Apprenticeships – unlocking the opportunity

18th July 2022
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The Apprenticeship Levy was introduced to create long-term sustainable funding for apprenticeships and to empower employers to provide staff with a range of training opportunities.

All UK employers with an annual PAYE bill of over £3 million contribute 0.5% of their monthly pay bill towards the levy, which can then be used on apprenticeship training costs (excluding apprentice salaries). If employers do not use their funds within two years, funds ‘expire’ and are handed back to the Treasury.

Since the introduction of the levy, we have closely tracked apprenticeship trends, particularly employers’ uptake and fund expiry. We have found that while HMRC receives nearly £3 billion from levy payers each year, employers have consistently underutilised funds.

Since May 2017, £12.2 billion has been collected, yet only £3.9 billion has been spent on training and a further £3.3 billion handed back to the Treasury. With £5 billion of remaining unspent funds as of March 2022, the levy presents employers with an opportunity to reskill and upskill their workforce, and training providers with an attractive growth potential.

Apprenticeship starts declined following the introduction of the levy

When the levy was introduced in 2017, the number of apprentices initially decreased across the UK as employers and training providers transitioned to the new system. Figures from the Department for Education (DfE) show that the impact was particularly noticeable in some occupational sectors – health and social care fell 67% compared to a market-wide drop of 24%.

Apprenticeships have traditionally been associated with younger people entering vocational career paths. The new levy system broadened the potential remit of apprenticeships. Despite the new system allowing greater flexibility, some levy payers have taken time to understand how apprenticeships might be relevant for their industry and workforce.

Employers took time to overcome perceived structural barriers

The Employer Skills Survey 2019 showed that 62% of employers claimed that there were structural barriers preventing them from using apprenticeships. A previous hurdle has been the requirement for apprentices to have 20% off-the-job training, though new funding rules for academic year 2022/23 propose adjusting this to six hours per week. While this is often viewed as a requirement for apprentices to spend time out of the business (e.g. a day a week at college), there are a range of activities employees can perform that adhere to this requirement while still being productive for employers. Supporting other functions within the same business, or gaining experience on anything outside of the apprentice’s immediate job description, can count towards this training requirement.

Other reasons cited for lower adoption include an active decision not to offer apprenticeships (32%) and a lack of awareness of the scheme (9%).

As a result, proactive training providers have played an important role in educating employers on how to ‘unlock’ levy funds.

Levy spend has lagged behind contributions – though spend is now >£100m per month

More recently, however, businesses have begun to see the levy as a strategic priority. As levy funds started to ‘expire’ in May 2019, there was an uptick in employer spend per month, reflecting internal pressures from Finance Directors and CFOs to maximise usage. Despite this, spend remains considerably lower than contributions and according to the DfE, as of March 2022, 30% of levy payers are yet to register apprenticeship service accounts, suggesting further headroom for uptake.

Today, we see a wide range of businesses paying into the levy and investing in apprenticeships, including the NHS, professional and financial services, health and social care, engineering and many more.

There are a growing number of ‘high value’ levy employers, with close to 4,000 firms paying more than £100,000 towards it per year, and around 600 paying more than £1 million per year as at May 2022. Many of these employers are utilising the levy to support longer-term recruitment and skill requirements.

The levy presents an opportunity for businesses to reconfigure the workforce and bridge the current skills gaps. Apprenticeships in priority skills areas (such as digital and technology) have experienced strong growth in particular.

Higher level and degree apprenticeships are growing

The apprenticeship levy is an employer-led system, with employers forming trailblazer groups to design programmes fit for their needs. This has expanded the pool of employees that apprenticeships can apply to, with over 650 programmes now available to organisations, from highly specialised profession-related training to generalist skills (such as leadership). As of June 2022, a further 50 were currently in development, reflecting employer involvement in designing the system to meet their needs.

This shift to an employer-led system has resulted in an increase in higher-level programmes as businesses are able to use apprenticeships to upskill their existing workforce as well as train new recruits. Degree apprenticeships in particular are increasingly attractive as student finance is more expensive. These apprenticeships typically have higher funding available, presenting greater value to training providers and employers, though some courses (such as apprentice MBAs) have come under criticism for value for money, and higher fee courses may be susceptible to funding band changes in the future.

The market is likely to consolidate around a high-quality provider base delivering at scale

The introduction of the levy was met by an influx of training providers joining the register of apprenticeship training providers (RoATP), reaching 2,600 organisations at its peak. The provider base is now consolidating around fewer, higher-quality providers that can deliver at scale. The market has reduced to ~1,650 approved providers as of July 2022, of which 1,500 are actively delivering training, though the top 100 providers make up ~50% of market apprenticeship starts. These scaled providers are increasingly investing in technology to offer employers more engaging learner experiences and support necessary quality and funding compliance processes.

The levy is here to stay, though broader market uncertainty remains

COVID inhibited starts further as lockdowns affected employment and training delivery, and broader economic uncertainty reduced uptake. We’re now seeing those sectors hit particularly hard, such as construction and hospitality, experience strong growth.

The levy benefits from cross-party support and has been promoted as an employer-led system. Though some lobbying groups have called for a widening of the levy’s use (e.g. for broader learning and development, or to pay apprentice wages), these do not appear to have gained much traction with policymakers. Nonetheless, there have been tweaks to the levy system (e.g. simplifying and standardising off-the-job training requirements, suggested changes to the funding band methodology) and these look set to continue.

With close to £5bn in employer accounts ready and waiting to be spent on apprenticeships, and an increasingly strategic approach taken by employers, there is a sizeable market opportunity for training providers and investors to access as the market consolidates further.

Get in touch

       Mark Jeynes
      Mark is a Partner at CIL and leads its Education & Training practice.





        Megan Savage Shaw
       Megan is an Associate Director at CIL and focuses on the Education & Training practice.





        Giles Johnson
       Giles is a Senior Advisor to CIL’s Education & Training and Healthcare practices.






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