One year on: what’s happening with the Apprenticeship Levy?

6 April 2018

The Apprenticeship Levy is now one year old. That’s long enough to gain some insight into its effects, though too early to make a full judgment. Some argue that large drops in apprenticeship starts are evidence of a failing system, others that these are teething troubles and quality is rising. So here’s what the data tells us and some thoughts on what should happen next.

  1. Is the Levy increasing employer investment in training?

Insufficient evidence at present. The Levy should mean more investment in apprenticeships, perhaps around £1bn per year more than previously. However, overall employer investment will not increase if this displaces existing training. There’s some anecdotal evidence of this happening, particularly for higher apprenticeships in management. But to know for sure we need the government to continue running the Employer Skills Survey which gives wider measures of employer investment. Some displacement may be welcome if the new apprenticeships are of a higher quality than previous training. But the policy goal is surely to increase overall investment in training, and of course SMEs (the bulk of businesses) don’t pay the Levy.

  1. Is the quality of apprenticeship training rising?

Insufficient evidence at present. The Government now argues that the fall in starts since the Levy’s introduction is partly due to a rise in quality. It points to growth in the share of apprenticeships made up of Higher and Advanced Apprenticeships, suggesting these are where the biggest productivity gains are to be had. It is certainly true that Advanced and Higher Apprenticeships have higher wage returns on average (though we need to see data over time for the new standards). But this doesn’t mean that Intermediate Apprenticeships don’t have economic value or aren’t a necessary rung in the ladder for many. Data on outcomes (see below) is essential for us to answer that question. It’s worth also saying that, while controversial in some quarters, a minimum one year duration and 20% off the job training are if anything relatively low compared to other countries.

  1. Does everyone have fair access to an apprenticeship opportunity?

No. Our research shows BAME groups are under-represented and gender segregation is high (in 2014/15 only 600 of 17,500 engineering apprentices were female). The Social Mobility Commission found that young people not eligible for Free School Meals were twice as likely to get Level 3 apprenticeships in some parts of the country. As currently structured, the Levy provides too little incentive or support for providers to engage with under-represented groups, and funding streams for support are overly complex.

  1. Will the Government hit its target of three million apprenticeship starts by 2020?

Currently no, but maybe yes. Apprenticeship starts are down significantly (between 30% and 60%) compared to last year for every month of Levy data we have. Every month of lower performance adds to the gap that needs to be made up and reduces the time to make it up. On current trends this means the Government would miss its target. But current trends are not likely to continue. New systems always take time to settle in, and employers will surely look to spend more of their Levy funding before it expires after two years. This is likely to lead to a spike of starts from September 2018 on – this will not be a sign of the triumph of the Levy, just as current falls in starts are not a sign of fundamental failure.

Where next?

Focus on outcomes. We’ve argued for annual data on outcomes, including the long-term earnings and employment of apprentices, to be published. These outcomes matter more than an arbitrary starts target, otherwise we risk hitting (or missing) the target but missing the point. Speaking of earnings, our survey showed one in four current or recent employers of apprentices doesn’t know the National Minimum Wage rules. We need to simplify the rules, ensure apprentices and employers know what they are, and then enforce them.

Boost quality and target effort. We’ve argued the new standards should be benchmarked against the best in the world, as well as approved by employer groups. We’d also like to see a greater push (in policy, funding and delivery) for growth in apprenticeships for young people. We predicted the OBR’s recent downgrade in the amount the Levy will raise, and think that the apprenticeship budget and amount available for SMEs should be underpinned over the economic cycle.

Widen access. Everyone who can benefit from an apprenticeship should be able to access one. This needs reforms to funding, including our idea of an Apprentice Premium to draw together existing fragmented and complex funding streams. This needs to be alongside action on the ground to integrate support and engage employers, including focusing on clearer pathways to apprenticeships such as Traineeships.

Lifelong learning strategy. Apprenticeships are important, but there’s more to life than them. The absence of any other workforce development route encourages government and employers to shoehorn everything into being an apprenticeship. So we need to develop other routes and this needs to be in the context of a lifelong learning strategy that sets out how the pieces of the jigsaw fit together.

The Levy is a genuinely bold policy. It’s something we support. The challenge now is to refine it so it works for people and employers.