Shortage of levy funds stopping businesses from recruiting apprentices

Report reveals quarter of training providers have turned away prospective business in the last year due to funding issues

A funding shortage from the apprenticeship levy is preventing smaller businesses from taking on apprentices, according to a new report which raises concerns about the impact on diversity in the labour market. 

The shortfall was so great that three quarters (75 per cent) of apprenticeship training providers stated the funding was not sufficient to meet the demand of businesses, meaning they had to turn away employers because they did not have the resources to train apprentices. 

The survey of 235 training providers, conducted by the Association of Employment Learning Providers (AELP), also found a quarter (24 per cent) had to turn away a prospective new SME employer of apprentices in the last year due to lack of funding.

A further 25 per cent reported having to cut back on apprentice recruitment for employers due to funding concerns, and nearly a fifth (17 per cent) of providers stopped recruiting apprentices altogether for new and existing SME employers.

Under the apprenticeship levy, which was introduced in April 2017, employers with payrolls over £3 million are mandated to set aside an equivalent of 0.5 per cent of their annual wage bill for apprenticeship programmes. SMEs do not have to pay into the apprenticeship levy, instead relying on funding left over after larger employers have taken back their entitlement.

The scheme was designed not only to fund apprenticeships started by those employers paying the levy, but also those run by smaller businesses. However, the government has since admitted it underestimated how much of the levy big employers would use. Smaller businesses are less likely to run their training provision in house, and rely instead on training providers.

Prime Minister Boris Johnson promised in early July that apprenticeships under his premiership would be “properly funded” as he considered them indispensable to the economy. 

But Mark Dawe, CEO of the AELP, said the government’s promises to increase funding for apprenticeships were too little, too late and said the “damage is already being done”. 

“The clear message from apprenticeship training providers is that the shortage will become much worse unless the government delivers quickly on Boris Johnson’s funding promise,” Dawe said. 

The AELP survey comes five months after a damning report by the National Audit Office (NAO), which warned that apprenticeship spending could easily outstrip the amounts the levy could raise in future years.

The report also warned the government was unlikely to hit its target of 3 million apprenticeship starts by 2020, and was failing to demonstrate a positive impact on national productivity.

Lizzie Crowley, skills adviser at the CIPD, highlighted that a lack of funding to recruit apprenticeships could impact diversity in training by creating a disparity in who was able to access apprenticeships.

She said SMEs were typically more embedded in their local communities, meaning local young people were likely to be denied access to training. 

“Young people from disadvantaged backgrounds, who need to work locally, can’t afford to travel to bigger cities where bigger employers are providing apprenticeships,” Crowley said. “There’s a problem with access around employers, and this will impact those individuals who are not better off and can’t afford to take opportunities in other places.”

Crowley added that smaller employers had struggled to access training providers and provide apprenticeships for “quite a long time”, calling for more flexibility in how employers are able to spend their levy funding. 

A recent CIPD report found that business spending on workplace training had broadly stagnated since the apprenticeship levy came into force. Nearly half (49 per cent) of levy-paying employers in the survey said the introduction of the levy had no impact on their overall spend on training and apprenticeships, while 9 per cent reported a reduction in spend. 

The CIPD called on the government to replace the levy with a broader training levy that would enable organisations to fund both apprenticeships and other forms of learning and development that might be better suited to their needs and reach a broader section of the workforce.