The levy is an important funding contribution to our skills system and came into effect in 2017. However, since its introduction in 2017, the Apprenticeship Levy has faced ongoing debate. The levy's intention was to promote apprenticeships as a pathway into employment via sustainable funding. Since then, numerous calls for change have emerged as we move towards a clearer consensus. Recognising the need to understand potential ways forward, Edge recently convened a workshop on the issue. Here we outline the key discussion points.
Positives of the levy
Despite some negative reactions to the levy, it has made some important changes to the skills system, notably in increasing employer investment in skills and improving the prestige of apprenticeships. Firstly, the levy has prompted employers who had not previously considered hiring apprentices to now do so – a behavioural shift that has expanded training opportunities and helped reposition apprenticeships as a viable learning pathway. Apprenticeships have proven effective in filling the skills gap, with 86% of employers saying that they have helped them develop skills relevant to their organisation. Although this revaluation of traditional entry routes in the workplace (as well as upskilling opportunities for existing employees) is not down to the levy alone, it has clearly helped emphasise the value apprenticeships can offer.
The levy has also impacted business strategy. Senior-level support for apprenticeships has grown, resulting in the development of apprenticeship approaches that better align with business needs. Many organisations, for example, are now integrating this funding stream into their people strategies. This supports workforce succession planning and helps address difficult-to-fill vacancies.
Finally, the levy provides a dedicated budget for apprenticeship training. In principle, this enables businesses to plan and invest (although levy funds expire after 2 years). Moreover, grouped payroll arrangements have allowed some employers to access increased levy funding, maximising their investment.
Challenges on the horizon
While the levy’s positive aspects are worthy of mention, it would be disingenuous to suggest that it has been plain sailing. One of the challenges is the lack of flexibility. Employers said they would value the ability to apply the levy beyond apprenticeship programmes, for example, short courses, fast-track options, support for English and maths, and ESOL learners.
Employers also felt the levy is overly complex, reflecting a common theme within the UK skills system. Navigating the levy across the four nations is particularly challenging. Levy arrangements for Wales, Northern Ireland, England, and Scotland are inconsistent and hard to navigate, especially for employers and agencies working across borders. Small businesses also feel left out, citing poor support and a lack of awareness around the needs of their context, such as increased administrative costs and the fact that SMEs typically have fewer employees to deliver training.
Finally, there are significant concerns about the system’s transparency. Employers said they had to actively seek information regarding how levy underspend is used or redistributed. Some participants were unaware that underspend was passed on to SMEs.
Thoughts on reform
A key point that was raised in the discussion was the need to understand the purpose of apprenticeships and the desired outcomes of the levy before reform is considered. Some participants raised concerns that the apprenticeship brand has been diluted and it is no longer clear what specific role they should play in the skills system. There is a danger therefore that they become a catch-all training mechanism at the expense of other routes that could be more appropriate, such as skills bootcamps.
While the challenges highlight possible improvement areas, several specific suggestions for revamping the system emerged. One of these was to clarify and tighten the focus of the levy to improve efficacy. Carefully focusing the levy on disadvantaged groups and younger learners, for instance, could help maximise its impact. The same could be said for lower-level training, which has been neglected in favour of higher-level apprenticeships. Defining intended outcomes and aligning these with specific sector needs could also vastly enhance the levy’s effectiveness.
Greater flexibility is also needed. One recommendation was to transform the levy into a broader “growth and skills” levy. This could improve the transfer system by enabling employers to share funds with other organisations and increase skills development investment overall. There is a need to support small businesses to ensure that apprenticeship quality remains high. Extending the levy expiry date from two to three years could also align better with many employer workforce planning cycles, providing greater flexibility for employers to utilise funds.
Finally, improved support and transparency mechanisms are required. This could include the annual publication of levy data (such as sector profiles on who is paying what) and, as already mentioned, support for SMEs. Loosening the requirement for functional skills development, for example, would benefit SMEs, who typically find this harder to fulfil. Overall, feedback highlighted the need to improve support and help address the perceived lack of transparency within the system.
This workshop provided a valuable platform for discussing the apprenticeship levy’s intricacies and reform areas. Despite the levy's imperfections, we should avoid throwing the baby out with the bathwater. Clarifying its goals and improving flexibility, support, and transparency are potential wins that could help usher in a more efficient, effective and equitable system that supports employers of all sizes and learners at various stages of their careers. We look forward to exploring these issues in greater depth in future workshops.
Amazing Apprenticeships held a similar workshop with levy-paying employers in the run-up to Edge’s workshop. Here is a visual summary of the points discussed.
