The government is in serious danger of making apprenticeships unaffordable for smaller businesses, with reforms urgently needed to curb the continued decline in apprentice numbers.
The Federation of Small Businesses (FSB) claimed today (26 April) that more than a quarter of smaller organisations that employed apprentices before and after the apprenticeship levy was introduced said it has had a negative impact on their business.
Recruiting an apprentice was the biggest challenge for employers, with 42% struggling to do so. Almost a third (29%) said allocating management time to supervise apprentices was a barrier, while nearly a quarter said meeting the requirement for 20% of the training to be done “off the job” was a challenge.
Since the apprenticeship levy was introduced in 2017, the number of apprentice starts has fallen below pre-reform levels, although the figures have recently recovered slightly. Between August 2018 and January 2019 225,800 people began an apprenticeship, compared with 206,100 in the equivalent period of 2017/18. However, 269,600 starts were reported in the same period in 2016/17, before the levy was introduced.
Around 87% of apprenticeships offered by smaller organisations are at levels 2 and 3. The number of level 2 starts has fallen by 45% since 2015/16, while level 3 starts have dropped 13%.
FSB chairman Mike Cherry said that although the levy had deterred many small organisations from offering apprenticeships, recent changes had offered some encouragement and more support should be introduced.
“The more recent halving of the co-investment requirement to 5% is a major step forward to reduce the cost of apprenticeships. Small businesses need more support like this if they are to continue to be the champions of apprenticeships,” he said.
“It must not be forgotten that our small firms provide 60% of private employment and it is for this reason that they must be the ones driving the system forward.”
Cherry also had concerns about the “funding black hole” that the National Audit Office claimed would likely hit the apprenticeship levy programme in the next couple of years, due to employers opting for higher level apprenticeships at greater cost.
The FSB urged the government to put apprenticeship funding on sustainable footing.
Affordability was a concern for many small employers – four in 10 said costs related to recruiting and training apprentices had increased.
Even larger organisations have struggled to make apprenticeships financially viable: last month Tesco boss Dave Lewis said the retailer had been prevented from taking on more apprentices cost-effectively.
“Unless urgent action is taken we are in serious danger of making apprenticeships unaffordable for many of our small firms. If apprenticeships become a privilege only for those that can afford them, we will worsen persistent skills shortages and gaps that are damaging growth and productivity,” said Cherry.
The FSB recommended that the government should:
- Develop a matching service, hosted by the Apprenticeship Service, to support levy-paying employers pass on any unused funds to non-levy paying organisations
- Extend the current £1,000 incentive to employers with less than 50 employees who take on a new apprentice aged between 19 and 24 from selected disadvantaged groups, including people with a chronic mental health condition and ex-offenders
- Consider whether an incentive for start-ups to take on an apprentice should be introduced, and make training-related travel free for 16-24-year-old apprentices working for employers with fewer than 50 staff, to ensure they are not disadvantaged by prohibitive costs.