public sector in terms of training police officers and nurses through to teachers and social workers. Any cuts to the levy and apprenticeship budget will have a hugely detrimental impact on both those pursuing a level 6 or 7 degree apprenticeship and the quality of public services delivered.

It’s clear to see that some degree of reform is needed but also clear that it should not be at the expense of diluting the levy’s original purpose and reducing higher and degree apprenticeship support. We’re working hard to ensure that the levy remains free from restrictions and continues to help apprentices across all ages. We hope higher education institutions and employers are aligned on this issue and will continually defend the vital role apprenticeships play in the UK economy as an all-age, all-skills level programme.

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  1. Albert Wright says:

    This is a well argued paper in support of HE Apprenticeships but does not tell us anything about the drop out rate and completely ignores lower level Apprenticeships at level 2 and 3, usually taken by those under the age of 20.

    I think the current drop out / non continuation rate for people who start an apprentceship is around 45%. What is the rate for Degree Apprenticeships?

    The current number of young people Not In Education or Employment (NEETs) increased by 100,000 last year to almost 1 million. Surely some of the underspend in the levy should be spent on giving them a better deal.

    I totally agree with a campaign to stop underspends going back to the Treasury.

  2. Martin Williams says:

    Albert – the current Ofsted benchmark for Qualification Achievement for higher level apprenticeships is 67%. I know my own university (Cumbria) does a great deal better than that, and in general the figures have risen over the last few years as everybody – employers, universities and students – have become better at developing good practice. One would expect the qualification rates to be a bit lower than those for full-time students (which are in the higher 90s), because an apprentice is funded by their employer, who may sometimes decide that they can’t go on releasing the apprentice for study, for all sorts of reasons. But you would also expect the rates to be higher for higher level apprenticeships than for those at levels 2 and 3, because those studying for higher level apprenticeships will have been assessed (by employer and/or university) as having the knowledge and experience needed to complete the course; they are not likely to be in the NEET category. The employer will be investing more, and will therefore have an incentive to enrol students with a good chance of success.

  3. Albert Wright says:

    Thank you Martin Williams, for this information and congratulations on Cumbria’s higher than 67% achievement.

    I am a strong supporter of Degree Apprentceships and their potential to improve work productivity and employee satisfaction. However, when it comes to DAs (Degree Apprenticeships) in the public sector, I have some concerns about the comment above calling for the percentage spend of the levy funded budget for DAs to “… be doubled to nearer 40% of the total budget, given the integral role degree apprenticeships play in addressing the skills gap.

    For example they’re critical in the public sector in terms of training police officers and nurses through to teachers and social workers. Any cuts to the levy and apprenticeship budget will have a hugely detrimental impact on both those pursuing a level 6 or 7 degree apprenticeship and the quality of public services delivered.”

    The problem with trying to do this is twofold. Public sector organisations may not have the money / resources to recruit more employees / upskill existing employees and the number of people applying for work in sectors like the police, nursing, medicine and teachers etc is actually falling – primarily because basic pay and conditions are no longer good enough.

    We are in danger of getting Universities to invest and develop some DAs that will not be wanted by prospective workers.

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