Politics & Policies

Apprenticeship Levy in UK – Assessing the early impact from an employers’ perspective

The purpose of this research is to understand the early impact of the apprenticeship levy on employer behaviour and assess the likely future impact on the quality and quantity of apprenticeships, as well as on broader investment in workforce skills development and training.

Before summarising the key findings, it’s important to note that there is still considerable confusion and uncertainty amongst employers about the apprenticeship levy. Over a fifth (22%) of employers surveyed still don’t know whether they are liable to pay the levy or not – worryingly, larger employers are more likely to report they don’t know whether they will pay it or not (30%) – while one in eight of those who will pay the levy report that they have still not calculated what it will cost them.

This means that, while it is still too early to assess the long-term impact of the levy on both apprenticeships and overall employer investment in workforce training and development, the research provides some indications of the likely direction of travel.

The likely impact on the quantity, quality and accessibility of apprenticeships, as well as the overall impact on workforce training and development, are discussed below. This is followed by a series of recommendations to improve the operation of the system.

1 Impact on overall number of apprenticeships

The employer survey suggests that the levy will help meet the Government’s objective of driving up the overall number of apprenticeships, with the majority (73%) of organisations expecting to use the levy money to either expand or develop apprenticeship programmes – although it is unclear if this increase will be sufficient to meet the target of 3 million. However, it should be of concern that almost a quarter of employers do not expect to use the levy to expand or develop an apprenticeship programme. This is considerably higher amongst levy- paying SMEs, where over a third report that they will write the levy off as a tax.

However, while the employer survey suggests that the levy will help drive up apprenticeship numbers in levy-paying organisations, it is unclear what the reforms will mean for non-levy-payers (who form the bulk of UK businesses). Non- levy-paying organisations (those with 50 or more employees but a salary bill of less than £3 million) have to co-fund off-the-job training (that is, contribute 10%), which is a significant change in incentives – in 2015, only just over a quarter (27%) of employers paid fees to a training provider for apprentices’ training.17 Indeed, this could be one factor driving the collapse of 59% in overall apprentice starts compared with this time last year.

We have previously argued that there is an inherent contradiction between an arbitrary target set by government and a training system where volumes and levels are supposed to be based on demand from employers. However, while we feel the target is unhelpful and could risk driving quantity over quality, we believe there is a need to do more to raise awareness of the apprenticeship levy and to increase SME engagement with the system.

2 Impact on quality of apprenticeships

The Government has consistently stressed that it wants to drive up the quality of apprenticeships with the ultimate aim of achieving a parity of esteem between higher education and apprenticeship pathways. Yet, at the moment over half of apprenticeship starts are at level 2, which offer substantially lower wage returns compared with level 3 and above. The survey results suggest that for those that pay it, the levy will have limited impact on the numbers of organisations offering higher-level apprenticeships, with equal proportions reporting that they would increase the quantity of level 2 apprenticeships and decrease the quantity of level 3 and vice versa (17% and 18% respectively), and a third reporting that there would be no change.

In quality terms there are concerns that a large number of the new employer-led apprenticeship standards are narrow and overlapping, restricting the extent to which apprentices gain transferable skills. Further concerns have been raised around the removal of the requirement for apprenticeships to include specified vocational qualifications, which may weaken the ability of apprentices to signal their learning to other employers. In fact, it has been reported that over a third of new apprenticeship standards approved for delivery involve no funded qualifications other than a final assessment. Others have also highlighted differences between our system and the ‘best’ international comparators; for instance, in most other countries the minimum legal duration is at least two years, whereas in England it is only 12 months.

We have previously argued that issues around quality are compounded in the UK, and in particular in England, by the lack of an institutional framework and industry-led institutions that can support collective commitment to skills and apprenticeships.

An increasingly employer-led system, in this context, means that demand is often weak and poorly articulated and is driven by the needs of individual employers rather than addressing sector- wide skills gaps/shortages. The system as it stands will work well for sectors which have strong occupational identities and collective commitment to train – but sectors lacking this may drive employers to focus on low-level qualifications and high volume to recoup monies. There is a clear need to develop strong institutions to take a role in better articulating demand to shape provision.

3 Impact on access to apprenticeships for different groups

In other countries, apprenticeships are primarily a route into the labour market for young people; in the UK, on the other hand, apprenticeships are open to all ages, with the majority of apprenticeship starts going to those aged 19 or older.

The IFS has expressed concerns that recent changes to the funding regime will further incentivise employers to take on older apprentices. Alongside this, there are concerns that the current system is not offering a strong enough route into the labour market for new, or returning, entrants: two-thirds of level 2 and level 3 apprentices were already working for their employer when they started their apprenticeship.

This research supports these concerns and indicates that the funding reforms and apprenticeship levy are likely to shift the pattern of provision even more towards existing employees and older apprenticeships, albeit marginally. A higher proportion of organisations agree that the changes will mean it is more likely they offer apprenticeships to existing employees (35%) compared with those who state they will more likely offer to new recruits (25%), while a slightly higher proportion of organisations would be more likely to offer apprenticeships to 19–24-year-olds (19%), compared with 16–18-year-olds (15%).

Alongside access for young people in general, there are also particular issues for young people from disadvantaged backgrounds and those from black, Asian and minority ethnic (BAME) backgrounds. For instance, in some areas young people eligible for free school meals (FSM), compared with non-FSM, are half as likely to undertake an apprenticeship
at level 3, those from BAME backgrounds are underrepresented, and female apprentices are much more likely to be concentrated in low-wage sectors with limited progression opportunities.

Chosen excerpts by Job Market Monitor. Read the whole story at Assessing the early impact of the apprenticeship levy – employers’ perspective | CIPD

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