Three out of four apprenticeship training providers can no longer meet demand from small and medium-sized businesses to train new apprentices, according to a survey by the Association of Employment and Learning Providers.

This is down to a shortage in apprenticeship levy funding. SMEs don’t pay the apprenticeship levy and have to obtain funding through a training provider with a government funding allocation to help them train apprentices.

The funding available for them originates from what is left over from the levy and there have long been concerns that as levy-paying employers draw more of their own levy funds, the shortage of funding for apprenticeships in SMEs will grow.

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Apprenticeship levy shortfall

AELP’s research, which included 235 survey responses, shows that a quarter of apprenticeship training providers have had to turn away a prospective new SME employer of apprentices, while 17 per cent have stopped recruiting apprentices altogether for new and existing SME employer customers.

Some 25 per cent of providers have had to cut back on apprentice recruitment for their employer customers due to a lack of funding and a third of the providers need up to 25 per cent of additional funding on their government funding contract to meet current demand.

One provider told the survey: “We are a small provider which has served our local SME businesses in Essex for 25 years. We carry between 350 and 400 learners at any one time. The funding situation may well force us out of business in 2019-20. SMEs are our bread and butter. In the main, levy payers won't deal with us because they use national providers. We are not alone.”    

According to the AELP, the levy shortfall is happening at the worst possible time, when thousands of school leavers are considering apprenticeships.

'Chronic skills shortages'

AELP chief executive Mark Dawe said: “It’s been over four months since the DfE’s permanent secretary told a Commons committee that ‘something is going to have to give’ unless more funding for apprenticeships was forthcoming, and we’re saying that the damage is already being done.”

He added: “More recently the prime minister said that apprentices are ‘indispensable to this country’ and that ‘we have a desperate shortage in this country of people with the right skills‘.  The clear message from apprenticeship training providers is that the shortage will quickly become much worse unless the government delivers quickly on Boris Johnson’s funding promise.”  

Martin McTague, policy and advocacy chair of the Federation of Small Businesses (FSB), said: “Properly funded apprenticeships are vital in tackling the chronic skills shortages which affect many small businesses, and that’s why many small firms themselves are great champions of apprenticeships.

"But unless urgent action is taken, there is a real danger of apprenticeships becoming unaffordable for smaller businesses. AELP’s research puts in clear focus the looming black hole, which, unaddressed, will exacerbate skills shortages and deny opportunities to young people and those furthest from the jobs market. More than 90 per cent of all apprenticeships offered by small businesses are held by 16- to 24-year-olds.”

Quality of apprenticeships

A Department for Education spokesperson said: “Apprenticeships funding in England has risen to over £2.5 billion in 2019-2020, double what was spent in 2010-2011 in cash terms. This investment has helped drive up the quality of apprenticeships on offer so they are now longer, with more off-the-job training and have a proper assessment at the end.

“So smaller employers can manage their own apprenticeships more effectively, we are bringing them on to the apprenticeship service. Large businesses can now also transfer up to 25 per cent of their levy funds to smaller employers so they can invest in the long-term skills needs of their business.

“We will continue to work with employers so they can take advantage of the benefits apprentices can bring to their business, and we are also looking carefully at the future priorities for the apprenticeship programme.”