Apprenticeship Levy in UK – A substantial shift away from lower-level apprenticeship starts to higher-level starts

The English apprenticeship system has experienced a series of major reforms in recent years, affecting apprenticeship length, quality, level and funding. In particular, the UK government has introduced an Apprenticeship Levy to help fund apprenticeship starts for large employers. Since April 2017, all employers with an annual pay bill of more than £3 million contribute 0.5% of their pay bill in excess of the £3 million threshold to the Apprenticeship Levy. The funds accumulate in a digital account, to which the government adds a 10% top-up, and can be sued to fund new apprenticeships at different levels (from Intermediate apprenticeships to apprenticeships at Higher level) within 24 months of deposit. This paper investigates the impact of the new Apprenticeship Levy on apprenticeship starts and other forms of (non- apprenticeship) training activity.

We combine information from three different data sources, namely: the Individualised Learner Record (ILR, containing information on apprenticeship and other training undertaken); the ONS’ Inter Departmental Business Register (IDBR, containing information on business demographics and characteristics); and the Digital Apprenticeship Service (DAS, containing information from employers’ accounts on Levy contributions and funds spent).

To assess the impact of the Levy, we compare training undertaken in 2015/16 (before the Levy was introduced) with training in 2018/19 (latest available year with data on the Levy) and focus on the evolution of training intensity over time, defined as the ratio apprenticeship starts divided by total enterprise employment. The analysis is undertaken separately for different apprenticeship levels and disaggregated by employer Levy status, employer size and industry sector.

Over the period considered, there was a marked decline in apprenticeship starts at the Intermediate level and (to a lesser extent) at Advanced level, coupled with a rapid increase in Higher level apprenticeship starts (Level 4 and above). However, enterprises paying the Levy generally experienced a positive trend in starts relative to non-Levy enterprises of similar size and sector. In particular, Levy enterprises previously undertaking no apprenticeship training saw a greater increase compared with non-Levy enterprises previously undertaking no training, while those starting with ‘low’/ ‘medium’/ ‘high’ levels of apprenticeship training (based on 2015/16 intensity) experienced a less significant decline in training intensity at lower apprenticeship levels and a greater increase at higher apprenticeship levels when compared with enterprises in the non-Levy group starting from a similar level of training intensity.

Evaluation of the impact is hampered by the design of the Apprenticeship Levy which does not provide a sharp discontinuity between Levy-employers and non-Levy employers (as employers contribute an extra £5,000 in Levy for every additional £1 million pay bill above the threshold of £3 million). Nevertheless, we also focus on just those Levy enterprises closest to the threshold, with annual pay bill up to £8 million (contributing up to £25,000 in 2018/19) and compare them with employers of similar characteristics (based on IDBR information), but not paying the Levy. The results indicate a positive change over time for the Levy group when compared to the non-Levy group, with the magnitude of the training intensity effect ranging between 0.1 and 0.5 percentage points depending on level of apprenticeship and previous training intensity level (starting from average intensity levels in 2016 of around 1 in 100 employees for Intermediate and Advanced Apprenticeships and 0.1 in 100 employees for Higher Apprenticeships across all Levy enterprises in this group). Thus, there is a relative increase in training intensity for employers paying the Levy as compared to the non-Levy counterfactual group. However, there is no evidence that this increase is at the expense of other forms of (non-apprenticeship) training.

Evidence suggests that only a minority of these Levy funds were used in the period 2017- 2019 by employers who pay the Apprenticeship Levy (‘Levy-employers’) to fund apprenticeship training. At the same time, there is evidence suggesting that employers not paying the Levy (‘non-Levy employers’), for which the government pays 95% of training costs, may have encountered difficulties in providing the desired level of apprenticeship starts due a shortage of funds. This would appear to indicate a misalignment in the Levy-based funding mechanism during this period.

In terms of evaluating the impact of the Apprenticeship Levy, there are a number of limitations in the data and analysis undertaken, including the lack of a sharp discontinuity in the policy design, and conflation of the effects of the Levy with various other reforms affecting apprenticeships at the same time as the Levy was introduced. Nevertheless, the evidence in this paper is strongly suggestive of a net positive effect of the Apprenticeship Levy on the number of apprenticeship starts over the period 2015/16 to 2018/19, especially at higher levels Level 4+), with no associated decrease in the provision of other forms of training as a consequence of the implementation of the Levy.

Chosen excerpts by Job Market Monitor. Read the whole story @ The impact of the Apprenticeship Levy on Apprenticeships and other training outcomes