Ministers are not discussing controls on apprenticeship levy spending amid re-emerging concerns that the pot could run dry, Robert Halfon has said.
The skills and apprenticeships minister batted away warning signs of budget overspend and insisted his department “can’t judge employer behaviour” and does not know the direction the budget will take each year.
He is instead focussed on achieving “as many starts as possible”.
Halfon made the comments in an interview, his first with FE Week since returning as minister, during a country-wide tour celebrating National Apprenticeship Week.
He took a swipe at business groups and the national media for peddling fake news about “wasted” levy funding, took a firm stance on calls to widen uses for the levy, and discussed his “top priorities”, including boosting achievement rates.
Apprenticeship budget sustainability risk
Since the levy’s launch in 2017, hundreds of millions of pounds of unspent apprenticeships funding has been returned to the Treasury each year against an annual budget of £2.5 billion. However, that underspend shrank to just £11 million in 2021-22 when 99.6 per cent of the budget was used.
The Institute for Apprenticeships and Technical Education first warned the apprenticeships budget was heading for an overspend in 2018 when it forecast spending over the next four years. The National Audit Office also flagged a “clear risk” the programme was not financially sustainable as costs of training apprentices hit about the figure expected in 2015 when the levy was designed.
Senior civil servants and ministers later warned of hard choices if demand on the pot was too great, suggesting a potential need to limit employer usage of the levy.
Then-skills minister Anne Milton said one of the most palatable solutions would be a “pre-apprenticeship salary limit” to make high earners ineligible. Other suggestions from sector leaders included removing level 6 and 7 apprenticeships from the scope of levy funding.
Pressure eased with the Covid-19 pandemic in March 2020 and numbers of new starters fell.
Experts believe government now needs to turn attention back to the sustainability of the apprenticeships budget in the face of rising numbers of higher level and degree apprenticeships, which are far more expensive to deliver and take an ever-increasing chunk of the budget.
Government appears to have recognised this in part by committing to increasing the annual budget to £2.7 billion by 2024/25. Importantly, the spend in 2021-22 included a one-off cost of £219 million to fund the £3,000 cash incentive scheme for employers.
Asked whether he was concerned about the apprenticeship budget going bust, Halfon told FE Week: “Well, first of all, the 99.6 per cent spend in 2021-22 is a really good thing and should be celebrated.
“We can’t judge what employer behaviour is, I can’t judge the budget year by year, but I can say that we’re doing everything possible to increase apprenticeship starts. We’ve set out the budget for £2.7 billion by 2024/25. I think we’re in a very good position.”
Pressed on whether his department has forecast future apprenticeship spending and the likelihood of an overspend, the minister said: “I just repeat what I said before, I can’t predict employer behaviour. But, you know, our budget is £2.7 billion by 2024/25. We’re trying to increase as many starts as possible. That’s all I’m going to say on that.”
And asked whether the DfE was looking at ways to limit apprenticeship spending to ensure sustainability of the budget like his predecessors were, Halfon said: “I’m not aware of any such discussions. That was clearly a long time ago. I’m just focused on increasing the number of apprenticeship starts, increasing the number of completions and the quality of provision, ensuring that we increase the number of degree apprentices and also that we increase the number of apprentices from disadvantaged backgrounds.”
He insisted that “we certainly can afford” large-scale increases to degree apprenticeship starts in the current system, even though the programmes are among the most expensive apprenticeships to deliver.
Halfon added that there are no plans to widen the levy so that it funds other types of training, as employer representative bodies have called for and the Labour Party has pledged to implement if it wins the next general election.
Stephen Evans, chief executive of Learning and Work Institute, said the latest apprenticeship spending figures “suggest pressure is building on the budget so you would expect DfE and Treasury to be keeping a pretty close eye on that”.
“If there is a worry that the budget could be breached then you do face pretty hard choices,” he told FE Week, adding that officials would have to either “ration apprenticeships in some way, get employers to stump up some more money by increasing contributions or widening those who pay into the levy, or the government has to stump up some more money”.
Evans, a former senior policy adviser at the Treasury, pointed out that, from the DfE’s perspective, the department might be comfortable working within the budget it has for the next two years, and after this point it will be for the next spending review and general election to decide whether changes or more funding is needed.
Jane Hickie, chief executive of the Association of Employment and Learning Providers, said it is “unlikely we see an overspend in the next two years” and providers and employers should be “confident there is room for growth”.
However, she added that the next spending review settlement “will be critical to ensure that there is funding to match future employer demand”.
“In an employer-led, demand driven system, government should continue to support that investment in apprenticeships rather than look to restrict or ration provision,” Hickie said.
‘Thoroughly depressing’ levy misconceptions
Halfon took aim at employer bodies and national journalists for spreading false claims about levy funding.
Every year representative bodies publish reports that state all the money from expired funds in levy-paying business accounts goes back to the Treasury. It leads to headlines including “UK apprenticeship levy is a £3.5bn mistake, say business leaders” in the likes of The Guardian.
The reports miss the point that the system was intentionally designed so that levy-payers wouldn’t spend all their levy contributions. Unspent money goes towards funding the rest of the system, including apprenticeships at small and medium-sized businesses who do not pay the levy, and English and maths training.
Halfon said it is “thoroughly depressing” and “worries” him “when you get some of the major industry bodies publishing reports with this kind of thing when they full well know how the levy works, the whole purpose and how it’s being spent”.
He pledged to take action: “It is my job to go out and communicate to make sure that the mainstream media understand this and people who know better shouldn’t be publishing these reports saying this.”
FE Week also quizzed Halfon on the DfE’s target of a national 67 per cent achievement rate on apprenticeship standards by 2025 – an ambition set by his predecessor Alex Burghart last year after the rate fell to 51.8 per cent in 2020/21.
Achievement rates for 2021/22 are set to be published next month, but the current minister would not be drawn on whether there has been improvement or not.
“What I will say is that the target very much remains at 67 per cent. We’re working very hard to try and improve that,” Halfon said.
Read our full interview with the minister in FE Week’s National Apprenticeship Week 2023 supplement.