Half of large firms yet to spend apprenticeship levy pot

Experts call for next government to offer greater flexibility, and warn of demand outstripping supply among SMEs despite low take-up elsewhere

Almost half of companies required to set aside money for training under the apprenticeship levy have not spent any of their funds so far, a survey has found. 

Of the 510 businesses polled by accountancy firm Grant Thornton, 45 per cent were yet to spend any of their apprenticeship levy pot. 

The research also found that 27 per cent were unclear what benefits an apprentice could bring to their organisation, reflecting an opinion among some that the levy equates to a ‘tax’ rather than an opportunity to upskill and recruit staff. 

Kirstie Donnelly, managing director of City & Guilds group, said the findings did not come as a surprise. She pointed to City & Guilds research, which found 95 per cent of levy-paying employers did not spend their whole allowance in the first year. 

“Post-election, the new government should apply more ‘carrot’ and less ‘stick’ and give greater flexibility to employers in the apprenticeship system, allowing them to exercise choice – within a clear set of parameters – in how they spend the levy,” she said. 

To encourage uptake, Donnelly said the system needed to “apply more trust and freedom in the way employers can operate”.

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Under the apprenticeship levy, employers that spend more than £3m per year on wages are required to pay in funds equivalent to 0.5 per cent of their annual pay bill. This ‘pot’ is set aside to fund the training and development of staff. But if unspent after two years, companies lose the funds and the money becomes available to smaller businesses. 

As the levy scheme was introduced in April 2017, the first round of funds expired in May 2019. 

The Grant Thornton research follows mounting concerns that where levy funding is spent, it is too focused on developing already highly skilled, senior employees rather than providing entry-level training. 

The National Audit Office has previously reported that employers often invest apprenticeship levy funds in higher or management-level apprenticeships, and the City & Guilds group found firms often used the funds on ‘rebadged’ existing training schemes.  

Lizzie Crowley, skills adviser at the CIPD, confirmed “that employers are spending [the levy] on their senior staff, on incredibly expensive programmes such as MBAs”. 

“That was not the ambition or the vision behind the programme, and it is concerning,” she said. 

Also of concern was the fact that, despite a lack of uptake among many, the overall apprenticeship levy fund was running low because of high demand among smaller businesses now able to access the unspent money.

While the number of businesses reporting they hadn’t spent any of their levy allowance was worrying, Crowley said it was important to recognise that the government never expected levy-paying companies to make use of all the money.

John Cope, CBI head of education and skills policy, said: “The elephant in the room remains the fact the levy itself is increasingly overspent, at the same time as levy payers still [struggling] to spend their funds on apprentices – how this is possible at the same time must be explained as a matter of urgency.”

He too urged the next government to reassess the levy, saying “greater transparency will allow the next government to hold a full public consultation on the long-term future of the levy, including a close look at the growth of degree apprenticeships”.

The three main political parties have made manifesto pledges to reform the apprenticeship levy in some way, ahead of the general election on Thursday 12 December.