Total apprenticeship starts are now down by a quarter compared to where they were two years ago, and yet levy funding is running short.

How do we square this and, once everyone is finally honest about what has happened, instead of endlessly kicking for touch by commissioning new bits of research, what should be done to put things right?

Leaving aside the now practically defunct 3 million target, the fewer starts matter because the decline is damaging to social mobility and workforce productivity.

Furthermore, whatever happens on Brexit and possible new migratory controls, net EU migration to the UK is falling and there is a much greater need to use apprenticeships to develop homegrown talent. This was underlined by the proposals contained in the government’s White Paper on immigration, published just before Christmas, irrespective of allowing 12-month visas.

'Quality training cannot be delivered on the cheap'

The government’s announcement of a review of the levy was very welcome because the review can look ahead to a system after 2020 that should work for both large and smaller employers.

In the meantime, however, ministers cannot revert to just talking about improving the quality of the programme when the funding bands of key apprenticeship standards are being cut without any transparency. As the Commons Education Select Committee observed, good quality training can’t be delivered on the cheap.

Nor should the government be launching a new year’s advertising campaign aimed at small and medium-size entreprise (SME) employers when the non-levy pot is almost exhausted and businesses are holding back anyway until the halving of the employer co-investment rate is brought in.

Originally setting co-investment at 10 per cent for the non-levy paying employers was one of two main reasons for the big fall in starts; the other being the lack of flexibility around the 20 per cent off-the-job training rule.

Giving employers choice 

Although AELP would have liked to have seen the fees for young people at levels 2 and 3 go altogether, the chancellor’s decision to halve it was at least a recognition that it was acting as an impediment on employer demand.

It is on managing employer demand within a finite budget where the government should be focusing its attention.

Too often the civil service instinct is to reach for supply-side solutions because it supposedly puts officials in greater control.

But if we are now going to have a register of apprenticeship training providers fit for purpose, with quality of provision assured by a robust inspection framework, we shouldn’t need the Education and Skills Funding Agency to act as queen bee on which providers receive funding because this is what employers should decide by exercising the choice that payment of the levy entitles them to.

'Co-investment offers the ideal price-setting mechanism'

Unless action is taken, AELP remains convinced that a separate, minimum annual budget of £1 billion is required to fund the apprenticeships of non-levy employers.

The levy is being used up by large employers because of the cumulative effect of funding carry-in learners and new starts each year. The government has also badly miscalculated how much is being consumed by fewer but much more costly apprenticeships at the higher levels.

Therefore ministers need to return to first principles of economics by setting a price for apprenticeships that impacts on the level of employer demand and responds to the social mobility agenda.

Co-investment offers the ideal price-setting mechanism and AELP has proposed that the rate which the employer contributes should be steadily increased for each higher level of apprenticeship.

Supporting social mobility

We should then see the provision of apprenticeships rebalanced towards supporting social mobility at the lower levels, especially for disadvantaged young people, while not undermining the availability of apprenticeships as an all-age, all-level and all-sector programme.   

While the overall pressures on levy funding increase, not every large employer will reclaim all of its entitlement and this is why the employer bodies successfully lobbied for an increase in the amount of levy which employers can transfer to other organisations.

At the same time, many of them can’t spare the resource to do the heavy lifting to make this happen smoothly. We are urging the ESFA to allow each levy payer to have its own sub-account within the digital system where it can place unwanted levy funding.

Then, if desired, the employer’s lead provider can manage the account and help to identify non-levy employers to whom transfers can be made. This proposal has received a lukewarm response so far, which is difficult to comprehend in the light of the challenges that the levy reforms are facing.

Finally, the government must stop putting up facile arguments in defence of functional skills being funded at half the classroom rate when learned as part of an apprenticeship.

A tougher curriculum is being introduced for functional skills, including phonics for English, in September 2019 and providers can’t be expected to continue teaching English and maths with good outcomes without an adequate level of funding. Once again, this is imperative for a government that takes social mobility seriously.

Mark Dawe is chief executive of Association of Employment and Learning Providers