Apprenticeship underspend shrinks to £11m in 2021/22

The amount of apprenticeship funding handed back to the Treasury shrunk to just £11 million last year, reigniting fears that the apprenticeship budget could go bust soon.

FE Week last month revealed that more than £2 billion of apprenticeship levy funding had been returned to the Treasury unspent in the four years after the levy’s launch in 2017, with £604 million alone in 2020/21.

In response to a written parliamentary question from Liberal Democrat MP Sarah Olney, skills minister Robert Halfon this week provided figures for 2021/22 for the first time, which revealed that £11 million of the £2.4 billion ringfenced budget was unspent last year.

This is despite government data showing that starts in 2021/22 were 11 per cent down on 2018/19 – the year before the pandemic hit when a near-£500 million underspend was recorded.

A much lower underspend appears to have been recorded in 2021/22 despite starts dipping overall because of soaring numbers of higher-level apprenticeship starts, which are expensive to deliver. Government data shows 31,000 more level 4 and above starts were recorded in 2021/22 than the 75,000 in 2018/19. These higher-level apprenticeships now account for around one in three apprenticeship starts overall.

The Institute for Apprenticeships and Technical Education first warned that the apprenticeships budget was heading for an overspend back in 2018. A National Audit Office report a year later said there was a “clear risk” the programme was not financially sustainable under current arrangements, and costs of training apprentices were around double what was expected in 2015.

But pressure was eased when the Covid-19 pandemic hit in March 2020 and numbers of new starters fell.

Responding to the shrinking underspend, Jane Hickie, chief executive of the Association of Employment and Learning Providers, said her organisation has “long warned that the apprenticeship levy risks running dry in the near future”.

She explained that last year’s spending included an additional £219 million for enhanced employer incentives, but strong demand from learners and employers had resulted in increased starts – demand AELP expects to continue.

She said a Treasury commitment to top-up the future apprenticeship programme budget by nearly £200 million by 2024/25 was now “vital”.

In 2019, a Public Accounts Committee meeting heard from the Department for Education’s then-permanent secretary Jonathan Slater, who warned of hard choices to be made if demand on the pot did spill over, suggesting a need to potentially prioritise some apprenticeships.

Then-skills minister Anne Milton later said one of the most palatable solutions would be a “pre-apprenticeship salary limit” to make high earners ineligible and ensure the levy was being used to fund genuine training where needed.

Since then, the sector has fought for greater transparency over the levy underspend. It culminated in the DfE finally being forced to reveal the numbers last month following Freedom of Information requests by FE Week.

Stephen Evans, chief executive of Learning and Work Institute, said: “I think what we are seeing is particularly the impact of the growth of higher apprenticeships which are more expensive per person and last for several years.”

He warned that “if we are going to run out of money it will be small firms and younger people that get squeezed, and we definitely don’t want that”.

Evans explained that one of three things needed to happen – accept if larger firms spend more on higher apprenticeships there will be less for smaller firms; introduce a cap on the amount that can be spent by a business on higher apprenticeships; or bankroll further funding by upping the levy contribution or pumping in more government cash.

He added that staying close to the budget “is a good thing, because the budget is there for a reason,” but added: “We need a bit more transparency from the Department for Education about how much is being spent and also what their projections are based on current levels of demand, otherwise we are having this discussion in a bit of a vacuum.”

Halfon reiterated the department’s commitment to increase apprenticeship funding from £2.5 billion to £2.7 billion by 2024/25, and added: “It is encouraging to see last year’s strong recovery in apprenticeship starts. Supported by the incentive payments for employers and training flexibilities, employers had the confidence to offer new apprenticeships and to deliver them in the way that works best for their business.”