Ministers will make “tough decisions” about how to widen the apprenticeship levy to fund other types of training “within a constrained” budget if the Treasury refuses to release more funding, Jacqui Smith warned today.
The skills minister told FE Week’s Apprenticeships and Training Conference that there is “not an enormous amount of apprenticeship levy funding that is not spent” following new figures that show 99 per cent of the budget was spent in 2023-24.
Smith said: “We need to rebalance the programme towards young people, but in order to do so, there are tough decisions to make for what we fund in the future, having inherited a challenging fiscal picture and with 99 per cent of the apprenticeship budget spent last year. We will need to prioritise.”
Reforming the apprenticeship levy into a “growth and skills levy” to fund other training routes was a key pledge in Labour’s election manifesto.
The minister told the Financial Times last month that the government’s ability to allow money from the apprenticeships budget to be used for non-apprenticeship training would depend on how much funding the Department for Education receives at the spending review in June.
The DfE’s apprenticeships budget increased to £2.7 billion in 2024-25. Ministers are currently working on plans to remove level 7 apprenticeships from the scope of levy funding, which could free up around £240 million – although a final decision on how many will be chopped is yet to be announced.
At the same time, the government plans to introduce new “foundation apprenticeships” which will be funded by the levy from autumn 2025.
Smith today suggested the government will keep its election manifesto promise, but more areas could be at risk if Treasury doesn’t increase the DfE’s budget.
She told conference: “People who’ve heard me know that I’m pretty frank about what I think is and is not possible.
“We took pretty quick action on improving the flexibilities around the levy, through the decisions that we’ve made about introducing foundation apprenticeships, shorter duration apprenticeships, and heard particularly some of the messages about the delivery of shorter form courses, about that type of flexibility.
“One of the things that I quite often have to say to people is there is not an enormous amount of apprenticeship levy funding that is within the skills budget, that is not spent. That’s why I emphasise the fact that 99 per cent of it is spent up.
“So without additional amounts, we will need to make decisions about how we can deliver that flexibility within a constrained resource.”
Sector leaders have long argued that Treasury is short-changing the sector because it holds onto around £800 million from the amount of money the levy receives through employer contributions compared to what is distributed to spend on apprenticeships in England and the devolved nations.
Smith previously said she has “made this point to the Treasury”.
The minister also addressed level 7 cut concerns, telling conference that she “hears your point” about ensuring “sufficient notice” for providers, employers and prospective apprentices.
She said: “The decisions around level 7 are, I’m afraid, an example of the choices that you need to make when you have limited resource.
“I am afraid to govern is to choose and we have to prioritise, and we’ll announce as soon as possible the final decisions with respect to level 7 apprenticeships.
“But it will be the case that anybody who has started on a level seven apprenticeship will be supported to complete it. And I hear your point about ensuring sufficient notice to people.”
ASF cuts ‘enormously difficult’
FE Week revealed last month that mayors have been told to expect cuts of between 2 and 3 per cent to their adult skills fund budgets next year.
There is also no funding available for in-year growth on nationally procured adult education budgets and the DfE last week announced it could not fully fund in-year growth of 16- to- 18-year-olds, which led some colleges to warn they may have to turn away students.
Smith said: “It was enormously difficult for us in thinking about our overall planning envelope to make the decision that we had to make for a small cut in adult skills funding.
“I totally understand the argument that people make that that is also an important contributor to giving people the skills they need to stay and in some cases, to get back into the workplace.
“That’s why we need to make the case that we are making to the chancellor as part of the spending review.”
This is nothing short of dressing up ineffective policy as ‘tough choices’
There are many ways of freeing up funding, only give employers back 100% of their contributions, or even 90%, is one way of doing it.
Linking Level 7 defunding with the need to spend more money on young people (which is needed), is just bogus.
It’s getting beyond a joke. The levy tax take is not the same as the budget. Yet ministers and officials are spouting the same line using the budget being spent as a shield to say there is no money and difficult choices lie ahead.
Austerity 2.0. A low skill, low wage, no growth economy.