The Budget should have tackled the deep structural problems with apprenticeships

3 Mar 2021, 14:18

Until Sunak realises there’s a preference in the apprenticeship system for existing employees over young people, his Budget announcements won’t help, writes Andy Norman

Today’s Budget is all about repairing the damage wrought by the coronavirus pandemic, particularly for young people.

The measures announced by the Chancellor attempt to kickstart demand for apprenticeships.

Yet they fail to acknowledge that the pandemic has simply exacerbated the more fundamental problems that have plagued the apprenticeship system for years now.

Until Rishi Sunak undertakes structural reform, his efforts are doomed to fail.

‘Bonus payment too small’

Apprenticeship starts fell by 45 per cent during the first lockdown. They recovered slightly between August and October, but they were still 28 per cent lower than the previous year.

The young have been hardest hit. During the first wave of the pandemic, apprenticeship starts for under 19s fell by 68 per cent, compared to 39 per cent for over 25s.

Low-level apprenticeships have also borne the brunt of the damage, which is particularly concerning because they offer the first step onto the skills ladder. Without them, many low skilled people will be cut adrift.

While level 2 apprenticeship starts plummeted by more than 60 per cent between March and July, starts at level 4 and above fell by just 3 per cent. Meanwhile between August and October, starts at level 4 and above actually grew by about 300.

To try to repair the damage, over the summer the government announced an apprenticeship bonus payment.

Starting from last August, employers have received £2,000 for taking on an apprentice aged 16 to 24 and £1,500 for those over 25.

However, as CPP pointed out at the time, the bonus payment was too small to make a significant impact, amounting to just 13 per cent of the first year of a young apprentice’s wages.

This has since been proven correct. Between August and January, there were just 25,400 starts under the scheme, only a quarter of the 100,000 budgeted for by the Treasury.

‘Apprenticeships going to existing employees’

But there is more going on here than meets the eye.

Looking more closely at the data, employers claimed the bonus payment for only 18 per cent of starts between August and November.

Why would employers not claim incentive payments for more than four-fifths of starts?

The reason seems to be that the bonus cannot be claimed for existing employees. This strongly suggests that currently the vast majority of apprenticeship opportunities are going to people already working at the organisation.

It is unsurprising that the Chancellor has used this Budget to announce an increase in the bonus scheme, with apprentices of all ages now coming with a £3,000 bonus payment from government.

Will this be enough to shift the dial on apprenticeships?

If employers were not willing to take on a young apprentice with a 13 per cent wage subsidy, it seems unlikely that they will now that the subsidy is closer to 20 per cent.

That’s why CPP has argued that the subsidy needs to be 50 per cent of wages.

But increasing the bonus payment can only get us so far.

The preference for existing employees and the exclusion of young people speaks to the more longstanding problems with the apprenticeship system.

Before the pandemic, system reforms – principally the apprenticeship levy – shifted opportunities away from young people looking to take the first step onto the skills ladder and towards highly qualified existing employees.

The pandemic has simply exacerbated this trend.

‘Ringfence levy funds’

So as well as a larger apprenticeship bonus, we need much more fundamental reform of the levy.

Some have argued that reform should give employers more flexibility over how they spend their levy funds, but the opposite is true. Levy rules must reflect that apprenticeships should be a gateway into skilled employment for young people and adults stuck in low-skilled work.

This means ringfencing a proportion of levy funds to be spent only on young people at lower qualification levels.

It also means heavily restricting the share of funds that can be used on existing employees.

The Chancellor was right to recognise that the apprenticeship system is in trouble.

However, the policies Sunak has announced amount to little more than a slightly larger sticking plaster. Actually what the patient really needs is comprehensive surgery.

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  1. Tim Buchanan

    The debate regarding existing staff and young people accessing apprenticeships fails to recognise that for many years the 16 to 18 age group has at best made up between 24 to 26% of starts. To employ young people roles, need to be created in organizations, to open roles, existing staff need to be developed and promoted apprenticeships offer that opportunity. So by attacking apprenticeships for existing staff, journalists and self-proclaimed experts are missing the fundamental point of role creation.
    Secondly this fixation on low level and unfortunately low skilled areas does nothing to improve the prospects for young people it keeps them trapped in a low skill low paid world. If people are serious about tackling skills issues then funding needs to go into new areas of data, technology and areas supporting the environment to create talent pipelines which could be ring fenced for young people so that they are breaking out of the low skill low paid mentality that pervades so much of this discussion.
    Thirdly the structural inequalities in the apprenticeship system are based around the rules framework that is designed to deal with approximately a quarter of apprentices the 16 to 18 year old group, more flexibility around rules for existing staff and a greater acceptance of a partnership between providers and employers to meet the skill needs would lead to a more reactive programme that trained and progressed more staff in business and then create more opportunities for new talent entering the business.

  2. Philip

    Andy identifies the problem with the levy system. Here’s another consideration: when corporation tax moves to 25% in two years, UK business will be faced with a tax burden that will either force closure on those businesses that will already be reeling from the challenges of returning to profit, or make those businesses relocate their corporate headquarters to the likes of Ireland.
    I find it difficult to understand that the levy system has not been done away with altogether and the £3000 employer incentive given directly to the provider – whether that be a college or, if there are any left, an independent training provider.
    If businesses fail, then that loss of tax revenue goes with them. Not a great way of raising revenue. But what do I know…………..

  3. I’m not convinced that the lack of starts in recent months is all because of a lack of demand from employers. We are a not for profit ATA and Shared Apprenticeship Service and we have demand from businesses and from young people, but finding sufficient training provision at the right level, in the right place and starting at the right time is very challenging. So many colleges and providers are saying that they are not recruiting at present due to Covid. In addition, finding sufficient levy transfer funding is also an additional challenge now that provider allocations are ending. With no funding or training availability, Apprenticeship numbers will never recover.

  4. “Looking more closely at the data, employers claimed the bonus payment for only 18 per cent of starts between August and November”

    On a practical level, 20/21 starts data is largely worthless at the moment. Loads of SME’s, who are much more likely to recruit ‘new’ staff as apprentices, are battling with having to register on the Apprenticeship Service. The ESFA have unofficially recognised this by creating an option to back date apprenticeship start dates (plus recent increases in support webinars, youtube vids etc)

    The general thrust that the Levy policy is at the heart of many problems is likely true – continued growth of higher levels comes at the expense of lower levels at they eat up more funding from a finite pot and have different demographic. But no-one appears to be offering trend analysis by ‘duration’ or viewing it in terms of ‘funding spend’ by level / age / newness – that would probably add some flesh to the bones…