The government will pay the full cost of apprenticeships for people under the age of 21 at small companies from 1 April.
In an announcement today (18 March) at a business conference in Warwickshire, prime minister Rishi Sunak will pledge £60 million on a suite of reforms aimed at removing red tape from the apprenticeship levy system.
The reform package will create up to 20,000 more apprenticeships, particularly for younger people and small businesses, the government said.
Employers and industry bodies have long called for the apprenticeship levy to be made more flexible and easier to access, claiming it is too restrictive and bureaucratic.
The levy was introduced in 2017, and requires companies with a payroll of more than £3 million to pay 0.5% of their payroll costs into a fund for training. Many small businesses do not have to pay into the fund, but can benefit where larger employers transfer a portion of their unused money.
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The government will also increase the amount of funding employers can transfer to other businesses – this is currently 25% of any unused levy funding.
From April, employers will be able to share up to 50% of their unspent levy funds to other businesses. According to government statistics, large employers such as Asda and BT Group have already transferred more than £35 million since September 2021.
The government currently classifies a small- to medium-sized business as having up to 250 employees, but said it plans to raise the threshold to 500 employees, meaning around 1,000 more companies become SMEs.
This would simplify financial and non-financial reporting for SMEs, it said.
“The existing onerous and outdated thresholds were previously set by the EU, but our Brexit freedoms mean we can now raise the thresholds to ensure they’re more proportionate and better reflect the needs of British business,” the government said.
Education secretary Gillian Keegan said: “Apprenticeships are a fantastic way for businesses to develop the skills they need, and these new measures will help more businesses and young people benefit from them.
“Our plan to deliver a high-growth, high-skilled economy is working, with more opportunities available to young people than ever before.”
Sunak said: “Growing up in my mum’s pharmacy, I know first-hand how important small businesses are. Not just for the economy, but as a driver for innovation and aspiration, and as the key to building a society where hard work is always recognised and rewarded.
“Taken together, these measures will unlock a tidal wave of opportunity and make a real difference to businesses and entrepreneurs across the country.”
Ben Willmott, head of public policy at the CIPD, welcomed the news saying it would encourage more smaller businesses to take on apprentices and ensure that it is younger people who will benefit.
“However, the additional 20,000 apprenticeships it’s hoped these changes will help create isn’t nearly sufficient to address the collapse in the use of apprenticeships we’ve seen among SMEs and young people since 2017,” he said. “This gap in apprenticeship provision will largely remain. Likewise, increasing the proportion of levy funding larger employers can transfer to smaller firms to help them take on apprentices is also unlikely to have a big impact as, to date, few levy-paying firms have used the levy transfer mechanism at all.
“Tackling these issues and the ongoing fall in investment in workplace training requires more fundamental reform of the apprenticeship levy to make it more flexible and responsive to employer and learner needs.
“A more flexible skills levy would mean employers could use levy funding to develop existing staff through other forms of accredited training and skills development which are cheaper and usually much more suitable for employees aged 25 and over. This would at the same time leave more money to invest in apprenticeships for young people who most need and benefit from them.”
Matthew Percival, director of future of work at the CBI, said small businesses would welcome the support. “But a truly transformational skills policy needs to go beyond just apprenticeships and also support other training, through meaningful flexibility to the Levy so that it helps more people to gain the skills they need to progress in-work,” he added.
Recruitment and Employment Confederation deputy chief executive Kate Shoesmith said: “Cutting the cost of apprenticeships is useful to SMEs in a slow economy and when the volume of young people aged under 24 years old starting an apprenticeship has hardly increased for 20 years. But today’s announcements are not the concerted reform of apprenticeships required to better contribute to overcoming labour shortages, shortages which risk costing the economy up to £39bn every year – just short of two entire Elizabeth Lines.
“The lack of bolder reform today means the lack of flexibility to the apprenticeship levy remains a massive contributor to the skills system not working. This is because the funds are only available to those who have the same employer for at least one year – which is the time it takes to complete an apprenticeship. Out of the one million temporary workers on assignment in the UK every day, we believe around 960,000 are ineligible for levy funding. This underlines the need for the levy money to pay for modular and shorter courses. Reforming the levy to provide more individuals with a route to skilled work will boost business growth and productivity at a critical time for the economy.”
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