We consider apprenticeships to be a crucial part of our skills system and there is a huge demand for them. However, while the Apprenticeship Levy has had some successes, including supporting the increase in quality of apprenticeships and the development of degree apprenticeships, it would seem that the system is somewhat failing our young people. Since the introduction of the Apprenticeship Levy, the number of apprentices has decreased, particularly amongst young people and those traditionally employed in the SME marketplace.

In real terms, the total number of apprenticeship enrolments has decreased from a high point of 500,000 to 349,190 in the 2021-2022 contract year, and remains significantly lower than the pre-pandemic total of 393,000 recorded in the 2018-2019 contract year. The number of enrolments of apprentices in SMEs has dropped by almost 50%, with the number of apprentices in larger companies (typically levy-paying organisations) decreasing only by 19%.

Nevertheless, the fact that over 40% of young people who registered on UCAS this year indicated that they would be interested in completing an apprenticeship suggests that this is not a question of demand, but rather a problem of under-supply.

Since 2018, £4.3bn has been raised by the Apprenticeship Levy but not spent on apprenticeships, but instead kept for other Treasury uses. Would it be fair to argue, therefore, that there is a strong and justifiable case for more flexibility with use of the levy? For example, companies could take advantage of shorter and more flexible courses such as HGV driving or coding, which represent immediate value to the economy but which are currently ineligible for levy funding. Should companies be able to use the levy for broader costs?

The levy provides a valuable incentive for employers to engage in apprenticeships and is an important funding contribution to our skills system, but it should not determine the limit of our ambition when it comes to the number or quality of apprenticeships that we are willing to train and fund. This should be determined separately: on a basis of need, value and affordability – just in the same way as other budgets for education and training.

Suggested reforms to the Apprenticeship Levy have been presented in three key areas:

  1. Flexibility to support employer-relevant skills: transforming the levy to an Apprenticeships & Skills Levy which would better support for training of high quality, employer-valued skills and include shorter, more flexible courses. These would not only fulfil immediate skills needs but could also lead to future apprenticeships at a higher level.
  2. Greater support for SMEs: more flexibility, a streamlined process and direct financial support would enable SMEs to play the full role in the apprenticeship system that is essential to deliver high-quality apprenticeships at scale.
  3. Increased opportunity for young people: directly incentivising employers to take-on young people, a fairer minimum wage and removing the inequities on child benefit would allow young people, regardless of their background, to benefit from an apprenticeship.

Combined, reforms across these three areas would increase skills, boost productivity and broaden opportunities for people of all backgrounds, and therefore promote growth and apprenticeship provision across the country.