Employers lose £2bn in unspent apprenticeship levy funds in two years, research finds

CIPD warns skills reforms promised in today’s Queen’s speech will be ‘fatally undermined’ without levy reform

Employers have missed out on billions of pounds’ worth of apprenticeship levy funds over the last two years, research by the CIPD has found. 

A series of freedom of information requests by the professional body has found nearly £2bn of employers’ levy funds expired and was returned to the Treasury between May 2019 and March 2021 because employers were unable to spend the money themselves on apprenticeships.

At the same time, analysis from the CIPD found businesses doubled the amount they were spending on generic management apprenticeships, while the number of apprenticeships going to young people under the age of 19 fell by 8 per cent.

Between 2017-18 and 2018-19, employers spent £378m on just four generic management apprenticeship standards in attempts to use their levy funds, the CIPD said.

The apprenticeship levy, which was introduced in 2017 to improve the provision of apprenticeships as an alternative to university, takes 0.5 per cent of the salary bill from all employers that spend more than £3m annually on wages. The government tops this up by 10 per cent, and the fund is kept for that employer to use on apprenticeships.

Funds that aren’t used by the employer within two years expire and are passed back to the government.

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The findings come as the government has pledged to “revolutionise” the UK’s post-16 and adult education and training system as part of its legislative agenda outlined in the Queen’s speech today.

The changes – some of which have already been announced as part of prime minister Boris Johnson’s ‘lifetime skills guarantee’ – include giving employers a statutory role in planning publicly funded training programmes and will make the student loans system more flexible.

However, Ben Willmott, head of public policy at the CIPD, said any reforms to the UK’s skills and training infrastructure would be undermined without any change to the apprenticeship levy system.

“The government’s ambition to revamp the further education system by boosting employer engagement with local colleges and investment in adult skills is exactly right, but will be fatally undermined unless the apprenticeship levy is reformed,” Willmott said.

Willmott added that turning the apprenticeship levy pot into a more flexible fund would allow firms to invest in other forms of training and development more suitable for existing and often older employees.

“Developing the skills of managers to manage people is an absolute priority for all organisations, but there are much more cost effective and flexible forms of training to achieve this than through management apprenticeships,” he said.

This was echoed by Matthew Percival, people and skills director at the Confederation of British Industry, who said the current levy system was “locking away” training budgets and making it harder for businesses to invest in their workers.

“The results are growing skills shortages and fewer opportunities to learn,” he said. “The apprenticeship levy needs to be replaced with a skills levy that challenges every employer to invest more in training.”

However, Jane Hickie, chief executive of the Association of Employment and Learning Providers, said it was no surprise the levy pot had been underspent given the impact coronavirus restrictions have had on businesses.

“Of course the levy was going to be underspent when workplaces have been closed for almost a year,” she said. “but we are now seeing encouraging signs of life for our flagship skills programme.

“Therefore, ministers are absolutely right to resist calls for levy funding to be used for other purposes especially when unused levy is meant to fund apprenticeships offered by non-levy paying SMEs.”

Earlier this year, CIPD research revealed overall employer investment in apprenticeships, including for young people, and in skills more widely has fallen since the levy was introduced.

Laura-Jane Rawlings, chief executive officer of Youth Employment UK, described the levy as a “wasted opportunity” for young people.

“When done well, apprenticeships create a ladder of opportunity and can address some of the biggest issues around social mobility and diversity – which is why it is frustrating to see that the levy hasn’t had the desired result,” she said.

“Had the levy been used in the right way, it could certainly have had an impact on youth employment and the skills agenda. These last few years feel like wasted opportunity.”