The last quarter of 2016/17 has seen a large fall in the number of people starting apprenticeships. Numbers were down by two thirds from the average of the previous three quarters. This fall occurred following two events: the introduction of the apprenticeship levy, and an overhaul of how apprenticeships were funded.
This blog post provides a brief summary of the changes in funding, and describes how the number of people starting apprenticeships changed in the second half of 2016/17.
A drop in apprenticeships?
There was a dramatic drop in the number of apprenticeships started in the final quarter of 2016/17, the quarter after the funding changes we explore below came into place. In May-July 2017, 130,000 fewer apprenticeships were started than in the previous quarter (a fall of 72%) and over 70,000 less than the same quarter in 2016 (a fall of 59%).
Despite the large fall in the final quarter of the academic year, the change for the entire academic year was much smaller: the number of apprenticeships started in 2016/17 fell by 3% from 2015/16.
This was due to a large increase in the number of apprenticeships that were started in February – April 2017, the quarter immediately before the funding changes came into place. The number of apprenticeships started in this quarter was 65,000 higher than the previous quarter (an increase of 59%), and 55,000 higher than for the same quarter in 2015/16 (an increase of 46%).
Thus when the total of the number of apprenticeships started in the last half of 2016/17 are compared to the number in the last half of 2015/16, the changes are smaller: they decreased by 15,000, a fall of 6%.
Have particular age groups been impacted?
Generally around 500,000 people start apprenticeships every academic year. Slightly less than half of these are by people aged 25 or over, while around a further 30% are by those aged 19 – 24. The remainder, approximately a quarter, are by those aged under 19.
The biggest impact of this drop was on the number of apprenticeships started by people aged 25 or above. In the quarter preceding the funding changes, the number of apprenticeships started by apprentices within this age group almost doubled compared to the previous quarter.
In the quarter after the introduction there was a huge fall, from 103,000 to only 20,000.
How did funding change in May 2017?
In May 2017, the apprenticeship funding system was revised. From May 2017 onwards the ‘base’ funding that an apprenticeship received from the government depended on whether the employer paid the apprenticeship levy or not. Additional funding is provided for some apprenticeships.
Prior to May 2017, the government paid all the training costs for 16-18 year olds, half the training costs for 19-23 year olds and up to half for apprentices aged 24 and over on ‘framework’ apprenticeships. Extra support was provided to apprentices living in the most deprived parts of the country or those in areas where training costs were higher.
Apprenticeship ‘standards’ were introduced in 2014, and were funded in a different way. Funding was dependent on the funding band that a standard was assigned to, rather than the age of the apprentice. In 2016/17 only 5% of apprenticeships started were an apprenticeship standard (the rest were frameworks).
What’s the apprenticeship levy?
All UK employers with a pay bill of over £3 million per year started paying the apprenticeship levy in April 2016. The levy is set at 0.5% of the value of the employer’s pay bill, minus an apprenticeship levy allowance of £15,000 per financial year. In August 2016, the Government forecast that 1.3% of all employers would pay the levy in 2017/18, while the Institute for Fiscal Studies (IFS) calculated that 60% of employees work for an employer who pays the levy.
The funds generated by the levy are paid into a levy account for the employer to spend on apprenticeship training costs. If the employer doesn’t spend these funds within two years they expire. The government tops up the funds paid by the employer by 10%.
What about employers who don’t pay the levy?
Those employers with a pay bill of less than £3 million (and who therefore do not pay the levy), will generally pay 10% of the base cost of training and assessment, and the government will pay the remaining 90%. This will also be the case for levy-paying employers who have used all the funding in their levy account.
Employers with less than 50 employees will have all the training costs of 16-18 year olds paid for by the government.
What additional payments does the government provide for apprentices?
Particular groups of apprentices will receive additional financial support towards training and assessment costs from the government.
Extra funding is paid to both employers and training providers for all apprentices:
- aged 16-18
- aged 19-24 and who have previously been in care, or who have a Local Authority Education, Health and Care plan
Additional funding is also provided to training providers for any apprentices of this age that are on an apprenticeship framework.
Extra funding may also be provided for those:
- apprentices living in more deprived areas
- who need support in English and maths
- with learning or other disabilities
- studying STEM apprenticeships
What numbers can we anticipate for 2017/18?
There seems little doubt that the sharp drop in apprenticeships started in the final quarter of 2016/17, and the increase in the quarter before that, were an impact of the funding changes.
The question is: are the funding changes caused a temporary displacement effect due to the uncertainty caused by a change to the system, or will be a longer lasting effect due to concerns over apprenticeship funding?
If the former, the number of apprenticeships started in 2017/18 may be similar to the levels seen since 2011/12. If the latter, and employers are less likely to offer apprenticeships, then the much lower number of starts seen in the final quarter of 2016/17, which could continue into 2017/18.
The Government has stated that “it is premature to draw definitive conclusions regarding the potential reasons for any fall in starts” and that “it is only natural that employers, and the apprenticeship market, take time to reflect on what the changes mean and how to maximise the opportunities they represent”.
The government has committed to a target of 3 million apprenticeship starts between 2015 and 2020. This will prove difficult to achieve unless the level of apprenticeship starts increases back to the levels seen prior to the funding changes.