The ESFA may regret rejecting the IfA’s levy budget concerns

14 Dec 2018, 11:00

As revealed by FE Week, the IfA has warned that there could be a £500m overspend on the £2bn apprenticeship budget this year.

 This, their analysis shows, rises to a £1.5 billion overspend for 2020/21 when the entire £2bn budget would be used paying for apprentices that started in previous years, leaving nothing for new starts.

Readers may find these predictions a surprise, even bizarre, in the context of a fall in starts and employers on average only using a small fraction of their levy pot.

And in an interview with FE Week, the top civil servant responsible for apprentices said he was not forecasting the budget to be exceeded – not this year anyway.

But in truth, the way employers pay monthly for apprenticeships, it is more than possible that a slow start will rapidly grow out of control.

 Consider a levy paying employer starting one £5,000 apprentice per month for 12 months from the start of 2018/19 (total value of £60,000) with the minimum duration for a standard of 13 months (372 days).

 In August, the employer levy spend would be £333 for one start, rising to £666 in September when there are two starts and by the July (once there are 12 starts) the payment for a single month would be £3,667 (more than ten times the cost of August).

And that is before any of the 20 per cent completion payments are paid, in this case worth £1,000 of the £5,000 per apprentice.

So in this example, after a year the monthly cost has risen from £333 to £3,667 and costing a total of £23,333 in 2018/19 with a further £36,667 ‘carry-over’ to be paid in 2019/20 (excluding the cost of any starts in 2019/20).

This exponential growth in both in-year and carry-over monthly payments can quickly get out of control and makes the Institute for Apprenticeships forecast plausible.

And analysis published by FE Week this week suggests the average cost of standards is far greater than the ESFA would have expected.

We’ve taken latest starts data for every standard and compared it to the funding rate band cap when introduced in May 2017. Even taking account of drop-outs, it seems reasonable to suggest average funding is more than £8,000 per apprentice. This peaks in September, when many of the most expensive courses begin – such as the two year £18,000 MBA.

This is likely to be more than double the average framework costs before May 2017 (around £3,000 for 500,000 starts at £1.5bn per year) and far higher than the ESFA was expecting given the budget in England has only risen by £500 million, around a third higher.

The IfA programme of rate reductions will reduce the average cost, typically by around a third.

 So as it stands their £4.2 billion prediction in 2020/21 with no funding for new starts could not only be right but – dare I say it – even conservative.

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