Reform Government apprenticeship scheme - or risk missing out on the best talent, businesses say

A number of sectors with high vacancies in London, including construction, social care and early years education, could be helped by having more apprentices, expert suggest  (PA Media)
A number of sectors with high vacancies in London, including construction, social care and early years education, could be helped by having more apprentices, expert suggest (PA Media)

Businesses in London are missing out on hiring vital new talent because huge sums raised by a government scheme to fund apprenticeships are not being spent, according to trade bodies and employment organisations.

In National Apprenticeship Week, representatives from the retail, hospitality, tech and recruitment sectors have called on ministers to reform the apprenticeship levy programme. It is feared that hundreds of millions of pounds are going to waste in the capital alone because private and public sector employers struggle to spend it, largely due to complex restrictions.

The levy, introduced in 2017, requires employers who spend more than £3million on pay each year to put aside 0.5% of their pay bill for apprenticeships.

This money must be spent within 24 months after which it expires and is returned to the Treasury, although up to 25% of it can be shared with other partner organisations.

However, some say the limits on how the money is spent prevents it from being effective. In a letter sent to the Government on Monday, the British Retail Consortium, UKHospitality, techUK, and the Recruitment & Employment Confederation said ministers were effectively “holding back investment” by making it difficult to spend the money.

Anna Ambrose, director of business support group London Progression Collaboration, said the capital’s need for apprentices was acute, particularly in construction, social care, and nursery and pre-school education.

But she said the complexities of spending the levy are limiting its impact, while low pay rates are putting off people who want to earn and learn.

“To some degree, large companies not utilising their full apprenticeship levy contributions is an intentional part of the system. If the apprenticeship levy isn’t spent, it then ‘expires’ and returns to the Government. We know that the majority of this is spent on skills training, but it isn’t always clear where the cash goes,” she said.

“It becomes problematic when we combine this with the fact that apprenticeships within smaller businesses, and those for young people and disadvantaged learners, have fallen so dramatically.”

One of the concerns she has is that it is not always clear to businesses how to navigate the funding system. “It’s also shifted the habits of large businesses towards higher level apprenticeships for older and better-qualified staff, with smaller businesses losing out due to restrictive funding which cannot, for example, support apprentices’ equipment costs.”

Polling by the London Progression Collaboration also found that most people think the apprenticeship minimum wage — which will rise from £4.81 to £5.28 per hour in April — is too low.

“It’s a barrier preventing people from pursuing opportunities and makes retaining them once they are in those workplaces more difficult. Apprentices on the minimum wage could earn more almost anywhere else,” Ambrose said.

One of the ways the London Progression Collaboration supports businesses to access the levy money is by partnering with councils and London-headquartered businesses.

“Due to the restrictions imposed on the levy, large employers, including councils, are struggling to spend it; at the same time we’ve got small employers that want to create apprenticeships, but might not be able to afford the cost of the apprenticeship,” Ambrose said.

Research from London Councils suggests that among local authorities in the capital, tens of millions of pounds of the levy isn’t spent each year. Adding in the hundreds of London businesses that contribute to the fund brings that total to hundreds of millions annually.

Getting apprenticeships right has the potential to ease labour shortfalls, said Lisa Davies, chief sales officer at education provider Acacia Training. “Across the health and wellbeing sectors employers are experiencing unprecedented skills shortages where apprenticeships play a vital role in attracting and upskilling the workforce of the future.”

And where it works well, the levy money can be transformational. The Co-op runs a levy share service, through which almost £17 million has been pledged by 55 businesses including Greencore and BT, creating almost 1,500 apprenticeships for previously under-represented groups.

But unless the money can be spent where it is needed, it is little more than a tax on the capital’s biggest employers.