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False start

Two years on from the rollout of the UK apprenticeship levy, a new report forecasts that 2018/19 will see the highest number of apprenticeship starts of the past half-decade. It should not be taken at face value, writes Josh O’Neill

Since the rollout in 2017 of the UK apprenticeship levy, it has been dogged by industry stakeholders, employers’ groups and the media. Critics of the initiative, which requires employers whose wage bills exceed £3 million to channel funds equivalent to 0.5% of their payroll value into workplace training schemes, say its rules are too rigid and that levy funds are too often used to bankroll MBA-style training programmes for senior staff – as opposed to onboarding entry-level workers – or even wasted. Government data fails to paint a picture of success: although apprenticeship starts – the key metric monitored by the UK government to track the levy’s progress –were in January up 15% year-on-year at 29,100, they were down 21% on the same month in 2017 (36,700), three months prior to the levy’s introduction. 

This could soon change, though. Recently published research predicts that 2018/19 will see the highest number of apprenticeship starts of the past five years, a 29% uptick from 375,800 in 2017/18 to 484,728. The report, compiled by Rated People, an online marketplace for tradespeople, derived its findings from forecasts based on official statistics and a survey of 2,000 UK residents in full-time education, apprenticeships or work. 

On this finding, Josh Moore, client engagement manager at Estio Training, a provider of IT and digital apprentices to UK businesses, comments that “there has certainly been a strong increase in apprenticeships over the last two years”, which he attributes mainly to two factors: higher-than-ever university fees, which increasingly prompt students to explore alternative entry routes into careers; and a change in employers’ mindsets that has “affected the hiring process” – in other words, many are repackaging graduate roles as higher-level apprenticeships. “There has been an increase due to the quality of apprenticeships that are now on offer,” he continues. “Since the transition from traditional apprenticeship frameworks to apprenticeship standard, what the apprentice can access in the apprenticeship has changed.” 

If forecasts detailed in the report materialise, they would suggest that the apprenticeship levy is finally bedding in to fulfil its primary function, as employers would be deploying more cash to enrol higher numbers of workers on apprenticeships than in recent times. Thus, it would be successful at long last. The UK government could give itself a pat on the back for wading through two years’ worth of almost constant criticism as, in the end, it would be right. This is, perhaps, wishful thinking. 

Inside the levy machine, certain mechanisms require further oiling, while others are jammed completely. Mark Dawe, chief executive of the Association of Employment and Learning Providers (AELP), an industry body, shoots down Rated People’s prediction, saying it “will turn out to be inaccurate” due mainly to three reasons. First is because levy-paying companies “get first dibs” on funding, says Dawe, which ultimately results in less levy money being made available to the small- and medium-sized enterprises that once provided the majority of apprenticeships. “Prior to the levy, SMEs accounted for about two-thirds of apprenticeships,” says Dawe – a time when they didn’t have to put hands in pockets to fund training, whereas now they have to foot 5% of the bill (halved last October from 10%). “That proportion has now fallen to about a half.” Second, the way in which the levy has been implemented “has thrown up significant flaws” that have “raised questions over the capacity to assess every apprentice’s progress and attainment in a consistently fair way,” he adds. “Good quality training and assessment cannot be provided on the cheap, and yet some of the policymaking within government has failed to recognise this.” Third, current projections “point to a massive deficit in the overall budget occurring in the next 12 months,” says Dawe, raising flags over the sustainability of the levy in its current format. “Unless extra money is found… hard choices will have to be made to ensure that the programme is sustainable in the long term. This could mean that employers and/or learners would have to contribute more to paying for management or degree-level apprenticeships, irrespective of whether they have already paid the levy.” For some employers, having to fork out on top of mandatory levy contributions may mean that such choices include axing certain apprenticeships altogether, in turn dragging the number of starts down further. 

Still short of the mark
Credit where it’s due, the UK government has to a certain extent listened to unhappy stakeholders and moved to address some of their concerns. For example, the UK’s chancellor of the exchequer Philip Hammond ordered a review of the levy in 2017’s autumn budget; the announcement was welcomed with open arms. Last October, the government halved SMEs’ contribution to apprenticeship training to 5% from 10%. And last month, it permitted levy-paying firms to transfer up to a quarter of their annual contributions to “as many employers as they choose” – lifting the previous limit of 10%. 

But reforms to date still fall short of the mark. On the above in particular, “levy payers complain that the transfer process involves too much hassle”, according to Dawe. Late last month, the Federation of Small Businesses (FSB), the industry body representing UK-based SMEs, called for overly-restrictive rules to be relaxed so that companies below the levy threshold can more easily tap funding. Moreover, the FSB – 41% of whose members claim the cost of recruiting and training apprentices has increased since the levy was rolled out – suggested that financial incentives be introduced to encourage businesses that have never hired an apprentice to take them on. 

“Unless urgent action is taken, we are in serious danger of making apprenticeships unaffordable for many of our small firms,” says Mike Cherry, the FSB’s national chairman. “If apprenticeships become a privilege only for those that can afford them, we will worsen persistent skills shortages and gaps that are damaging growth and productivity. Small businesses need more support… if they are to continue to be the champions of apprenticeships.” Cherry’s comments were made in the face of the funding-sharing limit being raised to 25%, and amid publication of data that showed intermediate-level apprenticeship starts, aimed at school leavers, had fallen 45% since 2015/16. 

Both the AELP and the FSB are also calling on the government to review a rule requiring 20% of all apprentices’ training to take place outside the workplace. “This one-size-fits-all approach has proved to be one of the largest blocks to apprentice recruitment particularly among SMEs and we agree with the MPs that flexible rules for off-the-job training at different levels in different sectors should be introduced,” says Dawe. 

More worrying than training nuances, though, are warnings from the UK’s National Audit Office (NAO) over the fiscal viability of the levy programme. In March, the public spending watchdog cautioned that the average cost of a levy-funded apprenticeship was £9,000 – double the initial amount forecasted by the Department for Education – driven up by employers placing staff on expensive degree- and MBA-level schemes. “There is a clear risk that the budget may be insufficient should demand pick up,” a report from the NAO said. Reflecting Dawe’s concerns, it continued: “Government would then need to choose between providing more funding, inhibiting growth in apprenticeships, or reducing the level of funding for some apprenticeships.”

Because of the funding shortfall flagged by the NAO in its report, the government’s review of the levy “must result in a fundamental reset that restores the flagship skills programme as a ladder of opportunity from Level 2 to 7,” says Dawe, “meaning that apprenticeships act as major vehicle for social mobility and a driver for improved productivity within the workplace”. In an ideal world, the “AELP wants an all-age, all-levels and all-sectors programme. But if money is limited, then the social mobility agenda demands that apprenticeships at the lower levels – that is, Levels 2 and 3 – and for young people should get priority.”

Some argue otherwise. “It’s a false dichotomy to say we should either train new staff or train existing staff,” says Sean Williams, chief executive of Corndel, a provider of high-level apprenticeships founded in 2016 whose clients include Mastercard, UBS and John Lewis Partnership. In reality, the levy “should do both. [But] the reason employers are not choosing to spend more of their levy on entry-level training is that most entry-level training is poor and many of the training providers delivering it have been slow to improve. The same people who in one breath say that they want apprenticeships to be seen on the same level as more traditional academic routes, in the next say that apprenticeships should only be about low-level training for those who have struggled academically.” His views on apprenticeship starts – along with the government’s target of three million by April 2020 – are frank. 

“Three million low-quality starts in fields where there is no progression for learners and no career prospects is much, much worse than one million starts in high-quality, high-value training that genuinely improves a learner’s productivity and prospects,” he says. “We may see slightly lower starts in return for much higher-quality apprenticeships. This is a very good trade to make. 

“Would the UK rather have three million shelf-stacking apprenticeships, or 1.5 million data analytics apprenticeships?”

On 23 May, EducationInvestor Global is hosting its inaugural Insights event in central London, focusing on the UK skills and training market, apprenticeship levy and return on investment that professional development can generate. 

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Posted on: 13/05/2019

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