Half of firms have returned unspent apprenticeship levy funds, poll finds

Experts say a more flexible system would increase investment in skills at a time when shortages are ‘blighting’ many sectors

Experts have renewed calls to reform the apprenticeship levy as a survey of employers has revealed nearly half returned unspent funds to the Treasury.

The poll of more than 500 HR professionals, conducted by Survation on behalf of London First, found 48 per cent had returned unspent apprenticeship levy funding compared to 52 per cent who have not. 

The research, which also asked about employers’ opinions of the levy system, found that less than one in five (17 per cent) felt it was currently working well.

Responding to the survey, Lizzie Crowley, senior skills adviser at the CIPD, said the levy system had “clearly failed”. “Instead of boosting the provision of apprenticeships, the number of starts has collapsed and employer investment in training remains low by international standards,” she said.

Crowley said that while apprenticeships were a great way to develop a skilled workforce, they were not always the “most effective or efficient” way to reskill or upskill employees. “We would like to see the levy reformed into a more flexible training levy that gives employers greater choice in how they develop existing staff and is more suited to their needs,” she said.

“This would help to increase employer investment in skills at a time when skills shortages are blighting many sectors,” said Crowley.

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The levy system was introduced in 2017 to improve the provision of apprenticeships as an alternative to university. Employers with a payroll bill of more than £3m annually are required to pay 0.5 per cent of that bill into the scheme, which the government then tops up by 10 per cent.

Employers can use that fund to pay for accredited apprenticeship courses, and larger employers are also allowed to spend some of their funds on their supply chain. Funds that aren’t used by the employer within two years expire and are passed back to the government. 

However, according to the London First poll, a third (35 per cent) of businesses felt that the apprenticeship levy funds could be better used if the deadline for spending levy funds was extended from two to three years.

The same percentage said the levy would be more useful if employers were allowed to use some of the levy to contribute towards the wage costs of new apprentices, while 35 per cent also said employers should be incentivised to convert Kickstart placements into apprenticeships.

A quarter (25 per cent) of respondents said the levy funds could be better used if larger employers were able to transfer more funds to SMEs, while two in five (41 per cent) said increasing the amount they could transfer would make them more likely to do so.

Simon Ashworth, director of policy at the Association of Employment and Learning Providers (AELP), said making apprenticeships more accessible for smaller employers would reduce the amount of underspend being returned to the Treasury.

“Any unspent apprenticeship system funding should be used to extend and expand incentive schemes to support the recruitment of new apprentices under the age of 25,” he said.