By Aidan Relf
Fundamental questions are on the table over apprenticeship funding.
One is whether increasing amounts of revenue raised by the UK-wide Apprenticeship Levy are being reflected in the level of the allocated apprenticeship budget in England; together with what can be reasonably be assumed as the allocation to the devolved nations under the Barnett Formula.
Another is whether the days of large underspends in the DfE ring-fenced apprenticeship budget are over.
In 2022/23, the underspend was £96m out of £2,554m (3.8%) and in 2021/22 it was £11m out of £2,466m (0.4%), although this latter figure is flattered by the inclusion of wage incentive payments to employers during Covid-19.
In terms of budget management, however, DfE civil servants deserve credit for achieving the Whitehall equivalent of landing on a sixpence.
An equally important question is whether the levy system should fund entirely the apprenticeships of non-levy payers. DfE funding is restricted to paying for apprenticeships. Funding not used by levy-payers is recycled to fund apprenticeships by non-levy payers.
In turn, this raises the question over whether the DfE ring-fenced apprenticeship budget should be widened from just funding apprenticeships to funding skills training more broadly. Although levy-payers would be more likely to fully spend their levy payments under this reform, additional funds would be required to subsidise apprenticeship training by non-levy payers which are primarily SMEs.
And yet, there is a fundamental distributional question to address. Should, for example, all or part of the DfE ring-fenced apprenticeship budget – some £2.7bn from 2024/25 – be devolved locally?
Problems with devolving funding to each employer
The present funding system is based on each levy and non-levy paying employer determining the age of each apprentice and the level and type of apprenticeship.
The problem is that a funding system based on the principle of employer choice does not coincide necessarily with wider economic and social policy objectives.
For example, there is no guarantee that every young person aged 16-24 can access a Level 2 and Level 3 apprenticeship locally. And the amount of funding for SMEs is uncertain and depends on left-overs from levy-payers.
Placed- based funding devolution
The rationale for devolving apprenticeship funding to local leaders is driven by the belief that employers and young people in local areas are not being well served by the current employer demand-led system embodied within the digital service.
Local bodies in control of the apprenticeship budget could arguably be better placed to meet the apprenticeship needs of both young people and SMEs. They could also devise local sector apprenticeship strategies, allocating funding to support growth and productivity in key sectors.
Value-added
The key question, however, remains what value would be gained by devolving apprenticeship funding locally in comparison with the employer choice enabled by the current digital service
Even allowing for sector prioritisation, would local officials do a better job of identifying and engaging SMEs in apprenticeships when local providers can already engage them under the present system?
And if funding is devolved, a myriad of clunky commissioning systems would replace the present single digital service, which most SMEs are able to access with support.
Upsetting levy payers
There is another issue the supporters of devolving the entire £2.7bn apprenticeship budget to local bodies should consider: the reaction of levy payers.
Levy payer employers are critical of the current use-it or lose-it deal because many do not need to spend every penny of their levy payments on apprenticeships.
On the other hand, devolution of the entire apprenticeship budget could mean levy-payers having no direct control over using their levy payments or not, as local bodies would determine which employers received apprenticeship funding.
Devolution of SME apprenticeship funding
The danger of upsetting levy-paying employers suggests that devolution of apprenticeship funding would be restricted to apprenticeship funding for non-levy paying employers, mainly SMEs.
But the devolution of apprenticeship funding to SMEs to local bodies obviously depends upon funding for SMEs being available in the first place.
Options for local funding bodies
There are, perhaps, three options for the type of local bodies to take control of the apprenticeship funding for SMEs.
The first option would be to devolve the apprenticeship budget to elected local authorities, including combined mayoral authorities, unitary authorities and country councils. Strategic authorities would then have control over both SME apprenticeship funding and the Adult Education Budget.
A second option would be to devolve the apprenticeship budget to Local Skills Boards comprising local employer groups, trade unions and local authorities. Employers, namely SMEs, in some guise would at least have a seat at the table.
And a third option would be to devolve the apprenticeship budget to local employer representative bodies. Here, SME apprenticeship funding would be in the hands of SME employers collectively rather than individually.
Two funding systems
A problem with devolving apprenticeship funding for SMEs to local bodies – whatever form they take – is adding a further layer of complexity through creating two funding systems.
The national digital service would manage levy-payer funding and a large number of local bodies would manage non-levy payer funding for apprenticeships only.
Political context
At present, there is no sign that the Conservative Party will enter the impending general election allowing the DfE apprenticeship budget to be spent on anything other than apprenticeships or moving away from the principle of devolution to each employer.
This leaves the party open, however, to criticism that key groups are locked-out of apprenticeships, especially 16-18 year olds (who tend to be taken on by non-levy paying SMEs).
The Labour Party, meanwhile, favour turning the apprenticeship levy in England into a flexible training levy although a more apt description is turning the DfE apprenticeship budget into a flexible skills training budget.
Assuming levy payers fully spend their payments across a broad suite of skills training including but not restricted to apprenticeships, extra funding for apprenticeship training by SMEs will be required.
Labour already plans for a National Skills Board. Finding extra funding for apprenticeship funding for SMEs is a constantly asked question.
But there is another. If extra apprenticeship funding is found for SMEs, will this be devolved locally to employer representative bodies, strategic local authorities or Local Skills Boards representative of employers, trade unions and local authorities?
For those who are serious about simplifying England’s overly complex skills, the recommendation to devolve apprenticeship funding to local bodies should be approached with caution.
Aidan Relf is a Public Affairs Consultant