Labour’s pledge to let businesses spend “up to 50 per cent” of the apprenticeship levy on other types of training has been all but dropped as ministers battle with how to flex an already spent budget.
Multiple sources have told FE Week that the Department for Education has forecast an overspend of around £40 million for its ring-fenced apprenticeship budget in the 2024-25 financial year.
Officials are working out how to plug this relatively small gap, which has been caused by the run rate of the programme with the growth of higher, more expensive apprenticeships as well as recent funding band increases for several popular standards.
Ministers are understood to be struggling with finding ways of opening the levy to fund non-apprenticeship training, with sources insisting that substantial flexibility will not be added anytime soon despite some employer expectations that change is imminent.
One source who worked on the levy for several years after its inception said: “Any administration is going to find that the levy is like a Pandora’s box. Once you open it, you don’t often like what’s inside because of the way it is constructed.”
The likelihood of significant extra funding is also low as the government tackles a £22 billion public finance black hole, with chancellor Rachel Reeves (pictured) reportedly telling the DfE to find £1 billion in savings ahead of next month’s Budget.
Low priority
In opposition, Labour vowed to reform the apprenticeship levy into a “growth and skills levy”. The original pledge said businesses would be allowed to spend up to half of their contributions on non-apprenticeship training. But this figure was notably dropped from their manifesto.
The new government has been tight-lipped on development of the reformed levy since coming into power. No timeline for implementation has been shared to date.
Insiders say that flexing the levy is not top of the priority list for ministers, who are set to hand responsibility for deciding what non-apprenticeship training can be eligible for levy funding to incoming new quango Skills England.
The government is aiming to get Skills England operational by April 1, 2025.
It is not clear whether ministers will also give the new quango the job of deciding what proportion of the levy can be spent on non-apprenticeship training.
Numbers don’t add up
The DfE’s ring-fenced budget to fund apprenticeships in England has been 98 and 99 per cent spent in each of the past two financial years respectively.
It will be stretched further this year due to funding band increases for some popular standards, including operations leader – moving from £7,000 to £9,000 – and team leader – from £4,500 to £5,000, which FE Weekunderstands will cost around £25 to £35 million alone.
Experts as well as the Conservatives have pointed out that any widening of the levy to fund other forms of training will mean apprenticeship numbers have to be reduced, unless there is a significant uplift in the DfE’s budget.
One former skills civil servant said: “They won’t get anywhere near 50 per cent flexibility.
“I don’t sense any enthusiasm for putting much more money in the budget, or certainly the amount of money that will be needed to make a substantive difference. This is potentially quite expensive, and you are better off not doing it than simply window dressing and diluting the apprenticeship programme.”
The Office for Budget Responsibilities (OBR) forecasts that £4 billion will be raised in apprenticeship levy receipts by UK companies in 2024-25.
Yet the DfE’s ring-fenced budget to fund apprenticeships in England is £2.729 billion, while the devolved administrations of Scotland, Wales and Northern Ireland receive around £500 million between them.
It means there is a near-£800 million gap between what is raised by the levy and what is dished out by government.
Labour’s former council of skills advisors, led by Lord Blunkett, published a report in 2022 outlining how the party’s growth and skills levy should work.
One clear and critical requirement put forward was that the Treasury should cease top-slicing large portions of the levy to help fund the flexibility.
Blunkett told FE Week this week: “Investing the whole of the sums available and expanding the size of the levy could provide a significant sum of money to kickstart the vital initiative needed to meet the skills challenge of a rapidly changing workplace, and the large-scale economic inactivity of working-age adults.”
‘Completely unrealistic’
FE Week’s sources understand that Labour is trying to rush through some kind of levy progress in time for the Budget, but any flexibility will need to be consulted on.
One said: “The idea that these flexibilities would come in quickly is completely unrealistic. There will be consultations, there will be discussions about what courses are approved, how much can be spent and so on.
“The reason that we have never yet had a clear tax break for training is that nobody can figure out how to do it in a way that doesn’t invite abuse.”
But there is still a positive, they added: “For a long time, the Treasury just would not engage on the design of the levy. They would say, ‘this is a tax, so go away’ to the rest of government. It feels as if that is perhaps less of a problem now under a new political party.”
A DfE spokesperson said: “We will work across government and with businesses to make sure there is the right eco-system for training and skills to deliver high-quality training opportunities and build a diverse and competent workforce that is fit for the future.”
For context, the £22bn black hole in the finances that the current Govt is relying heavily on to manage many many expectations…
Compare that with the outstanding student loan debt pile which stood at £236 billion at the end of March 2024 (roughly quadrupling every decade).
The last 30 years has seen a massive transference of public expenditure into personal debt. By the end of just 2024, well over £22bn will have been added to the student debt pile.
Funnily enough, on the £800m gap between levy receipts and budget – get an envelope, approximately calculate what 100% achievement would cost in additional monthly ‘on programme’ payments and nearly double the completions payments. My envelope suggests the figure is in the region of £800m per year.