How can the Government help boost apprenticeship starts and improve the apprenticeship levy?

By Jackie Chapman, Managing Director, Capital City College Training

For years we have heard the same line: ‘the apprenticeship levy doesn’t work’ – whether that’s because of the disengagement of Small and Medium Enterprises (SME apprenticeship starts are half what they were before the levy was introduced), the drop in apprenticeship uptake by 16-18-year-olds, or the amount of unused levy returned to the Treasury (according to the Financial Times, employers have handed back more than £3bn in unspent levy cash over the last three years).

This is ineffective for the economy and unhelpful for the workforce. Apprenticeships should be a central part of the employment landscape for people of all ages. They are a genuine alternative to T Levels or university for many young people who are eager to start their careers sooner or learn on the job; and they are invaluable for adults already in the workforce, who want to develop new skills and qualifications without having to give up work to study.

But apprenticeship starts are now far lower than before the levy was introduced back in 2017. What can be done to reverse this? How can apprenticeships become popular again?

Recently, we attended the Labour and Conservative party conferences, where we hosted breakfast events with the London advocacy group BusinessLDN – discussions with our guests addressed apprenticeships and other pressing skills challenges.

As we see it, the apprenticeships challenge is threefold: firstly, how apprenticeships are promoted – especially to young people; secondly, how they are funded; and thirdly, how flexible they are – for employers, educators and apprentices.

Promotion

If young people don’t know about apprenticeships, we can’t expect them to be interested in them. Many schools have failed to effectively point their 14–17-year-olds towards apprenticeships, as academic routes remain a central focus for schools.

The ‘Baker Clause’ should help this. Originally an amendment to the Technical and Further Education Act 2017 which was widely ignored by schools, the Baker Clause was made law in the Skills and Post-16 Education Act 2022. It requires schools to allow colleges and training providers access to every student in years 8 to 13 to discuss non-academic routes. It also states that schools need to impartially promote the full range of technical education qualifications and apprenticeships to their pupils.

The Baker Clause is an important part of a school or college’s careers education, information, advice and guidance (CEIAG) programme and, provided it is followed and enforced, it should widen pupils’ access to information about apprenticeships and other non-academic routes.

The introduction of T Levels may cause more confusion, so the message needs to be clear that apprenticeships are 80% in the workplace, whilst T Levels are 80% learning.

Funding and flexibility

The apprenticeship levy is the main mechanism for funding apprenticeships. Some £3.3 billion of unspent levy money has been returned to the Treasury over the last 3 years, so it’s fair to say that the level of funding is more than adequate.

Flexibility – what the levy money can be spent on and who can spend it – is where many of the problems, and opportunities, are. Businesses and apprenticeship providers have been calling on the Government to offer greater flexibility around the levy for years, but how would this look? And how would it work?

How do we improve the levy and encourage more apprenticeship starts?

It’s encouraging to see the Government responding to the sector’s conversations about the levy. In February of this year, Alex Burghart MP (then Skills Minister) introduced flexi-job apprenticeships and announced that businesses could transfer their surplus levy to other businesses to pay for their apprenticeship training.

Flexi-job apprenticeships aim to help sectors with short-term contracts to take on apprentices. Within this model, apprentices will be supported by their training provider to obtain multiple short-term contracts across different employers to complete their apprenticeship requirements.

We have already seen the benefits of this for small and medium enterprises (SMEs) at CCCG’s training arm, Capital City College Training (CCCT). For instance, in the creative industry, CCCT have been working in partnership with the NextGen Skills Academy to enable SMEs who only focus on one key skill to cluster together to take on an apprentice. Each apprentice is subsequently able to learn each skill through a different business to complete their apprenticeship. 

These initiatives are a positive step forward for helping to increase the number of apprenticeships, but there is a more fundamental issue for many employers which needs addressing – the cost of wages.

Employers tell us that they are deterred from taking on apprentices because they must pay their wages while the apprentice is still relatively inexperienced, especially when taking on 16–18-year-olds. In addition, many employers want to pay their apprentices more than the National Minimum Wage, because it’s the right thing to do and it would encourage more people to become apprentices.

So, we think that employers should also be able to use their levy funds to pay between half and two-thirds of their apprentices’ wage costs for the first year of their time with the company. Covering most of the salary for this period will help some employers pay their apprentices more and would be a powerful incentive to smaller businesses, as an extra pair of hands at a subsidised cost would never go amiss!

A levy reform along these lines could be structured like the Government’s Kickstart Scheme, released in September 2020. Kickstart provided funding to employers to create jobs for 16- to 24-year-olds on Universal Credit, covering 100% of the National Minimum Wage – based on the workers’ age – for 25 hours per week.

By supporting employers with their wage costs in the short term, Kickstart enabled many small businesses to engage with young people and provide adequate support whilst they were developing their basic skills.

If the levy allowed for the funding of such a scheme, a valuable proportion of the apprentice’s salary would be paid until the they become skilled enough to not need continuous supervision – the reason why employers prefer to employ individuals who have sufficient skills to undertake the job. This flexibility will encourage employers to take on apprentices and will guarantee the apprentice a job at the end.

We’d also like to see levy flexibility go further, by allowing the transfer of the apprenticeship levy to the organisation that provides the apprenticeship training (typically a further education college or a private provider), so they can continue to support an apprentice when they change jobs – currently as soon as an apprentice ends their studies or changes employer, the provider can no longer support them. This initiative will also help boost apprenticeship completion rates, as apprentices are currently leaving at the point of triggering the End Point Assessment. Such a change would not cost anyone money, will allow colleges and training providers to use their unspent Levy funds, and will decrease the administration required for providers to sign up additional employers to support the final stages of an individual’s apprenticeship.

Apprenticeships can and should be a bigger part of the employment landscape. We think that increasing the flexibility of the levy will allow more employers take on more apprentices and will encourage more people to consider an apprenticeship. We’ll be advocating for these changes to the levy over the coming months.

What is the apprenticeship levy? And what are the problems with it?

The apprenticeship levy was introduced in 2017 to create long term sustainable funding for apprenticeships. The levy is a 0.5% tax paid by larger employers (those with an annual pay bill of more than £3 million), which is stored in a fund and must be used to pay for the cost of apprenticeship training.

The idea was that the levy would encourage businesses to offer more apprenticeships, but unfortunately, the number of people starting an apprenticeship has fallen by around 50% since the levy was introduced. It also had some unintended consequences. For example, the House of Lords’ Youth Unemployment Report found that some employers use the levy to reshape existing roles into apprenticeships, benefitting those who already work for their company and are usually older and more experienced.

Other criticisms are that because the levy is only paid by large companies, small and medium enterprises (SMEs) don’t pay it but have to use the online system to engage with providers and pay 5% to the cost of the apprenticeship.  In addition, the apprenticeship system is considered too complicated and hard to navigate for employers and education providers alike. Perhaps because of these flaws, the number of SME apprenticeships has fallen since the levy started.

Liz Truss is our new Prime Minister, but what are her views on further education and skills?

Announcements so far this year indicated that Boris Johnson’s administration understood the need to boost skills and technical education following Brexit and the COVID-19 pandemic. As a further education college group, this is very welcome, as we know how vital colleges are to the Government’s skills agenda.

But will this continue under Liz Truss’s leadership?

We’ve taken a dive into her views and actions on further education, skills and apprenticeships, during her parliamentary career.

Liz Truss is, we believe, the first Prime Minister to have attended a comprehensive school – Roundhay School in Leeds. During the leadership race she said that the quality of education she received there “let down” students, with its “low expectations, poor educational standards and lack of opportunity” – assertions which have been disputed by someone who was at the school with her. And, however poor it may have been, her schooling did help her get into Oxford University, where she read the same subject (Politics, Philosophy and Economics (PPE)) as her leadership rival Rishi Sunak.

In 2011, she expressed her opinions on technical education. She wrote in Conservative Home that England was behind other developed countries on the amount of academic training required for technical jobs. Where English and maths are only a requirement to take until 16 years old in the UK, pupils in similar countries must take them until they are 18. At the time, she said she supported an English Baccalaureate and believed this should be an option for all students.

Liz Truss has some education Ministerial experience. She was Parliamentary Under Secretary of State for Education and Childcare from September 2012 to July 2014, when her responsibilities included qualifications, assessments and curriculum reform, behaviour and attendance. During her tenure, in 2013, she announced proposals to reform A Levels by scrapping AS levels and having the examinations at the end of the two-year course. She also fought to improve British standards in maths.

During the leadership race Truss ‘pitched’ herself as the “education prime minister”, saying:

“my mission in politics is to give every child, every person, the best opportunity to succeed, and for their success in life to depend solely on their hard work and talents, not their background or where they are from” – such opportunity she ‘alleges’ were not initially available to her.

Recent proposals on education

It has been reported that Truss told the 1922 committee of backbench Conservative MPs that if she became Prime Minister, she would end the ban on grammar schools. This proposal is welcomed by many – especially in the Conservative party – but there is evidence to suggest that while grammar schools may stretch brighter pupils, they increase inequality overall as the attainment of other pupils in other schools suffers.

On universities, she has proposed that all students who receive 3 A*s at A-Level to automatically be offered an interview at Oxford or Cambridge University, to make Oxbridge more accessible. This idea has already faced criticism, as those who attend private schools and the best state schools are more likely to achieve such grades – inevitably still excluding less-privileged students.

She has also stated that she would reform the university admissions system to a post-qualification admission system – meaning that students apply to university after they receive their A-Level results, rather than getting offers based off predicted grades. A post-qualification admission system has already failed to gain support in Parliament due to the additional bureaucracy and pressure on institutions and the academic calendar.

Looking forward

Mrs Truss and her new Ministerial team have a large in-tray. With the cost of living crisis raging, the NHS in trouble and the prospect of a multi-year, multi-billion pound bill to stave-off the worst effects of the energy crisis, it is perhaps not surprising that the government do not yet have a solid plan to support further education and enable it to deliver the skills that UK plc needs.

And her proposed tax cuts might make matters worse. According to the Institute for Fiscal Studies, the proposed tax cuts and corporate tax incentives, will initially lead to a loss of at least £30billion per year in tax receipts – losses which will probably not be offset by the rise in investment that she anticipates would result.

At CCCG we will be sure to engage with the new Prime Minister, as well as her new Secretary of State for Education Kit Malthouse (welcome to the best job in Government!) and his education Ministerial team – to do all we can to share with them the importance of further education to the future skills of our population and our nation’s success.

Three asks that we think should be on the new PM’s desk, addressing further education and skills are:

  1. Free courses for adults up to Level 4
  2. Allowing for greater operational freedom for further education colleges to help them to be more financially sustainable organisations
  3. A real focus on apprenticeships and reforming the apprenticeship levy, to make apprenticeships more accessible to Small and Medium Enterprise (SMEs) and students.

We are hosting a breakfast event at the Conservative Party Conference on Monday 3rd October in partnership with BusinessLDN (formally London First). We have invited key Conservative stakeholders, education providers and businesses to discuss levelling up and the skills agenda, so we look forward to these conversations and where the attendees see the education and skills sector going forward.

How can Levelling Up help tackle the UK’s skills shortage?

The COVID-19 pandemic hit the UK hard – in London alone, unemployment rose to 7% in 2021. Through Levelling up and the skills agenda, the Government have announced a range of initiatives to help the UK recover, supporting people to up-skill and re-skill in the changing job market.

In light of the cost-of-living crisis, the talent-drain that has resulted from the UK’s departure from the EU’s single market and the after-effects on labour markets of the COVID-19 pandemic, boosting Britain’s skills is more important now than ever before. According to research by the accountancy firm BDO, some 26% of businesses say that finding staff with the right skills will be their biggest challenge over the coming months.

Levelling up can play a useful role in this process. Although it’s often categorised as a regional, ‘not in London or the south east’ issue, our experience as London’s largest group of further education colleges tells us that it doesn’t matter where ‘under-skilled’ people live – their needs, and the challenges that they face, are similar. Without key skills (be they, for example, basic literacy and numeracy; digital skills; or even more advanced technical skills to gain work in high-tech industries or the green economy), thousands of people face being left behind, excluded from the workforce and with only a lifetime of poorly paid and insecure work to look forward to.

What is Levelling up?

The Levelling up White Paper, released in February 2022, sets out how the Government plan to spread opportunity throughout the UK. While it is important to challenge geographical inequality in tackling the imbalance we see within the UK, the Government’s Levelling up plans do not take into account the fact that poverty and lack of opportunity is found even in wealthy areas.

The White Paper promises a “moral, social and economic” programme for the Government to follow, to improve opportunities and productivity for many parts of the country, but it does not address the needs of Londoners. London is used in the White Paper as a place of comparison – one with high levels of economic and social standards. Although this is true to a degree, many Londoners live (and learn) in some of the country’s most deprived areas – and this cannot be ignored. So, as well as improving regional inequality, levelling up must also help the most disadvantaged communities within our major cities and towns.

Cost-of-living crisis

The cost-of-living crisis, like Brexit and the COVID-19 pandemic before it, highlights again just how important skills are for the people of this country and, if anything, makes the need and demand for new skills even more urgent. With rises in the cost-of-living and a predicted recession on the horizon, more people will lose their jobs and will need to re-skill or up-skill to gain sustainable employment. No community will go untouched.

So what’s to be done?

As well as their Levelling up White Paper, the Government have launched a range of ideas and initiatives in the last 18 months, including Local Skills Improvement Plans (LSIPs). Enshrined in law in the 2022 Skills and Post-16 Education Act, LSIPs are coalitions of education providers, local/mayoral authorities, local businesses and business groups, and other local stakeholders, which will set out the key priorities and changes needed in a local area to allow local post-16 technical education and training provision to be more responsive to the changing needs of the local labour market.

The Government are expecting the roll out of LSIPs to have concluded by 2023 and have set aside £20.9 million for 38 areas including 10 mayoral combined authorities, the Greater London Authority and 27 local enterprise partnership areas. We will see in the next year how these developments progress and if they succeed in helping local businesses fill their skills gaps.

Supporting Further Education colleges to plug the nation’s skills gaps

As London’s largest further education college group, Capital City College Group know the vital role that colleges play in re-skilling and up-skilling their students and the positive impact that this has on their communities, as well as the key role that employers play in our students’ success. We already have strong partnerships with well over 900 employers every year, both through our delivery of apprenticeships and through work placements, paid internships and other activities. We fully intend to work in, or with, London’s Local Skills Improvement Plan, to ensure that the skills we teach are in tune with the needs of London’s labour market – and so that our, and our students’, voices can be heard.

While these recent initiatives are welcome, further education colleges have long been an after-thought for Governments, falling behind schools and Higher Education, both in respect and funding. If the Government is committed in their pledge to level-up the country and improve skills, they must acknowledge further education colleges as a key partner in the delivery of these vital skills and fund the sector accordingly.

Stay-tuned: Party Conferences

In September and October, we will be hosting breakfast events at both the Labour and Conservative Party conferences, where we will continue these discussions, as well as exploring the role of apprenticeships in Levelling up. In partnership with BusinessLDN (previously London First), we have invited key political and sector stakeholders to join us, to share their views on Levelling up and the skills agenda. Keep updated with developments and discussions here, and on our Twitter and LinkedIn feeds.