Every pound raised through the levy should be spent on apprenticeships

Since its introduction in 2017 there has been a lack of transparency as to how monies raised through the apprenticeship levy are spent. This has led many employers and employer groups to claim that a significant proportion of the levy they pay is ’wasted’.  

Of course, money raised from levy-paying employers is also used to fund apprenticeship provision for non-levy-paying employers. Employers have always needed to understand that. Nevertheless, there is some validity in the claim that some of the income raised by the levy is not being spent on apprenticeship but is instead being retained by or returned to the Treasury.

In a recent article, FE Week reported that last year £415 million raised through the apprenticeship levy was not allocated to apprenticeships, but instead “pocketed”by the Treasury.

These figures are telling. Of course, they do change year on year, but the constant is that the Treasury always wins. So, what needs to happen?

A commitment to transparency

To bolster confidence in the levy system, employers and training providers must know how much is raised through the levy and how funds are used. There is an urgent need for the DfE and Treasury to provide detailed figures and ongoing analysis on revenue raised, monies raised minus funding allocated to the devolved governments, the value of the apprenticeship budget and monies spent on apprenticeships. In addition, we need analysis of apprenticeship funding spent on non-levy-paying employers, in different regions, on different levels and on different apprenticeship standards. 

A re-commitment to the levy ‘agreement’

When introduced, the levy was sold to employers as a hypothecated tax, paid to fund apprenticeships. To safeguard confidence in the levy system, government should make a commitment that every pound raised through the levy will be spent on apprenticeships and that any surplus levy will be spent on related designated training programmes. 

At a superficial level, England’s budget is under-spent – as it has been since 2017/18. In reality there are several areas where funding is needed:

• Raising funding bands to ensure that apprenticeship standards are financially viable to deliver. Given recent and current inflation levels, IfATE needs to undertake an urgent review of apprenticeship funding rates and advise on action needed to ensure that the delivery of all apprenticeship standards remains financially viable.

• Funding entry-level programmes that provide access to intermediate apprenticeships. This is not a UVAC area. We are, however, conscious of the need to do more to support those who are not yet ready for an apprenticeship but could benefit from one if an access programme was provided.

• Investing in developing provider capacity for apprenticeships that deliver the net zero and green jobs agenda. Apprenticeships should be a key programme to support the country to deliver these ambitions.  Levy funds could be used to support the development of capacity to do so.

• Providing incentives to encourage employers and training providers to use apprenticeships to support social mobility. Levy funds could stimulate the use of apprenticeships in deprived areas as part of the levelling up agenda.  They could also be used to incentivise apprenticeships where there would be a significant positive impact on social mobility and workforce diversity.

The Labour Party and the Liberal Democrats and have put forward proposals to reform the apprenticeship levy. For example, Labour has proposed the introduction of a ‘Growth and skills levy’ where employers could spend up to 50 per cent of their levy payments on approved non-apprenticeship training. 

Whether sufficient funds would be available to use 50 per cent of levy income on other training without reducing spend on apprenticeships is questionable. In 2022/23, 83 per cent of monies raised through the levy after allocations to the devolved governments was spent on apprenticeships in England. 

First and foremost, the priority should be to ensure apprenticeship levy funds are spent on apprenticeships. However, the argument that any surplus funds should be spent on designated training programmes needed by employers rather than simply returned to the Treasury is appealing. 

Improved transparency from government would be a welcome first step towards an open and informed debate.