Sunak to scrap SME co-investment for young apprentices

PM will also increase apprenticeship levy transfers up to 50%

PM will also increase apprenticeship levy transfers up to 50%

The government is set to scrap small and medium-sized employer (SME) co-investment payments for apprentices under the age of 22.

It also plans to increase the amount of funding that can be transferred from apprenticeship levy-payers to other businesses from 25 per cent to 50 per cent.

The reforms will come into force from the start of April, prime minister Rishi Sunak is expected to announced this morning.

In a speech to a conference for small businesses, Sunak will say the move will equate to an additional £60 million of new government funding for apprenticeships – presumably the estimated amount it will cost to fully fund SME apprenticeships up to the age of 21.

The Department for Education told FE Week the extra funding will increase its 2024-25 ring-fenced apprenticeships budget from £2.669 billion to £2.729 billion.

Government claims that the changes will lead to an extra 20,000 apprenticeships.

The announcements come in response to dwindling apprenticeship numbers in SMEs – last year saw apprenticeship starts in levy-paying businesses grow by 2 per cent while starts for non-levy payers fell 13 per cent.

Starts among young apprentices have also fallen dramatically since the launch of the levy.

The prime minister will say: “Whether it’s breaking down barriers and red tape for small businesses, helping businesses hire more young people into apprenticeships and skilled jobs or empowering women to start up their own businesses – this government is sticking to the plan and leaving no stone unturned to make the UK the best place to do business. 

“Taken together, these measures will unlock a tidal wave of opportunity and make a real difference to businesses and entrepreneurs across the country.”

‘This will help SMEs hire more apprentices’

Since the apprenticeship levy was introduced in 2017, only large employers with a payroll in excess of £3 million pay into the levy at a rate of 0.5 per cent of salary costs.

The contributions go towards funding all parts of the apprenticeship system, including funding 95 per cent of training of apprentices in non-levy paying businesses.

SMEs then make a co-investment payment of 5 per cent. 

The government said today that it will “fully fund apprenticeships in small businesses from April 1 by paying the full cost of training for anyone up to the age of 21 – reducing costs and burdens for businesses and delivering more opportunities for young people to kick start their careers”.

FE Week reported last month that less than 3 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.

Announcing the move to a 50 per cent transfer limit today, the government said: “Under the new measures, large employers who pay the apprenticeship levy will be able to transfer up to 50 per cent of their funds to support other businesses, including smaller firms, to take on apprentices. 

“This will help SMEs hire more apprentices by reducing costs and enabling more employers to get the skilled workers they need while unlocking more opportunities for young people in a huge range of sectors, industries, and professions.”

The transfer increase is expected to come into effect from April 6.

Simon Ashworth, director of policy at the Association of Employment and Learning Providers, said the end of co-investment for young people was “particularly” welcomed as the “cost and bureaucracy burden to training providers usually outweighed the cash this actually brought in”.

AELP has however called for the end to co-investment for all-age apprenticeships and vowed to “continue to lobby the government to ensure training providers are not unfairly penalised when an employer stops paying their contribution which voids access to the final 20 per cent completion payment”.

David Hughes, chief executive of the Association of Colleges, said the targeted funding for all apprenticeships under the age of 21 will make a “modest difference” to the “dramatic decline in the number of young people undertaking apprenticeships”, but warned the change is “not enough”.

“We urge the government to properly review the levy rules and incentives to ensure the apprenticeship programme works for young people, key sectors and for employers,” he added.

Apprenticeship budget to go ‘over’ £2.7bn in 24-25

The government previously said that the Department for Education’s ring-fenced budget for apprenticeships in England will rise to £2.7 billion in 2024-25.

But today’s announcement said this budget will increase to “over £2.7 billion from next year”.

A DfE spokesperson told FE Week its ring-fenced apprenticeships budget for 2024-25 was supposed to be £2.669 billion, but this has now been boosted to £2.729 billion.

FE Week reported last month that of the department’s £2.585 billion ring-fenced apprenticeship budget in 2023-24, £2.525 billion, or 98 per cent, is expected to be spent. It means the DfE will hand back £60 million to Treasury, which could be being used to fund today’s funding announcement increase.

However, the disparity in what is distributed by the Treasury for public spending on apprenticeships compared to how much the levy is generating continues to grow.

Latest Treasury figures show £3.170 billion was received from employers who pay the apprenticeship levy between April 2023 and January 2024, with two months’ worth of receipts to come before the end of the financial year. 

recent Office for Budget Responsibility (OBR) forecast predicted that total apprenticeship levy intake to HMRC will reach £3.9 billion in 2023-24.

When DfE’s ring-fenced budget spend on apprenticeships in England is combined with the £500 million-odd that is handed to the devolved nations from the levy, it leaves around £875 million that was generated by the levy, but held onto by the Treasury in 2023-24.

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7 Comments

  1. Whilst changes such as this are helpful, I’m not convinced 5% contribution is an issue for the majority of SMEs looking to employ an apprentice. The complexity of apprenticeship regulations and amount of time investment are much bigger barriers than 5%.

    • JustSaying

      I agree Alex.
      The headline stats in relation to the new Apprenticeship system are bad enough. If you delve a little deeper and exclude the public sector bodies and other Levy payers from these numbers, these appalling numbers hide an even bigger disaster concerning the massive fall in SME employer engagement since the Tory Apprenticeship reforms. Given that ITP’s deliver the majority of apprenticeships their input to a successful system is crucial to its success. It is really important that they are recognised and funded to be able to perform this role.
      If you ask them what needs to change. It isn’t just the complexity of apprenticeship regulations it is also their intent. They are fundamentally written to support 16-19 year olds undertaking apprenticeships when in reality the majority of apprenticeships are undertaken by adults already employed in the job role at the going rate for the job. In addition, the imposed requirements of the new apprenticeship standards contain significant content added to them with no regard to what was asked for by employers. This content may be relevant to a 16-19 year old person undertaking an apprenticeship role, It certainly isn’t for the majority of adult apprentices already established in the workplace.
      What else do many ITP’s have to say if you ask them. They are likely to say we shouldn’t be required to make a mature worker who often is already in mid-career, to do a GCSE style maths and English qualification as part of any apprenticeship programme. Improvements in apprentices capability in either or both disciplines should be supported and will be valued by employers where this can be applied to the role performed in the workplace. The maths and English qualifications currently mandated are too far from helping with this and are a significant single factor in the current apprenticeship lack of engagement.
      They will also suggest funding bands make no sense. One example would be that ITP’s doing higher level apprenticeships at level 4 or 5 would see little difference in the staffing resource supporting this delivery compared with University degree higher level apprenticeships funded at £27k. To add some 300% to the band level for these University degree programmes is bemusing. Perhaps if policy really was learner led these bands would be capped at a much lower value and the difference in funding used to incentivise 16 -19 engagement with Apprenticeships. This could be done by adding to the band value a percentage on achievement paid to the ITP if the apprentice was 16-19 when they commenced on the programme.

  2. I think when the funding for apprenticeships left from being the remit of the providers to the employer the system and application process started falling down, some of the SME’s don’t even have enough access to go online and get the funds reserved for the training

  3. Louise

    SMEs could already get their apprenticeships fully funded if done via a transfer anyway. I don’t see how upping the transfer amounts will help the large employers u able to spend their levy and will certainly not boost uptake. We need some real flexibility not tinkering.

    • Upping the transfer percentage from 25% to 50% serves two purposes, neither of which benefit SMEs or apprentices, but have a political purpose.

      Firstly, it’s padding. Levy transfers are nowhere near 25%, so doubling it is meaningless. But you can’t announce ‘meaningful’ reforms without multiple elements. It also allows the Treasury’s favorite phrase ‘taken together’ to be wheeled out. Remember that the levy is very lucrative for the Treasury and they don’t want that to change.

      Secondly, if transfers don’t happen there will now be a wider gap, so it allows the government to say that employers haven’t utilised the flexibilities within the system. Thereby pointing the finger away from policy and toward system users.

  4. Would have been better to keep the 5% contribution and instead give SMEs a bigger financial incentive if they take on an apprentice, rather than the £1000 they currently get in 2 x £500 payments which really has no impact, its not a great incentive