Scrap the levy transfer cap, say business leaders

Just 2.7% of apprenticeship levy payers have transferred funds to smaller businesses

Just 2.7% of apprenticeship levy payers have transferred funds to smaller businesses

Less than three per cent of apprenticeship-levy paying businesses have transferred funds to pay for apprenticeships in smaller employers, sparking calls for the 25 per cent transfer cap to be scrapped.

New figures have emerged in a response to a written parliamentary question from skills minister Robert Halfon that reveal 580 businesses used the apprenticeship levy transfer scheme to allocate part of their generated funds to non-levy paying employers in 2022/23.

That equates to just 2.7 per cent of levy-paying businesses.

Levy-paying businesses can choose to hand up to 25 per cent of their apprenticeship levy to fund apprenticeships in other businesses.

The proportion of transfers to non-levy businesses has risen steadily, according to Halfon’s data, from two per cent in 2020/21, to 2.5 per cent in 2021/22, and 2.7 per cent in 2022/23.

However, the policy has “struggled to talk off”, according to Simon Ashworth, director of policy at the Association of Employment and Learning Providers (AELP).

The transfer scheme could be made redundant altogether if the government scraps the requirement for small businesses to pay five per cent of apprenticeship training costs, especially now there is no longer a cap on the number of starts in SMEs.

Ashworth said: “AELP believes that scrapping the remaining five per cent co-investment requirement in the spring budget would not only remove a barrier for more SMEs to benefit from apprenticeships but also negate the need for levy transfer completely. This would mean a simpler and streamlined system for both employer and providers.”

Transfers don’t have to go to smaller, non-levy paying businesses, but the scheme is often cited as a mechanism to help small businesses take on apprentices.

In his reply to a question from Luke Evans MP, Halfon said the Department for Education’s data isn’t specific enough to differentiate between small and medium enterprises (SMEs) and non-levy employers, but did confirm the majority of non-levy businesses on the digital apprenticeship service are SMEs.

Halfon added some employers make full use of their funds, so have no funds to transfer.

The Federation of Small Businesses (FSB) said apprenticeships in small businesses have halved since the levy was introduced.

Tina McKenzie, policy and advocacy chair at the FSB, told FE Week: “There is a big opportunity to further improve the number of businesses transferring their levy funds and to make sure large businesses are supporting small businesses in their supply chain to take on more apprentices.

“Our members are telling us it’s tough to get that funding and when they do, they’re hitting a wall with a 25 per cent cap on what they can actually receive. That cap needs to be scrapped to get more money flowing where it’s needed.”

Justine Greening, who introduced the levy when education secretary, called for the transfer cap to increase from 25 per cent to 40 per cent last year.

The DfE said the transfer scheme gives levy-payers more choice on how they spend their funds and allows them to support businesses in their supply chains or help meet other local or sector-specific skills needs.

FE Week analysis of apprenticeship starts through the transfer scheme reveals that while most go to non-levy paying employers, a sizable proportion go to other levy payers.

In 2022/23, 61 per cent of the 9,451 starts funded through a transfer were in a non-levy employer and 39 per cent was in a fellow levy-payer that could have, for example, already maxed out its own levy. 

There have been 28,003 transferred starts since the scheme was introduced in 2018/19. Of those, 17,200, 61 per cent, of starts were aged 25 and over. Just nine per cent of starts through the transfer scheme have gone to apprentices aged under 19.

Our analysis also shows that most apprentices funded through the transfer scheme to date, 51 per cent, work in health, public services and care. The next most popular subject area was business, administration and law making up 18 per cent of starts to date.

The DfE said the transfer policy remains under review.

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