Stephen Isherwood, ISE Chief Executive, considers the government’s next steps for apprenticeships and what they mean for employers.

When the apprenticeship levy was announced, then chancellor, George Osborne promised employers they could get out more then they put in. But when the government enacted the levy, they also decided to cut the £1.4bn they were putting into the system.

As well as a means to reform the apprentice system and make it more employer led, the levy replaced government funding by raising funds from employers. The apprenticeship levy is in fact a hypothecated tax.

The government is now pointing to a looming shortfall in apprentice funding, even though most levy payers only spend a fraction of their levy pot. The sums don’t add up because the levy pays for the whole apprentice system, including for those employers that don’t pay the levy.

Last autumn the rhetoric shifted. At an intermediary’s conference in October, the Education and Skills Funding Agency were keen to point out that half of the funds raised by the levy are currently being spent on apprentices who were enrolled before the levy was created.

Another factor affecting where levy money goes are the types of apprenticeships being created.

Degree apprenticeships, masters level apprenticeships, and professional apprenticeships all cost more to deliver than trade apprenticeships and use up a greater proportion of the levy pot. Many apprentice starts are also existing employees, often at a more senior level, which impacts the balance of apprenticeship levels that absorb funding.

From a government perspective, the levy is not addressing two key policy areas. Firstly, they want to create stronger vocation routes for young people, particularly the 50% who don’t go to university. Secondly, further education (FE) has had funding cut and the levy is not driving significant new monies in their direction.

Various organisations have floated ideas to increase the funding available. The most obvious would be for the government to reinstate some funding for apprenticeships and FE. Whilst this would be the most positive step for employers, I question how likely they are to do this. Other ideas include:

• Increase the percentage of payroll that levy payers put into the levy pot
• Lower the payroll point at which employers start paying into the pot
• Only allow the levy to fund apprenticeships up to level five
• Reduce the amount that the levy will fund for each apprentice
• Part-fund degree-level apprenticeships through the student loan/tuition fee system

All these suggestions involve some form of adjustment and compromise and the best solution may be a combination of steps. We have already seen funding caps reduced and IFATE applying pressure to remove degree qualifications from some standards.

Most employers buy into the aims of the levy and the need to raise vocational training standards. But make wrong the reforms and government risks stepping back towards a two-tier education and training system.

As a member body, ISE is keen to hear your views on the apprenticeship levy. Tell us how you would like the system to evolve so we can lobby effectively on your behalf.

Read ISE’s Manifesto 2020, which sets out what we are asking of government to ensure firms are able to find the talent and skills that they need.