News 92 per cent of apprenticeship levy funds were not spent within first year

Open University analysis finds £1.28bn remains in digital accounts, as experts call for improvements to system

Just 8 per cent of apprenticeship levy funds have been spent in the 10 months since the scheme’s launch, with £1.28bn of £1.39bn paid in by businesses “sitting unused” in accounts, according to an Open University analysis.

Since 6 April 2017, organisations with an annual wage bill of more than £3m have been required to pay an apprenticeship levy to the Education and Skills Funding Agency (ESFA), which companies can then recoup from a digital account administered by the National Apprenticeship Service, to be spent within two years (24 months).

With the scheme a year old, a freedom of information request to the ESFA by The Open University (OU) has revealed that £108m of funds were withdrawn between 6 April 2017 and the end of February 2018 – roughly 8 per cent of the total paid to the government account.

Under the new scheme, eligible organisations must register their own apprenticeship accounts with ESFA under a PAYE scheme.

The figures have reignited concerns that organisations could be writing the levy off as a tax and will choose not to spend it. In a report released today by the OU, The Apprenticeship Levy: One Year On, 40 per cent of business leaders reported treating the levy as a tax, while almost one in five (17 per cent) said they had no expectation of recouping their funds.

The Department for Education and Skills today confirmed these figures to People Management.

Apprenticeships and skills minister Anne Milton, however, emphasised that a key aspect of the low uptake to date was the time it takes organisations to set up an apprenticeship levy system. “I’ve met lots of businesses up and down the country that have already kick-started amazing apprenticeship programmes and are using their levy funds to help change lives and get the skills they need,” she said.

“It has taken some businesses longer to get going on their apprenticeship programmes using the levy, while many that I have met are forging ahead growing the numbers of apprentices within their businesses, getting a skilled and loyal workforce.”

Simon Ashworth, chief policy officer at the Association of Employment and Learning Providers, was positive about the outlook, telling People Management that levy-payers knew there was a two-year funding window.

“We don’t recognise the gloomy picture that this report paints and remain convinced that the levy will be a success,” he said.

“Our training provider members tell us that the levy-payers they are supporting are well aware of the two-year window in which to utilise their funding, and are strategically planning the roll-out of their apprenticeship programmes accordingly.”

Jake Tween, head of apprenticeships at the Institute of Leadership and Management, said wholesale changes to levy spending should be resisted, despite the low numbers. But he added that the government should be looking for ways to encourage employers to take on apprentices.

“We are in the midst of a period of unprecedented reform and we need to display resolve,” he said. “But the government should absolutely be looking for incremental changes and tweaks that will make it easier – and more attractive – for employers to take on apprentices,” he told People Management.

“For example, the Department for Education should consider an extended grace period for levy-paying employers, allowing them to use existing funds for an extra 12 months, taking them to April 2020 before funds are clawed back.”

With 119,500 apprenticeship commitments entered into the service before the end of January, the OU anticipates that levy spend will increase significantly throughout 2018.

But experts said the system could still benefit from improvements, with David Willett, OU corporate director, calling on the apprenticeship industry to ensure employers get a return on their investment.

“We appreciate there have been some teething issues, but we’re here to help business leaders work through them and develop programmes that best fit their needs, allowing them to fill skills gaps and future-proof their organisations against the changing world around them,” he said.

“The lack of flexibility needs to be urgently addressed to ensure that organisations get value for money, and we think that modular apprenticeships, which allow organisations to develop tailor-made programmes that fit their specific needs, could be an attractive solution for both employers and the UK government.”

Employers have previously called out aspects of the levy, including the ESFA requirement for 20 per cent off-the-job training, as problematic, with 11 per cent of organisations surveyed by the OU saying management of the apprenticeship process is “a full-time job we just can’t afford”.

A government commitment to greater flexibility could be central to improving levy spend, Ashworth added. “The numbers could be better if there was more flexibility around the off-the-job rules and if the introduction of new standards and the accompanying end point assessment arrangements was happening faster,” he said.

“Many employers are still waiting for the apprenticeship programme they specifically want to be available to spend their levy on,” said Ashworth. “We have also made it clear to the government that the absence of proper end point assessment for many standards has the making of a car crash unless action is taken quickly.”

The government aims to deliver three million apprenticeship starts by 2020.