Apprenticeships

SMEs frustrated as DfE refusal to reset non-levy cap halts apprenticeship starts

Employers reveal they are being forced to cancel recruitment plans and turn apprentices away

Employers reveal they are being forced to cancel recruitment plans and turn apprentices away



Small and medium-sized employers are turning apprentices away again due to a cap on starts that the government is so far refusing to reset or increase.

Non-levy-paying businesses have been capped on the number of apprentices they can start through the digital apprenticeship service since January 2020 – starting with a limit of three before increasing to ten that summer – to ensure the overall apprenticeships budget is not overspent.

The cap was reset to zero in April 2021 as SMEs fully transitioned on to the service and amid concern that employers were reaching the limit.

Apprenticeship providers and employers were hoping and expecting the cap to be reset again at the start of this month, or at least be increased, as reports emerged of a number reaching the limit.

But there has been no communication to the sector from the Department for Education on the issue. A DfE spokesperson told FE Week this week that officials are keeping the level of the cap “under review to ensure it is sufficient to allow SMEs to use apprenticeships to grow their business”.

Sector leaders say the stance flies in the face of the government’s ambition to increase the number of apprentices in SMEs, especially after starts took a plummet nationally during the pandemic.

‘This is the worst time to switch off the tap’

Gareth John, director at accountancy apprenticeship provider First Intuition, told FE Week he has ten SMEs who have reached the cap so far and are now being prevented from taking on any more apprentices despite plans to do so.

John said those being impacted are the “large” SMEs who have wage bills just shy of £3 million and therefore do not pay the levy but are “some of the most important employers, particularly in regional economies” as they are able to recruit large numbers of apprentices.

He said this is the “worst time to switch the tap off” as employers look to rebuild their staff levels following the Covid-19 pandemic. He added that apprenticeships are essential for teaching the “essential broader skills” that young people require after having their development hampered by the pandemic.

John added that his “big frustration” is that SMEs could wind the clock back five years where they do not do apprenticeships because of the barriers in their way.

One SME being stifled by the cap is Kirk Newsholme Chartered Accountants, based in Leeds. The firm’s training coordinator, Amy Carter, said the company has hired 13 new trainees in recent weeks with plans to put them on apprenticeships on the assumption that the cap would be reset this month.

But Kirk Newsholme, which already has five of its ten apprenticeship spaces filled, has now been left in a position where it will have to choose some of the 13 new recruits to take the apprenticeship, while the remainder will instead be put through a commercial course.

On top of this, the company has a trainee on a basic level apprenticeship who is about to progress on to a higher level but in doing so will be classed as a new start. Another apprentice resigned five months into their programme, but they will still continue to take up one of the ten spaces under DfE rules.

Carter said the system “feels backhanded when the government is trying to grow the number of SMEs in apprenticeships but when employers try to step up, it all of a sudden comes to a halt”.

She added that the new recruits who will have to be put through commercial courses instead will miss out on the “extra skills and benefits” an apprenticeship offers and cost her business even more. Carter said the cost of each apprenticeship usually ranges between £3,000 and £4,000 but the commercial training route typically costs around £14,000.

John listed a number of other employers, who did not wish to be named, that his provider works with and have hit the cap: “One of our employers in Bury St Edmunds said they wanted to sign up another five apprentices before the end of this year, another in Stevenage said four, one in Sheffield said 12, one in Norwich said they had recruitment plans for 20 more apprentices, and another in Royston said ten.”

The DfE said its analysis of non-levy demand shows that a reservation level of ten was sufficient for 99 per cent of non-levy paying employers during 2020/21.

But John pointed out the DfE is most likely not comparing like for like, as in that year SMEs could also tap into procured non-levy contracts held by training providers. These contracts ended for new starts in April 2021 and all new SME apprenticeships must now be put through the digital apprenticeship service where all employers now manage and spend their apprenticeship funding.

John also questioned why the DfE wouldn’t agree to lift the cap if only one per cent of SMEs were affected.

Levy transfers are ‘no magic bullet’

One option the DfE offers to SMEs that have reached the cap is the ability to gain further funding for apprenticeships through the receipt of levy transfers from larger employers, which don’t count towards the reservations limit.

But providers and employers who spoke to FE Week bemoaned the lengthy and bureaucratic nature of this process.

“The DfE seems to think levy transfers are some kind of magic bullet that will solve everything,” John said. “We had one employer who went through the whole rigmarole of that levy-pooling service and when they got to the end of it, they were offered a fraction of the funding. It was useless.”

Jane Hickie, chief executive of the Association of Employment and Learning Providers, added: “Many SMEs find the transfer process too slow when they have new demand. Furthermore, there is no guarantee of funding through the levy transfer system, which makes planning growth difficult and is why the cap was increased in the first place.”

Gordon Franks Training is one provider that has been able to secure levy transfer funding to help five of its employers who have reached the cap to take on more apprentices. But managing director Sue Fielding said the process is proving “problematic” because red tape is delaying the releasing of funds.

“Our employers are very, very frustrated. We have to go through loops to get the levy transfer, but what if I didn’t have it? They would turn apprentices away,” she said.

“This also only papers over the cracks as we have more employers nearing the ten cap and more funding will be required.”

A DfE spokesperson said: “SMEs play a key role helping to create apprenticeship opportunities, particularly for younger people and those in disadvantaged areas.”

But Hickie hit back: “There are employers ready to take on more apprentices and providers that are happy to deliver high-quality training, yet inaction on the cap of ten is blocking them from doing so. How does the government square this with the aim to increase SME participation in apprenticeships? We urge officials to take action and either reset or lift the cap as soon as possible.”



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4 Comments

  1. Tim Buchanan

    We fund 141 apprentices through our levy transfer process, we work through partnerships with community groups, charities and some of our preferred suppliers. The major issue is the employers registering on the portal and that is usually due to the way that they manage their payroll.
    We work with partners who identify the employers, do the engagement work and set up as due to the business we are, we vet employers and have established a criteria within which our partners can work. It works.
    However we do not use the transfer process that is on the apprenticeship portal as that doesn’t provide the oversight that we require and ties up funding in pledges. It can work if you make it work.
    Also we have found that some of the employers we work with have problems with providers being less that helpful or keen to use the transfer funds.

  2. We currently have 32 people between 3 employers, with more adding to this list in May, who need an apprenticeship & subsequent qualification for their job. Both the employers & us as the provider wrongly anticipated a reset for 10 more starts in April & this is a massive concern at the moment. Training these candidates commercially is prohibitive for the employers as they continue to rebuild after two years of disruption, leaving no alternative but to wait & hope the DFE recognise the the importance of this reset & act now!

  3. An interesting point is that if these “large SMEs” tip over the £3million wage bill for a period, they can apply for a levy payer account, which doesn’t have a cap. Even if they then permanently drop below £3million, they keep their levy payer account forever, meaning that some employers below £3million don’t have a cap, which is great for them, but doesn’t seem fair.