Employers lose £133m from apprenticeship levy accounts as funds expire

But experts warn the current scheme is unable to cope with demand as not enough unclaimed money is left for smaller businesses

The government has revealed that employers have so far lost access to £133m of apprenticeship levy funds as the rolling deadline for spending the money passed, but experts have warned there is still not enough left over to support non-levy paying SMEs.

In a parliamentary question tabled by MP Catherine McKinnell, Department for Education minister Kemi Badenoch reported that £96m went unclaimed in the last two months alone, with £44m and £52m left over in July and August 2019 respectively.

However, spending the entirety of the funds is supposed to be difficult, as the scheme was designed so large employers wouldn’t use all of it. 

Lizzie Crowley, skills policy adviser at the CIPD, told People Management in January that failure to spend the entirety of an organisation’s apprenticeship levy funding was not necessarily a bad thing for apprenticeships as a whole. 

“If everyone did spend all the levy in their pot, there would actually be no money left for smaller employers to draw down funding to support apprenticeships,” she said.

Businesses with a payroll of £3m or more are obliged to make monthly deposits of 0.5 per cent of their annual pay bill into the apprenticeship levy pot, and are then given a rolling 24-month deadline to spend it. 

If employers do not reclaim their levy payments within the two years, they lose access to the money. As the levy scheme was introduced in April 2017, the first month that funds could have expired was May 2019. These unused funds are then available to SMEs that do not pay the levy to train apprentices.

However, experts have highlighted that there is still not enough left to keep up with demand.

Mark Dawe, chief executive of the Association of Employment and Learning Providers (AELP), said the figures did not tell us anything we “didn’t already know”, and that the levy system as it is currently designed cannot fund demand for apprenticeships from both large levy-paying employers and non-levy paying SMEs. 

“Many SMEs that want to offer places on the programme can’t do so because not enough unused levy money is being returned to reallocate to smaller businesses,” said Dawe.

“Unless the situation is addressed the position will get worse, which is why the government urgently needs to bring back the separate £1.5bn annual apprenticeship budget for non-levy employers that it took away when the levy was introduced.”

A recent survey by the AELP found a significant shortfall in funding, with three-quarters (75 per cent) of apprenticeship training providers stating that 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 poll of 235 providers also found a quarter (24 per cent) had to turn away a prospective new SME employer of apprentices in the last year because of the lack of funding.

The CIPD recently called on the government to replace the apprenticeship 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.

Under the proposals, businesses with 50 or more employees would contribute 0.5 per cent of their payroll – which it estimated would raise £5bn – to plug the shortfall caused by the declining investment in apprenticeships over the past two decades. Larger businesses with more than 250 employees would also contribute 1 per cent of their payroll. 

Crowley added that “with only 2 per cent of employers required to pay the apprenticeship levy, the money raised from it was never going to be enough to close the gap left by the long-term decline in training investment”.

The Resolution Foundation also raised concerns in its latest report that school leavers were being squeezed out of apprenticeships, with lower-level programmes being replaced by higher-level qualifications going to older and more established employees.

The government set a target to hit three million new apprenticeship starts by 2020, and prime minister Boris Johnson pledged that apprenticeships under his premiership would be “properly funded”. However, former education secretary Damien Hinds admitted in June that the three million target was now “out of reach”.