Overspent and lacking purpose. What to do with the Apprenticeship Levy?

2020 needs to be the year where we decide the future of the Apprenticeship Levy. What does the Government need to do to revive this crucial training pathway?

As Head of Education at the Confederation of British Industry (CBI), my time was dominated by trying to make the Apprenticeship Levy work, writes John Cope, now Deputy Director at Public First. My work in this field led me to one conclusion: we need to hit pause and have a proper debate about what the Levy is trying to achieve.

I am certainly not saying the Levy has been a failure. Rewind to when it was launched and its purpose was clear: plug a hole in the Department for Education’s budget and keep the foot down to continue the amazing growth in apprenticeships since 2010. The aims were solid and necessary to ensure technical education and apprenticeships continue to be a great start to a career. Importantly, the Levy has rightly held employers’ feet to the fire, forcing them to invest much more in training and to debate their recruitment strategies. Based on these measures, it’s been a success.

However, two years on from its introduction, apprenticeship starts are becoming increasingly subdued and young people are losing out the most. The Levy has counterintuitively become overspent (yes … really) meaning funds are now being rationed for smaller firms, and questions are being asked about whether it really ought to be used for middle and senior managers to benefit from degree level apprenticeships. About a quarter of employers write the Levy off as a tax, according to CBI data, with many others grumbling, with some justification, about bureaucracy and lack of apprenticeship providers. So, how do we square this circle? The Levy is bureaucratic and expensive and isn’t delivering the number of apprentices it set out to achieve. One thing is for sure, 2020 needs to be the year we decide the future of the Levy.

“The Levy is bureaucratic and expensive and isn’t delivering the number of apprentices it set out to achieve” – John Cope, Deputy Director, Public First

Finding a way forward

If I were Chancellor of the Exchequer, what would I announce in the March Budget? This is the question I’m mulling over at Public First, the education consultancy I’ve recently joined. Levy reform is heavy on the minds of many of our clients and is clearly a policy area in need of attention.

Start with transparency

Firstly, I would come clean about what’s going on with the Levy. I would explain how it’s possible for employers to read in the news that the Levy is overspent, but then to look at their Levy account and see unspent funds. I would see my moment at the despatch box as a chance to do what should have been done from the start. That is, explain how the levy system works, what is being funded, how contributions are being spent and what the huge growth in degree apprenticeship means. I would even highlight how big businesses, that pay the Levy, inadvertently subsidise smaller businesses when they hire apprentices, without even realising what the money is being spent on. This would mean confirming, from the despatch box, that a reasonable forecast of the Levy has it running out of cash within approximately two years. Change is, therefore, inevitable.

Beef-up the Institute for Apprenticeships

Secondly, I would task the Institute for Apprenticeships with making the apprenticeship system more user-friendly, whether that involves helping smaller businesses or slashing bureaucracy. This would require the Institute having the budget to engage properly with employers and apprentices across the country to understand their concerns. For this to be successful, in-depth data analysis, impact modelling, focus groups and behavioural insights would all be required.

I would also give the Institute much more power and independence. For example, they should have a role in setting the apprentice minimum wage and be able to offer flexibility on the 20-per-cent-off-the-job rule if it’s in the best interest of the apprentice. The Institute also needs to be able to bring proper coherence to technical education, assessing how many apprenticeship standards constitutes enough, whether T Levels (two-year courses equivalent to three A Levels) will make lower level apprenticeships a thing of the past, how T Levels and apprenticeships will interact, and where “traineeships” fit into all of this.

Plugging the financial gap

Thirdly, I would introduce an immediate cash top-up to the Levy so employers can continue using the scheme in the short to medium term to take on apprentices of all ages and skill levels. Without this, the impending overspend will undermine confidence in the apprenticeships’ brand with the potential, if it continues, to make employers rethink their programmes entirely.

“I would introduce an immediate cash top-up to the Levy so employers can continue using the scheme in the short to medium term” – John Cope, Deputy Director, Public First

Agree the future of the Levy

Finally, with a greater transparency around the overspend, a beefed-up Institute for Apprenticeships and a top-up to deal with the immediate financial pressures, I would have the breathing space as Chancellor to launch a proper public consultation on the future of the Levy. Only this will give us a chance to get reform right. Just announcing a solution would be disaster, given every business has implemented its Levy programme in a different way, with some focusing on lower-level entry routes, others upskilling middle management, and others retraining people as automation or artificial intelligence replaces roles. This diversity means any blunt reform would unfairly pull the rug from under employers and apprentices alike.

This consultation needs to ask what the Levy is trying to achieve. Is it about getting young people into their first job, retraining people into a new job, upskilling senior managers, or supporting sectors of the economy that struggle to recruit, including logistics and haulage? Currently, we are trying to do all of these things with a small pot of money and no strategy.