Employers losing patience on apprenticeship levy reform

Employers say their “confidence is waning” as the government drags its feet on widening the apprenticeship levy.

Skills minister Jacqui Smith told FE Week’s annual Apprenticeships and Training Conference that the Department for Education was trying to introduce levy spending flexibility “within a constrained resource”. Ninety-nine per cent of the last year’s budget was spent.  

She repeated the government’s view that that apprenticeship spending needed to be “rebalanced” towards young people, highlighting a significant fall in apprenticeship starts of almost 40 per cent since 2015-16 for those aged under 25.  

“We have to prioritise,” she told delegates.  

Initiatives such as foundation apprenticeships aimed to give young people “a foot in the door”, but the minister was clear that fiscal constraints meant “tough decisions” about “what we fund in the future”.  

Reforming the apprenticeship levy into a “growth and skills levy” and allowing employers to spend their contributions on 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 DfE received at the spending review in June.  

The department’s apprenticeships budget increased to £2.7 billion in 2024-25. Ministers now plan to remove level 7 apprenticeships from the levy funding, which could free up about £240 million – although a final decision on how many will be chopped is yet to be announced.  

Smith said: “Without additional amounts, we will need to make decisions about how we can deliver that [election manifesto] flexibility within a constrained resource.” 

Scrapping level 7 won’t yield savings for years

Rob West, the Confederation of British Industry’s head of education and skills, told FE Week that the “inflexibility” of the apprenticeship levy was “making it increasingly difficult for firms to find, hire, and upskill talent within their organisations”.  

“Confidence is waning as the government continues to treat the levy as a tax, preventing firms from fully investing in upskilling their own workforce.”  

Jane Gratton, the deputy director of public policy at the British Chambers of Commerce (BCC), said a “lack of clarity” about the future of the growth and skills levy was creating “fresh uncertainty among businesses”.  

She said that some employers told the BCC they had put training plans on hold until they heard what alternatives would be funded in future. 

She called on the government to set out a clear timeline for reform, although threats of cuts to the levy before it has been established “are worrying and destabilising”.  

Sector leaders argue that the Treasury is shortchanging businesses because it keeps more than £800 million of employer levy contributions in its own coffers instead of distributing it to spend on apprenticeships.  

Smith previously said she had “made this point to the Treasury”.  

Simon Ashworth, the deputy chief executive and director of policy at the Association of Employment and Learning Providers, said the government was in a “straitjacket” on apprenticeship funding unless the Treasury freed up more of the unallocated levy top slice.  

“With 99 per cent of last year’s budget spent, there’s little room for manoeuvre—scrapping level 7 apprenticeships won’t yield savings for years.  

“Any short-term flexibilities won’t kick in until August, while broader reforms remain a slow, phased rollout. Until the programme budget more closely matches the levy take, it’s imperative funding priorities are aimed at maintaining the sustainability of apprenticeship standards, rather than introducing further non-apprenticeship flexibilities.”  

‘To govern is to choose’ 

Gareth John, the chief executive of First Intuition Cambridge, told Smith at at the conference that he knew of “many employers” who had filled apprenticeships starting this September and October based on level 7 funding being in the levy.  

Smith said that she heard his “point” about ensuring sufficient notice, but said when the announcement on the programme’s future was made, only those who had already started a level 7 would be supported until its completion. 

 “The decisions around level 7 are, I’m afraid, an example of the choices that you need to make when you have limited resource. 

“To govern is to choose and we have to prioritise. We’ll announce as soon as possible the final decisions with respect to level 7 apprenticeships.”