Smaller firms ‘shunning apprenticeships’ because of levy, says survey

Businesses struggling with recruitment and costs even where they are not paying levy directly

Smaller firms ‘shunning apprenticeships’ because of levy, says survey

The introduction of the apprenticeship levy has had a negative impact on a significant number of small businesses even though many are not required to pay it, according to a survey which has prompted renewed calls for reform to the system.

The poll, conducted by the Federation of Small Businesses (FSB), found the system was viewed as costly and inflexible, had led to problems recruiting apprentices and may have caused firms to shun apprenticeships altogether. 

Out of 1,665 small businesses surveyed, 27 per cent of those that employed apprentices both before and after the levy system came into effect said the changes had a negative impact.

The study found recruitment was the biggest challenge for these businesses when it came to engaging apprentices, with 42 per cent of respondents citing it as a problem.

This was followed by time management (29 per cent) and the requirement that apprentices spend 20 per cent of their time on off-the-job training (24 per cent).

More than one in four (41 per cent) reported that costs related to recruiting and training apprentices had increased.

The report did not provide further details regarding how many respondents believed the levy to be a positive development.

Mike Cherry, FSB chairman, warned many small businesses were moving away from apprenticeships despite positive changes to the levy system such as the reduction of co-investment requirements.

“Our research shows that many small firms are turning away from apprenticeships, with some of the 2017 reforms being the cause. Changes like the explicit requirement for a minimum of 20 per cent off-the-job training are causing real headaches,” he said.

Cherry added that the recent changes to co-investment requirements – which saw the amount non-levy paying employers contribute to apprenticeship schemes drop from 10 to 5 per cent – were a positive step, and said more support like this was needed.

The report also criticised the levy for failing to increase the number of school leavers choosing apprenticeships as a pathway into work, and said small businesses played an important role in promoting social mobility.

It said smaller firms were disproportionately responsible for providing lower level programmes, with 87 per cent of apprenticeships offered by small businesses at Level 2 or Level 3.

The report echoes recent findings by City & Guilds that most levy-paying organisations were not spending their funds on new apprenticeships, calling into question whether the money was being spent the way it was intended.

The group found just £268 million of the £2.01 billion collected from employers during 2017/18 was spent by levy-paying businesses on apprentices, suggesting the money was largely being put towards “rebadged” training.

The FSB has called for small businesses to be given more control over how non-levy apprenticeship funding is used through the government’s Apprenticeship Service, and for a “matching service” to be created to support levy-paying organisations to find small businesses to make use of their unspent funds.