The levy has had more than its share of teething problems, but it’s not time to bin it yet, says Kathleen Henehan

The apprenticeship levy got off to a troubling start: figures show a 59-per-cent fall in starts during its first three months. This seems to confirm fears that it would place incentives into the hands of large employers who don’t typically hire apprentices, and put stumbling blocks before the smaller employers who rely on them.

It is far too soon to write off the levy for good, but there are steps the government can take to get starts back on an upward path, and ensure the new system doesn’t sacrifice quantity for quality. 

Some of these are pragmatic and short term: work with providers to troubleshoot procurement problems, collaborate with smaller employers to prevent delays in coinvestment payments, and build in a safety net for non-levy allocations during the first two years of the new funding system. Others require a step-change in the way information is collated and published.

First, it’s important to recognise the volatility inherent in a system that places employers squarely in the driver’s seat. We don’t quite know which types of businesses will hire apprentices, at what level, or even whether the 45 per cent of levy-payers who have yet to register an account will do so, or whether they do nothing and treat the levy as a tax. 

This gap from level two to higher apprenticeships must be bridged

This matters if unspent levy funds could, after their two-year expiration, be used to subsidise training for non-levy-payers who have already been struggling under the new system.

Some of this uncertainty can be alleviated through more streamlined and detailed data releases. Currently, figures are published in a series of different spreadsheets, often on different websites, and at different dates. 

Bringing these sources together, and allowing for cross-tabulation, will help us understand where trouble is brewing. Allowing analysts to spot potential problem areas could bring interventions forward before training providers lose access to longstanding contracts and smaller employers their access to apprentices.

We also need to ask what we’d like the levy to achieve. Its aims are, on the surface, to shift training expenditure from government balance sheets to the private sector, and to meet the much touted three million apprenticeships target. But it should also be explicitly focused on building up a strong skills supply – vital in post-Brexit Britain – and providing young people with the education and training not just for a job, but for a career. 

Despite shining examples of apprenticeships which allow non-university-bound young people a pathway into skilled, rewarding careers, figures indicate that less than a quarter of level two apprentices move to the next level.

Apprenticeship starts have been dominated at level two recently, and in sectors that offer lower levels of pay. More positively, there has also been growth in degree and master’s-level apprenticeships, albeit from a low base.

There is a chance that putting employers in charge could simply reproduce the occupational hollowing out that we’re seeing in the wider labour market – where growing shares of younger people filter either into high-skill, high-pay jobs, or low-skill, badly paid ones, with a reduction in the middle.

This gap from level two to higher apprenticeships must be bridged. This requires some sector-based soul-searching on what is and isn’t an  apprenticeship, and a more deliberate approach to funding: should we prod employers to invest in mid-level skills? Will additional funding incentives for apprenticeships at level three do the job? 

As well as focusing on the right mix of apprenticeships, there are steps that could address quality concerns quite quickly – such as requiring at least one end-point assessment organisation is in place before an apprentice starts their programme.

Then there are steps that might take a little more thought: with data sources like Longitudinal Educational Outcomes available, we may want to debate incentives for hosting apprenticeships associated with continued education and training or perhaps strong employment prospects.

Big reforms always have bedding-in challenges. But with the right adjustments the government can ensure these are temporary glitches, rather than permanent problems. 

Kathleen Henehan is a research and policy analyst at the Resolution Foundation

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  1. A stimulating article, I have the following comments:

    My experience is that at the macro level there is no volatility, just a gradual understanding of the new system and a deployment based on organisational need, which is surely a good thing. Most employers are using the levy system cautiously but with an consideration of quality which is much heightened.

    I do think however that many training providers are struggling with the payments being set up in a far too cash negative position allied with the navigation through DAS, IDAMS and co-investment which brings delays and complexity which means only the well organised will survive. Small employers also desperately need help here as well as the removal of the fundamentally unfair 10% cash contribution.

    My long held view is that apprenticeships at L3 to L5 are often the ones which drive real productivity, as these staff are tasked with unlocking and auditing the performance of L2 staff. More higher level apprenticeships will just displace other funding sources rather than increase UK plc performance.