New research from City & Guilds, the skills development organisation, and workplace learning advocates The 5% Club finds that the government's apprenticeship levy is currently not working as many employers perceive it should. It shows that levy-paying employers are using an average of 55.5% of available funds and a mere 4% have used their full levy funding in the last five years.

Despite the research finding that only 15% of businesses are always able to recruit the skilled people they need, employers are facing barriers to accessing levy funds which could help to fill skills shortages. According to City & Guilds’ research, carried out amongst 1000 HR leaders at levy-paying businesses across the UK, of those who haven’t used all of their levy funds, 94% report facing at least one barrier to accessing it.

Almost one in five (18%) state that access involves too much bureaucracy or administration, 17% state a lack of time to invest, and 19% say that they cannot commit to the length of time that an apprenticeship takes to complete.

Rather than scrapping the levy, four in ten businesses (43%) say that they would prefer to shift towards a 50:50 model, whereby half of the levy is ring fenced for apprenticeships and the other half is more flexible - allowing businesses to identify the best way for them to meet their skills needs.

Kirstie Donnelly, CEO of City & Guilds, said: “Yet again the employer voice is coming through loud and clear - apprenticeships are a valuable recruitment and retention tool but the current system is just not working for them, leading to large sums of funding intended for the levy instead going back to the Treasury because they cannot be used, all this at a time of such acute skills gaps and shortages.

“This research reinforces previous calls we and the wider skills sector have made for more flexibility to the current system. As a fundamental pillar of our education and skills development system, apprenticeships must stay front of mind and employers should also have more control to respond to workforce and organisational needs if they’d prefer to spend the allocated funding - such as moving more along the supply chain or investing in broader skills development. If we are serious about levelling up – levying up is a key way towards that.” 

Recommendations:

In its new report, Levying Up, City & Guilds has set out key recommendations for reforming the apprenticeship levy, based on feedback from employers and business leaders.

Introduce a broader skills levy:

• More flexibility on how employers can spend levy funding. For example, our research found that HR leaders do not want to see the apprenticeship levy scrapped altogether. Our research found that the majority (43%) would prefer to shift towards a 50:50 model, whereby half of the levy is ring fenced for apprenticeships and the other half is more flexible - allowing businesses to identify the best way for them to meet their skills needs. 

Cancel plans to reduce level 2 apprenticeships:

·       Reducing the number of level 2 apprenticeships excludes a number of young people and people from less advantaged backgrounds from workplace training and opportunities to upskill. 

·       As many of these people are not ready for level 3 apprenticeships and not all companies offer level 3 roles as their entry point, if level 2 apprenticeships were to be reduced, opportunities for these groups would be further restricted.

Modular learning options:

• Employers would benefit from standardised, levy-funded bitesize learning. An apprenticeship requires a significant commitment of time, both for the employer and apprentice, which is not always practical. 

• With a modular approach, leaders could pick and choose more compact qualifications and training to meet skills needs, and employees could upskill more easily throughout their careers.

 Use unspent levy to address labour market shortages:

• Given the UK’s current labour market shortages, the Department for Education and HM Treasury could work together to ensure that unspent apprenticeship levy funding was spent on programmes designed to reduce skills shortages in the sectors that are most affected.

• This might include additional incentive payments to galvanise employer engagement or additional support with travel or equipment for hard-to-reach learners.