The Department for Education quietly handed back £330 million of the 2019-20 apprenticeships budget to the Treasury, FE Week can reveal.

The admission comes despite concerns that small employers had struggled to find providers with sufficient non-levy funds to train their apprentices, with some being turned away.

Mark Dawe, chief executive of the Association of Employment of Learning Providers, said it will remain “one of life’s great mysteries as to why this was allowed to happen”.

“The department knew full well that there was huge demand from small and mediumsized employers for apprenticeships that was not being met by the non-levy contracting system,” he added.

“Providers could have got the money out the door in an instant at a time when apprenticeship starts were crashing from their pre-levy levels.”

The admission of surrendered funds was made by education secretary Gavin Williamson in a letter to the education select committee this week.

In a series of questions about the DfE’s spending plans for 2020-21, the committee asked Williamson why the apprenticeships budget had increased by 17 per cent to £2.5 billion compared to last year, as noted in the department’s recently published “main estimate memorandum”.

The education secretary explained that the apprenticeships budget is in fact at the same level as the last financial year, and the document “shows an increase of around 17 per cent because the funding in 2019-20 was reduced for unspent funding surrendered to Treasury”.

The DfE then told FE Week that a total of £330 million was handed back to Treasury last year, explaining that where departments are not on course to spend the full amount allocated to them at the start of the year, they can “surrender part of their budget cover back to Treasury to allow them to use these funds for other government priorities”.

A spokesperson said: “Spending on the apprenticeship programme is demand led, and employers can choose which apprenticeships they offer, how many and when. In particular, we do not anticipate that all employers who pay the levy will need or want to use all the funds available to them – but they are able to.

“As is usual practice, any underspends in overall departmental budgets by the end of the financial year are first returned to Treasury as per the consolidated budgeting guidance.”

This isn’t the first time the DfE has handed back lumps of apprenticeship funding to the Treasury. In 2017-18 – the first year of the levy – around £300 million was surrendered.

The DfE claimed it did not surrender an apprenticeships underspend in 2018-19.

As per levy rules, businesses with a payroll of £3 million or more pay each month into the pot and have a rolling 24-month deadline to spend the funds.

The levy policy was designed so that large employers wouldn’t use all of their funds. The unspent money is meant to be recycled and made available to small businesses who do not pay the levy to use to train their apprentices. Unspent funds are also used to top up levy funds by ten per cent as well as pay for English and maths teaching for relevant apprentices, among other things.

In February 2019, FE Week revealed how training providers’ non-levy funding was running dry and that some had even had to turn apprentices away, with the government insisting it couldn’t offer more cash as it didn’t have any left in the system.

In January 2020, the AELP further warned that training providers are “having to turn their backs” on up to 40,000 small businesses due to the shortfall in apprenticeship levy funds.

The Education and Skills Funding Agency is currently in the process of transitioning all small employers on to the digital apprenticeships system, which has only been used by levy-payers since its launch in April 2017 to spend their funds.

This will bring an end to provider funding allocations, secured through a procurement process, being used to train apprentices with small non-levy paying businesses.

The transition is due to complete by April 2021.

Dawe said: “We can take solace from the fact that the moving of all employers on to the digital apprenticeship service should reduce the chances of this happening again.”

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