Is the UK apprenticeships scheme heading for disaster?

Since its radical overhaul two years ago, the UK apprenticeships scheme has come under heavy fire for poor forward planning by policymakers and executors.

Wave after wave of bad press have continued to raise concerns on a system detractors say is overly complex, painfully rigid, and throws into jeopardy the future of skills training.

The situation is now coming to a head with the latest research confirming the worst: not only is the scheme failing to deliver on its objectives, it’s also run out of money. 

How did it all come to pass? What went wrong? Should the scheme be scrapped altogether? Let’s examine the issue further.

Why apprenticeships are a good thing

The pace of technological progress in the digital era has meant that businesses today are contending with much shorter product cycles, leaving them with less time and resources to invest in training and upskilling of new or current staff.

In the UK, this has led to a 20-year decline in spending on workplace training, with employers becoming increasingly dependent on higher education providers to meet their talent needs.

However, as slow adopters themselves, higher education institutions sometimes come up short. But laying the blame entirely on them would be unfair to say the least.

Fact is, the skills gap crisis is one facing most global economies, with graduates everywhere entering a labour market that favours STEM knowledge or skills best picked up via workplace training.

With an eye on bridging the widening gap between work and education, former chancellor George Osborne announced the UK apprenticeships scheme in 2015. In mooting an employer-led structure to fund the scheme, the government hoped to lift public and private sector spending on workplace training and reverse the 20-year decline.

To prove its seriousness, the public sector was given a target to ensure 2.3 percent of employees were apprentices by 2021. By 2020, the government wanted to have three million new apprenticeships across the public and private sectors.

Off to a promising start, the scheme became a component part of the government’s industrial strategy to boost national productivity levels and stimulate economic growth.

Coming at a period of prolonged uncertainty over the UK’s future post-Brexit, it was viewed as a potential gamechanger to workforce development for a country desperate to remain globally competitive.

UK apprenticeships: A win-win for employers & learners

Although traditionally associated with manual jobs, the UK apprenticeships programme offers all levels of educational qualifications to prospective learners.

Anyone over 16 can be an apprentice, from those about to launch their careers or change their career direction, to those returning to work after a break.

The programme takes between one and six years to complete, depending on which apprenticeship the learner chooses, what level it’s at, and the applicant’s experience. 

For employers, the benefits of participating in the scheme are multifold.

On top of growing fresh talent, upskilling current staff and developing a skilled workforce to fill current and future recruitment needs, the programme also helps boost employee loyalty and retention rates, and increases staff diversification.

At first glance, the scheme appears to hold plenty of promise.

And with Brexit looming closer and the skills gap expected to cost the UK some £140 billion in GDP growth, it’s also an extremely timely one. 

No one has disagreed with this. According to Universities UK (UUK), since the scheme’s introduction, universities and employers have “enthusiastically” embraced it as an opportunity to boost collaboration levels and supercharge their development of tomorrow’s talents. 

The peak body also reports that a vast majority of the UK’s universities in England are now registered as providers, helping ensure a strong pipeline of high-level education standards in the skills development process.

This clearly bodes well for the scheme. Yet what critics have agreed on, and what studies seem to prove true, is that its rushed development and hurried implementation have left much to be desired. 

It seems beyond the lofty governmental goals and hopeful promises, a system dogged by bureaucracy, and bad strategy and execution has led to poor employer buy-in and a lack of awareness among school leavers–the very people the scheme was intended for.

The slippery slope to failure

It all began with the introduction of the apprenticeship levy two years ago. The training tax was rolled out as a way to finance the programme and boost take-up rates.

Under the system, UK employers with wage bills larger than £3 million were required from April 2017 to pay 0.5 percent of their payroll into a central apprenticeships fund. They can claim these back via vouchers to pay for apprenticeship training.

Companies with wage bills under £3 million need not pay the tax but can draw from the levy pot to train apprentices.

The system stipulates that companies only need to subsidise 5 percent of training costs, to be paid directly to the training provider, whilst the government pays the remaining 95 percent, up to a limit according to a funding band. 

If the company has fewer than 50 employees, the government pays the bill in full, also following the funding band. 

The co-investment structure was meant to provide support to non-levy paying companies, giving them the opportunity to invest in high-quality training, both to grow their business and get the skilled workforce they need. It was also expected that large businesses would not use up all their levy entitlements, which would leave sufficient funds in the levy pot for SMEs to participate.

But right from the get-go, the new apprenticeships structure drew brickbats from UK employers.

Many said it was unnecessarily complex, and were unsure how it was meant to work and whether they would be required to pay the levy. 

According to a BBC report in March, the larger firms were treating the levy as an additional tax on their business while some of the smaller firms apparently gave up entirely on the scheme.

Many larger companies also did not claim back the money that they had paid in, despite their entitlement. In 2017-18, levy-paying firms used only 9 percent of funds available to them to support apprenticeships, some £170 million of the total £2.2 billion available.

The number of apprenticeship starts dipped last year; prior to the levy, there were 509,400 starts a year. Last year, however, there were just 375,800, indicating a 26 percent decline and a far cry from the government’s target to hit three million in 2020.

No boost to training investments

Given these numbers, the UK apprenticeships scheme has not led to an increase in spending on workplace training.

And research by the Chartered Institute of Personnel and Development (CIPD) released two weeks ago highlighted some of the potential reasons for this.

According to its survey of 2,000 levy-paying employers, most have either cut or frozen training via the levy system as the scheme did not match with their operational needs. 

Some 58 percent confirmed that training spend in their organisations either flatlined or declined after the levy was introduced. Less than a third of levy-paying organisations believed the levy would increase the amount of training they offer, a 14 percent decline since 2017.

Over a fifth said they used the funding on training that would have happened anyway, while 14 percent reported that the levy had directed funds away from other, more appropriate forms of training. 

CIPD said while it was hard to pin down reasons for these declining numbers, the apprenticeships scheme was in clear need of reform.

It urged the government to broaden its scope to a wider training levy, including other forms of accredited training that are both relevant to companies and aligned to industrial strategy priorities. 

“Our research clearly shows the apprenticeship levy has failed to deliver what the government said it would,” CIPD skills adviser Lizzie Crowley said in the Financial Times.

“To make it better for employers, we need more flexibility in how they can spend their money.”

Lack of public awareness

Another body to call for reforms has been UUK, whose report on the future of degree apprenticeships last month identified poor levels of awareness on the scheme’s availability and benefits among school pupils, parents and employers across the UK.

In a survey conducted on 747 students from 11 schools, as well as 93 parents and more than 60 universities, the universities peak body said four out of every five school pupils in Years 10 and 12 “know little or nothing at all” about how to apply for degree apprenticeships.

Just 7 percent said they knew of it, although many viewed it the “second-class” to the traditional university route.

The body’s chief executive Alistair Jarvis said the government needed to take bold measures to boost the popularity of the scheme.

“The benefits of degree apprenticeships to individuals, employers, the economy and wider society are too great to keep secret,” he said.

“Government must take the lead in promoting these and in reforming the system so more people know about degree apprenticeships and can do them.”

But whilst increasing public awareness to boost participation rates among school leavers should be viewed as a good thing, the apprenticeships budget cannot sustain such an increase, not without immediate reform. 

Funds have begun to run dry, forcing training providers to turn away apprentices from SMEs, many of them coming from the 16-to-18 age group. 

Out of cash

In March, the National Audit Office (NAO) raised concerns over the long-term sustainability of the levy scheme, saying it could run out of money with more employers putting staff on expensive degree and MBA-level programmes.

Jonathan Slater, the UK’s permanent secretary for the Department of Education (DfE) warned of the same, saying the significant underspend in 2017-18 was not likely to continue this year.

He told Parliament’s Public Accounts Committee in March that there could instead be a “significant overspend” in 2021, something the upcoming Spending Review must look into.

“There shortly isn’t going to be enough to go round for everything, and something has got to give,” he was quoted saying in Tes.

As it turns out, they were right to be worried. But they may have miscalculated the severity of the issue.

An industry report released last week said funding has already run dry, with three quarters of training providers saying they cannot meet the demands of their SME customers because there’s simply not enough money left for them in the levy pot.

According to the Association of Employment and Learning Providers’ (AELP) study, this is preventing SME businesses from participating in the programme. As non-levy paying firms, SMEs rely on funding being left over for their apprenticeships after large levy-paying employers have taken back their entitlement.

Such a system, it seems, is flawed. With larger employers racking up higher costs to pay their training bills, there’s very little left over for the smaller businesses.

“The government,” AELP said in its report, “badly underestimated how much of the levy the big employers would use up.”

So acute is the shortage that three out of four training providers said they can no longer meet SME demands to train new apprentices.

A quarter also confirmed that they’ve had to turn away prospective firms interested in participating in the programme while nearly one in five say they’ve stopped recruiting apprentices altogether for new and existing SME employer customers. 

Even worse, the funding shortage has forced one in four providers to cut back on apprentice recruitment for their employer customers while a third of providers say they need up to 25 percent of additional funding just to meet current demand.

One training provider in Essex claimed the crisis may even put it out of business this year as SME firms were its “bread and butter”.

Another provider said they had “never known a worse time than this” after 25 years delivering apprenticeships. 

These findings point to one thing: that UK policymakers need to institute reforms and they need to do it now.

What these reforms are and how they are implemented must take into consideration the views of every relevant stakeholder, from employers large and small to educators, training providers and government leaders.

“Unless urgent action is taken, there is a real danger of apprenticeships becoming unaffordable for smaller businesses,” Federation of Small Businesses (FSB) Policy and Advocacy chair Martin McTague says in comments on the findings.

“AELP’s research puts in clear focus the looming black hole, which unaddressed will exacerbate skills shortages and deny opportunities to young people and those furthest from the jobs market.”