Levy drives down apprenticeships by almost two thirds

Nicola Woolcock, Education Correspondent

The number of apprenticeships has fallen by almost two thirds since the government introduced a levy on companies that was supposed to increase opportunities for young people.

There were 61 per cent fewer apprenticeships between May and July compared with the same period last year. Business leaders described the data as disappointing and Labour called it a “damning indictment”.

Sir Vince Cable, the Liberal Democrat leader, said that the Tories were “trashing the legacy” of the coalition government and that the figures were a big setback.

Since April any company with a wage bill of more than £3 million must pay a 0.5 per cent levy to cover the costs of apprenticeships. However they can take up to two years to spend those funds and the system is costing companies more. Critics from the business world have described the levy as a blunt instrument and said there was too much focus on the number of apprenticeships started rather than finished, with only about two thirds reaching completion.

Companies can recover the cost of college tuition fees but not costs such as in-house training or apprentice salaries. The CBI explained: “Company A has an apprenticeships budget of £1 million, and pays the college £300,000 for tuition. The other £700,000 is capital costs, in-company trainers, apprentice salaries. Their levy is £500,000 — but this can only be used to fund the college costs. So the same number of apprentices costs £1.2 million. They could meet this cost, change other training, or cut apprentice numbers to meet it.”

Before the levy was introduced it was up to businesses how much they spent on apprenticeships and costs were not recovered from the government. The Department for Education admitted that changes to the system had caused disruption.

The CBI criticised the government and said that the new system was inflexible. “This disappointing data will come as no surprise to companies, who have repeatedly made clear that the current design of the apprenticeship levy system is not effective,” Neil Carberry, of the CBI, said. “Reform of the levy system is needed urgently to ensure its success.”

There were 43,600 new apprenticeships between May and July, down from 113,000 for the same period last year, according to figures released by the Department for Education yesterday.

A survey by the British Chambers of Commerce (BCC) last month found that almost a quarter of companies liable for the levy had no understanding of it or did not know how they would respond to it. More than half said that they did not expect to recover all or any of their payment.

Rather than taking on teenagers, some companies have used money ringfenced for apprenticeships to pay for executives to have further training.

Gordon Marsden, the shadow skills minister, said: "We have consistently warned that the government’s lackadaisical approach to the introduction of the levy would damage the apprenticeship programme." He said problems had included delays to funding allocations, insufficient resources and a failure to guarantee support for employers.

A DfE spokesman said the scheme should not be judged on a period of three months and that it was right for companies to take their time and plan ahead. "Feedback we have had from levy payers has shown they are doing this and they plan to increase their demand for apprenticeships," he said.