£600 million wasted in Apprenticeship Levy funding, despite rising demand

New research from the Co-op has revealed 1 in 3  of young people aged 12-18 are more likely to choose an apprenticeship for their career path, compared to three years ago – and for nearly two-thirds of these young people, the increase in the cost of living is something that makes them more likely to make this choice.

However, because of the current Apprenticeship Levy rules set up by the Government and their inflexibility, over £600 million was sent back to HM Treasury last year which could have funded over 60,000 apprenticeships.

Employers can spend levy funds on supporting apprenticeships in their own operations but many, including the Co-op, find it difficult to spend all the money available to them because of inflexible rules.  They can share up to 25 per cent of their unspent levy funds, with any funds not spent or shared being returned to HM Treasury.

In response to these challenges, the Co-op created its unique Levy Share service. Almost £17 million has been pledged by 55 businesses including Greencore and BT, which has created nearly 1,500 apprenticeships, for previously underrepresented groups, with 35 per cent of apprentices from ethnic minority backgrounds compared to 14% nationally.

The new research reveals that over a quarter of the young people surveyed believe apprenticeships are more important now than before the cost-of-living crisis. Over half of young people said having opportunities to develop skills was an important consideration when thinking about their future career path, while two-fifths (43 per cent) said being able to get paid while also training was an important consideration.

Channelling unspent levy funds to support the creation of new apprenticeships is a positive way to create the opportunities that young people say they want and to promote social mobility.  Co-op’s flagship service, which was launched by the Co-op in 2021, enables employers across England to pledge their unspent levy which would have otherwise expired, to fund more apprenticeship opportunities for people who might otherwise struggle to find a career path.

Major businesses, including Pertemps, are among some of those who have pledged to the service. As a result, the Co-op has been able to support apprenticeships in over 70 different occupations outside of its core businesses, including care, construction and engineering, whilst also making a difference in tackling some of the underrepresentation which currently exists within apprenticeships.

In response to this, and as a major champion of apprenticeships, Co-op is calling for urgent reform from Government of the Apprenticeship Levy - asking that it is made more flexible and that the 25 per cent cap on the amount that can be shared is increased to 40 per cent enabling thousands more people to benefit from apprenticeships.

The Co-op is suggesting that as part of a broader strategy to promote social mobility, Government should make the following changes to apprenticeship policy:

• Clear geographic targets for where apprenticeships need to be created and are most needed
• Encourage local employers to work with local government and mayors to create apprenticeships that are right for the local community
• More flexibility for employers on how they can spend levy funds to allow the actual costs of delivering apprenticeships to be covered
• An extension of the time period employers have to spend their levy funds from 24 to 36 months
• Encourage collaboration between employers to drive the growth of new apprenticeships

Co-op Group CEO, Shirine Khoury-Haq said: “Apprenticeships are one of the best tools available to promote social mobility, so business must play a central role in providing young people with an equal chance to gain the skills they need to fulfil their potential – particularly in the current economic climate.

“The Apprenticeship Levy goes some way to encouraging businesses to invest in their people, but the Government needs to better support businesses to make apprenticeships accessible to all and ensure that funding is used as effectively as possible.”

“By working together, businesses and government have the potential to bring an established career and brighter future for tens of thousands of young people.”

Sarah Atkinson, CEO, Social Mobility Foundation, said: “Apprenticeships can be a highly effective tool for social mobility, and offer huge potential benefits for those who want to work and learn at the same time. But the system is not working effectively, as this research demonstrates - too often the best opportunities go to those who are already privileged.”

“It is not right that so many talented young people are missing out on these opportunities just because of where they were born, the school they attended or what their parents did for a living. That needs to change.”

“Through our annual Social Mobility Employer Index we help employers to ensure people from all social backgrounds can get in and get on in their organisations, including through well designed and well targeted apprenticeship programmes. The Co-op has demonstrated their commitment to social mobility by entering the Index every year since it began and we encourage other employers to follow their lead.”

“Together, we can make sure that apprenticeships deliver on the promise of social mobility.”