The apprenticeship levy began operating in April 2017. The levy is, in effect, a tax of 0.5 per cent on the pay bill of UK employers with annual wages of over £3 million. These employers pay their levy contributions into a digital account held by HMRC and can then ‘spend’ their contributions on apprenticeships delivered by registered training providers. Other employers who do not pay the levy can access the funds that the levy generates through arranging apprenticeships with registered providers as well. In its first full year of operation, the levy raised £2.7 billion and this is expected to rise to £3.4 billion by 2023-24. However, there have been repeated warnings in recent months that the funding pot generated by the levy is about to run out. This report investigates what is happening with the apprenticeship levy and with the apprenticeship system in England more broadly.
How many apprenticeships have been delivered under the levy, and to whom?
The levy has contributed to a significant drop in the number of people starting an apprenticeship in England. In the 12 months before the levy came into operation, 564,800 learners started an apprenticeship. This fell to just 364,000 in the 12 months after it was introduced. Although there has been a slight recovery in 2018/19 compared to 2017/18, the dramatic drop in starts since April 2017 has not been reversed.
Following the commencement of the levy, there has also been a decisive shift from lower to higher levels of training. The proportion of training at Level 2 (equivalent to GCSEs) has fallen by around 15 percentage points, whereas training at Levels 4 to 7 (equivalent to the first year of university up to Masters level) has grown by 9 percentage points. These trends are even more pronounced for levy-paying employers. Higher-level apprenticeships are typically more expensive to deliver, which has obvious implications for the financial viability of the levy both now and in future.
In addition, the levy appears to have affected the age of those who start an apprenticeship. Since the levy began in 2017, there has been a drop of 5 percentage points in the proportion of young people starting an apprenticeship as older (and often more experienced) workers are attracting more of the funding. Over the last two years, 66 per cent of higher-level apprenticeships have been started by workers aged 25 and over. The latest data also shows that 46 per cent of ‘apprentices’ have been with their employer for at least six months before they started their training. In other words, the bulk of the levy is being spent on existing adult workers instead of supporting young people into the workplace.
What has happened to the quality of apprenticeships since the levy began?
Since the Coalition Government announced major reforms to apprenticeships in 2012 that are still on-going today, many employers have produced high-quality, rigorous and challenging apprenticeships aimed at helping young people make the transition from school or college into the workplace. However, one of the most significant issues with the reforms has been the continued absence of a rigorous definition of an ‘apprenticeship’. Remarkably, the government left it up to employers to decide what could be labelled as an apprenticeship, despite several recognised international definitions being freely available. Some employers have exploited this weakness in the reforms by inappropriately labelling training courses as ‘apprenticeships’ (in order to access the levy funding) when they are nothing of the sort. Between them, three categories of ‘fake apprenticeships’ have been allocated over £1.2 billion of levy funding since April 2017 and account for 50 per cent of all the ‘apprenticeships’ started over this period.
Low-skill and generic roles (allocated £235 million of levy funding since 2017)
These roles include working on a shop checkout, basic office administration, serving drinks in a bar and being part of an airline cabin crew. Outside of ‘apprenticeships’, such roles are advertised as offering minimal training and low wages, which is why they do not meet any established definition of an apprenticeship either in this country or abroad. Even learning how to play football, cricket or rugby has now been labelled as a ‘Sporting Excellence’ apprenticeship to get access to the funding generated by the levy. These examples support the findings from a recent National Audit Office investigation, which found that the government “recognises that some employers use apprenticeships as a substitute for training and development that they would offer without public funding” (known as ‘deadweight’).
Management training and professional development courses (£551 million)
As the apprenticeship levy operates on a first-come-first-serve basis, rebadging management training and professional development courses for more experienced employees is a far more effective strategy for drawing down the levy funds than offering apprenticeships to new young recruits in skilled occupations. At the same time, non-levy employers have essentially been given unfettered access to 95 per cent subsidies for management and professional development ‘apprenticeships’. As a result, the most popular ‘apprenticeship’ in the country is now becoming a ‘Team Leader / Supervisor’ – accounting for 1 in 10 apprentices and consuming £134 million of levy funding since 2017. Meanwhile, the ‘Chartered Manager’ and ‘Department Manager’ training courses have consumed around £100 million each. Other roles such as ‘Retail Manager’, ‘Senior Insurance Professional’, ‘Marketing Manager’ and ‘HR Consultant’ are self-evidently not entry-level positions but they continue to consume the levy funds that could instead have been used to support young people.?
Bachelor’s degrees and Master’s-level programmes (£448 million)
The introduction of the levy has generated a surge of new ‘apprenticeships’ up to Bachelor’s and Master’s level, but Ofsted was already reporting last year that “graduate schemes are in essence being rebadged as apprenticeships”. For the apprenticeship levy to be used up on university degrees that can already be funded through the student loan system is hugely wasteful. Nevertheless, labelling these degrees as ‘apprenticeships’ is appealing to employers because they can draw down a large amount of levy funding for every ‘apprentice’ (up to £27,000 depending on the programme).
The most costly higher-level apprenticeship has been the ‘Accountancy / Taxation Professional’ course at Level 7 (equivalent to a Master’s degree), which has used £174 million of levy funding since 2017 by claiming to cover roles as diverse as Financial Accountants, Management Accountants, Tax Accountants, Tax Advisers, Tax Specialists, External Auditors, Internal Auditors, Financial Analysts, Management Consultants, Forensic Accountants and Business Advisors. For a single ‘apprenticeship’ to cover such a breadth of respected and well-paid jobs is questionable, to say the least. In addition, the ‘Senior Leader apprenticeship’ – aimed at CEOs, CFOs, senior military officers and Heads of Department among others – can include an MBA, which explains why it has quickly become a major source of revenue for business schools and consumed over £45 million in just two years.
Inappropriate rebadging of training courses also extends beyond the world of business and finance. The ‘Academic Professional apprenticeship’ – designed by 23 Higher Education (HE) institutions including the University of Oxford, the University of Durham and Imperial College London – is an overt attempt by these organisations to relabel their university academics as ‘apprentices’ to use up the university’s own levy contributions. The fact that you typically need a PhD to be accepted onto this levy-funded training course confirms that it bears no relation whatsoever to any genuine apprenticeship.
Is enough being done to promote high-quality apprenticeship provision?
Despite warnings from Ofsted and others that it would be difficult to monitor a large influx of new entrants to the training provider market who are attracted by the sheer size of the levy funding pot, the register of approved providers now contains around 2,500 organisations – almost triple the number of providers when the levy was first announced. It quickly became apparent that some of the new providers were not up to the task. Countless examples have emerged of new providers failing their first visit from Ofsted, with some providers merely accrediting skills that their apprentices already had and some learners (and even some employers) being unaware that they were taking part in an apprenticeship. Even among experienced training providers, Ofsted’s latest annual report found that only 58 per cent were rated ‘Good’ or ‘Outstanding’ for apprenticeships.
Although colleges and private training providers have historically been the bedrock of apprenticeship provision in England, this has now begun to change as over 100 universities and many other HE institutions have successfully applied to join the register of approved providers so that they too can access the levy funding. The government recently decided that the Office for Students – the university regulator – should be put in charge of monitoring higher-level apprenticeships, even though they have no expertise in regulating apprenticeships and they do not have the power to enter the premises of universities to carry out on-site inspections. The ‘Augar Review’ of post-18 education recently called for Ofsted to be given responsibility for inspecting apprenticeship provision at all levels, but the government has not changed its position. It is hard to have confidence in an apprenticeship system that places so little emphasis on ensuring that every apprentice receives the right training and support.
The swift disappearance of the funds raised by the levy is the direct result of the dilution of the apprenticeship brand caused by the rapid emergence of ‘fake apprenticeships’. Regrettably, it has reached the point where the apprenticeship brand itself has arguably become a meaningless concept, such is the prevalence of the inappropriate rebadging and relabelling of existing training courses by some employers and universities. Given the looming prospect of a significant overspend on apprenticeships in the coming months, there is no doubt that the Treasury and the Department for Education must enact major changes to make the apprenticeships programme financially viable. The only question now is what changes they will choose to make.
Since 2017, government ministers have been reticent to intervene as they continued to hope that employers and training providers would find a way to make the apprenticeship levy succeed. The evidence from the last two years presented in this report shows that this approach has failed. Consequently, this report seeks to inform the government’s deliberations on the future of the levy and the apprenticeships programme as a whole, with the aim of reducing overall expenditure in the context of building a better, more sustainable and more ambitious education and skills system. The recommendations in this report offer a credible, evidence-based package of reforms that can bring down the cost of delivering apprenticeships while still supporting the drive towards delivering world-class technical education in England as well as creating a productive workforce to boost the economy.
The apprenticeship levy generates a sizeable funding pot for employers and training providers, yet the way that this funding has been (and continues to be) used is proving controversial. The following package of reforms seek to address the three fundamental flaws in both the levy itself and the wider apprenticeship programme that are discussed throughout the report:
- The failure to accurately define what is meant by an ‘apprenticeship’
- The lack of clarity over the purpose and goal of the apprenticeship levy
- Confusion over the funding and quality assurance of apprenticeships
The recommendations in this report therefore focus on addressing each of these issues in turn under the following headings:
- Introducing a world-class definition of an ‘apprenticeship’
- Setting a new vision and objective for the levy
- Revising the funding and regulatory framework
By implementing the full set of recommendations described below, this report estimates that almost £1 billion would have been saved since April 2017 – approximately one-third of the total spending from the funds generated by the apprenticeship levy.
INTRODUCING A WORLD-CLASS DEFINITION OF AN ‘APPRENTICESHIP’
- RECOMMENDATION 1: The Department for Education should introduce a new definition of an ‘apprenticeship’ that is benchmarked against the best apprenticeship systems in the world.
- RECOMMENDATION 2: The Department for Education should restrict the use of the term ‘apprenticeship’ to training at Level 3 only.
SETTING A NEW VISION AND OBJECTIVE FOR THE LEVY
- RECOMMENDATION 3: The apprenticeship levy should be renamed the ‘Technical and Professional Education Levy’ and all work-based learning from Level 4 to Level 7 should be renamed ‘Technical and Professional Education’ (TPE).
- RECOMMENDATION 4: Bachelor’s degrees and Master’s-level courses that have been labelled as ‘apprenticeships’ should be excluded from the scope of the TPE levy.
- RECOMMENDATION 5: The existing co-payment rate of 5 per cent for apprenticeships should be replaced by a tiered co-payment rate for all TPE programmes from Levels 3 to 6, starting at 0% co-payment for apprenticeships at Level 3 up to a 75% co-payment for Level 6 programmes.
REVISING THE FUNDING AND REGULATORY FRAMEWORK
- RECOMMENDATION 6: The current system of 30 ‘funding bands’ from £1,500 to £27,000 should be replaced by five ‘price groups’ for apprenticeships at Level 3 and higher-level TPE programmes.
- RECOMMENDATION 7: The 10 per cent ‘top up’ invested by government in the HMRC digital accounts of levy-paying employers should be withdrawn.
- RECOMMENDATION 8: Ofsted should be made the sole regulator for any apprenticeships and technical and professional education funded by the new TPE levy, including provision in universities.