The conservative government reformed the apprenticeship system in 2017. They introduced new Apprenticeship Standards and reformed the funding formula known as the Apprenticeship Levy. The levy is paid by employers and then stored in a fund that can be accessed to pay for apprenticeship training costs. It applies to companies with a payroll of more than £3 million and the levy funds are topped up each month with a 10% government contribution. But, in 2020, the All-Party Parliamentary Group (APPG) raised concerns about the uptake and delivery of apprenticeships and recommended greater investment in apprenticeships across the UK workplace to close the skills gap.
Research undertaken by Onward thinktank suggests that the apprenticeship starts have tumbled since the levy came into force in 2017/18. The year prior, the total number of starts was 494,900. In 2017/18, the total starts went down to 375,800 apprentices, 120,000 less than the previous year. Although the apprenticeship starts for 2021/22 are higher than the previous two pandemic years, they are still 11.2% lower than the pre-pandemic level.
This decline seems to be based on a reduction in the number of young apprentices at entry or intermediate levels (Level 2). The number has fallen by more than half since 2011 while the number of older apprentices for higher-level courses has increased. There are now nearly twice as many over-25-year-olds doing apprenticeships compared to 16 to 18-year-olds, the opposite to 2008.
There is also an economic dimension to the problem. The greatest increases in the number of people doing apprenticeships have occurred in wealthy parts of London such as Battersea, Wimbledon, Chelsea, and Fulham. The decline has been particularly pronounced in places where apprenticeships have historically mattered more. Every constituency in the North of England has seen apprenticeship starts drop compared to 2011, except for Haltemprice & Howden and Leeds Northeast. Young people in the Midlands and the North have suffered the most. Starts in Red Wall constituencies fell by a third.
The key issues since the reform in 2017 are that small businesses are taking fewer apprentices and that large businesses are using levy funds to re-train existing employees in higher-level professional courses rather than bringing in new young talents. Such imbalance matters in levelling up economic opportunities for people and places who have been left behind. The decline in entry and intermediate-level apprentices is a particular hindrance to any levelling up agenda.
Focusing on the SME side of the problem: the bureaucratic complexity around standards does not entice small businesses to invest in young people. The number of apprenticeships starts in SMEs has almost halved since 2015. There was a massive underspend of T Level employer cash incentives for SMEs. Shockingly, just £500k out of £7 million was used – 8% of the total budget. The grants supported only 843 placements against a target of 32,466.
Public spending on apprenticeships has generally been significantly over-budgeted and mismanaged. In 2019/20, the funding was set to rise to over £2.5 billion. In 2020/21, it was set to hit £4.1 billion. This year, £2 billion of the underspent levy was returned to the Treasury. In 2019/20, only 45% achieved the required standards. In 2020/21 the figure improved to 58%. Last summer, Skills Minister Alex Burghart announced a set of new packages to improve the achievement target to 67% by 2025, but with no clear strategy on how to improve the starts of apprenticeships or achieve the targets.
There is now a growing recognition that academic routes do not always work – either for economic benefit or for individual career progress. Some 36% of UK graduates are employed in non-graduate jobs. Some 46% of parents of school-aged children would prefer their child to pursue an apprenticeship, compared with 33% who chose a university degree. Hence, it is imperative that apprenticeship programmes for 16-18 year olds that are equivalent to A-levels are fully funded in the same way A-level courses are funded.
Evidently, working-class school leavers in poorer places need a decent alternative to university. In conjunction with local SMEs, the city mayors can play a significant role to publicise and recruit those young people. Hence, the mayors need more power, responsibility, and accountability to drive apprenticeship starts. It is vital that an apprenticeship levy database be made available breaking down the amount, allocation, and geographical profile of the funding at the lowest possible level. This would make it easier for levy-paying businesses to take on new recruits.
As a Labour government, we will need to widen the apprenticeship levy, bring back the Education Maintenance Allowance (EMA), and roll out further devolution. We will also need to offer a pathway for students to discover opportunities in Science, Technology, Engineering, and Manufacturing (STEM). The UK economy loses around £1.5bn per year due to a lack of Maths and STEM skills. All apprentices at level 2 qualifications are to be given the right to progress to a level 3 advanced apprenticeship. The 25% limit on transferring levy funds set by the Tory government should be lifted to make it easier for smaller firms to access the levy. Perhaps, we need to wait for further light from Labour Thinktanks on how the funding for this new system would work. In the meantime, we need to come together to challenge the status quo and inspire young people to acquire relevant skills in an ever-changing work landscape.