The rate of apprenticeship starts would have to double for the government to meet its target by 2020, and the government has some way to go resources are being used to best effect, according to the National Audit Office (NAO). It also raises concerns about the long term financial sustainability of the apprenticeship programme.

In its report on apprenticeships, published today, the NAO says that since funding reforms were introduced, apprenticeship starts have fallen “substantially”, with 375,800 starts in 2017-18, 26 per cent fewer than the 2015-16 in 2015-16. As a result, the rate of starts would need to double for the government to meet its target of three million new starts by March 2020. “The fall in starts means that the government is unlikely to achieve its target of three million apprenticeship starts by March 2020.”

Read more: Milton: 3m apprenticeships target not abandoned

More news: Call for clarity on apprenticeship levy brokerage

Background: 80% of levy-paying employers have hired no apprentices

Economic productivity

According to the NAO, the Department for Education has improved how it assesses the benefits of the programme, but it has not set out clearly how it measures whether the programme is boosting economic productivity – the ultimate aim of the programme. It, therefore, has some way to go before it can demonstrate that resources are being used to best effect.

The take-up of levy funds is below what the DfE expected, says the NAO, and in 2017-18, levy-paying employers used only 9 per cent of the funds available to them to support new apprenticeships - around £170 million of the almost £2.2 billion available.

However, if demand picked up and employers continued their preference for higher-cost apprenticeships, the DfE could overspend against its budget in future. Because of this, there are “concerns about the long-term sustainability of the programme”, says the NAO. “Spending is demand-led, driven by employers’ decisions about how many and what types of apprenticeships they want. There is a clear risk that the budget may be insufficient should demand pick up in the way that would be needed for the programme to meet its objectives.”

In that case, “government would then need to choose between providing more funding, inhibiting growth in apprenticeships or reducing the level of public funding for some apprenticeships”.

Apprenticeship starts

Since 2017, there has been a significant rise in the proportion of apprenticeships started under a standard, and the introduction of standards has increased the number of higher-level apprenticeship starts, the NAO highlights, adding: “Some levy-paying employers are replacing their professional development programmes – for example, graduate training schemes in accountancy or advanced courses in management – with apprenticeships. In such cases, there is a risk that the additional value of the apprenticeship to the economy may not be proportionate to the amount of government funding.”

Amyas Morse, comptroller and auditor general of the NAO, said: “Despite making changes to the apprenticeships programme, the [DfE] has not enticed employers to use available funds or encouraged enough potential recruits to start an apprenticeship. It has much more to do to meet its ambitions. If the Department is serious about boosting the country’s productivity, it needs to set out clearly whether its efforts are on track to meet that aim.”

Sector leaders said the report showed that the system was not yet working. Matthew Fell, chief UK policy director at the CBI, said: “Companies are committed to apprenticeships, so what’s needed now is a second wave of reform. The government must use its review of the apprenticeship levy to work with business and the sector to build a system that supports, rather than frustrates, employers offering a first step to people in their career.’’

'Unmet demand from SMEs'

The Assocation of Employment and Learning Providers (AELP), said there was an urgent need to respond to unmet demand from small and medium-sized enterprises for apprenticeships, which had resulted from the government’s mistakes set out in the NAO report.

It added the government should restore the £1bn a year budget which was available to SMEs before the apprenticeship levy was introduced in April 2017, and that even with a significant underspend, the DfE had failed to adequately fund non-levy provision.  The AELP said that since the NAO undertook its work, the Institute for Apprenticeships (or IfATE) had confirmed that there was likely to be a £500m overspend on the £2.2bn levy proceeds for 2018-19, with the deficit projected to rise to £1.5bn in 2021-22.

Chief executive Mark Dawe said: “The disappointing aspect of today’s helpful report is that AELP was predicting two years ago that higher level apprenticeships offered by the levy payers would consume the levy to a much greater degree than the government anticipated but no notice was taken. 

“The DfE has finally recognised that changes are needed as part of the Chancellor’s ordered review of the levy and the NAO’s overspend figures confirm why a separate budget is needed for SMEs’ apprenticeships.  SMEs are desperate for more apprenticeships and we need to stop the fall in intermediate apprenticeships, so ministers must act quickly.’

'Rebranding of existing training'

And Gerard Dominguez-Reig, senior researcher for post-16 and skills at the Education Policy Institute (EPI), said the NAO’s assessment of the 2017 apprenticeship reform showed that the level of employer buy-in was lower than the government expected, and that the potential rebranding of existing training might be compromising the programme’s contribution to productivity growth.

"Previous EPI research has called for robust progression pathways to higher levels of apprenticeships to entice learners, and has suggested that both employers and learners would benefit from younger-age and longer apprenticeships to smooth school-to-work transition. Our research has also suggested that for the policy to succeed SMEs need additional support, as they are more likely to face barriers to hiring apprentices. 

"If the government's ultimate objective is to fix skills gaps in England, it should give more consideration to these recommendations, and focus less on an arbitrary target of three million apprenticeship starts”. 

'Long term investment'

Apprenticeship and skills minister Anne Milton said: “The apprenticeship programme gives employers the opportunity to provide new and existing staff with a range of opportunities to gain skills in the workplace and makes sure we have long term investment in apprenticeships.

“The number of people starting training on our new employer-designed standards is rising year on year and we will continue to work with employers to help them develop their apprenticeship programmes. Apprenticeships enable people to get a great job and career, and give employers the skilled workforce they need.

“We have increased flexibility for levy paying employers so they can transfer 10 per cent of their levy funds to other employers and we will increase this to 25 per cent from April.”