Lunchtime Reading: Does the Apprenticeship Levy need reforming?

• 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.