Unspent apprenticeship levy creates a £3bn opportunity for skills fund

Recent data highlights that £3.3bn in unspent Apprenticeship Levy funds have been returned to the UK Treasury since 2019.

This shows there’s clear need to reform the levy and now is the time to invest in a simpler skills fund, which is rooted in sector-specific challenges and opportunities. Such an approach could help manufacturers to fulfil ambitions to enhance outputs and productivity. 

The case for reform

A freedom of information request by social enterprise the London Progression Collaboration uncovered the billions of pounds of Apprenticeship Levy money that’s been clawed back by the Government. It also found there’s been a 59% drop in all apprenticeship starts amongst under-19s since 2014-15. 

There have been numerous calls in recent years to reform the levy, and this data suggests an overhaul is required. Given the challenges of the past few years and ongoing cost and talent pressures facing companies, it’s incomprehensible that so much funding would go unused. This is surely a symptom of a system that’s not fit for purpose. 

Professional HR body the CIPD, as well as manufacturers’ organisation Make UK are amongst those who’ve called on the Government to reform the Apprenticeship Levy. Greater flexibility, fewer complexities and more relevant conditions are just a few of the reforms being called for. Indeed, Make UK suggested that a sectoral rethink about the levy could boost essential skills in high growth industries like manufacturing and engineering. As an employer in this sector, I’m more than inclined to agree. 

Understanding sector-specific challenges 

At Duo, the suitability of some packaging manufacturing roles means that we typically have to look towards a minimum of a Level 4 Apprenticeship as a starting point for an apprentice’s career with us. There’s no defined rule in terms of apprenticeship ages, but Level 4 would usually be associated with a college leaver aged around 18 years. This means, that like many other manufacturers, we cannot always feasibly offer employment to school-aged apprentices. We’re missing out on a talent pool during a key moment when they’re thinking about career choices. 

Funding the recruitment challenge

Sectoral-led reform would also identify unique recruitment challenges. Not all apprenticeships are equal, with some sectors and careers often appealing more to young people. Manufacturing is often at a disadvantage, as it not always as properly considered and doesn’t always seem as exciting as sectors such as hospitality, creative and design, digital and marketing. This can leave manufacturers on a backfoot, having to work harder to connect with potential apprentices. Funding must recognise this and there should be opportunity for manufacturers to utilise financial support to cover the costs of having to invest more in attracting new recruits. A flexible skills fund could make allowances for this.    

Investing in skills beyond apprenticeships 

The existing Apprenticeship Levy does include bands for sectors but limits funding for training to £27,000 per apprentice. In specialist manufacturing roles, which require several years of training – this level of funding can fall significantly short. Specialist manufacturing roles often involve learning on the job, with knowledge transfer from experienced operators. Funding should be available to help cover the downtime and impact on productivity this can have and to also reward operators who are acting as trainers. The existing approach to the levy and training can also be rapidly outpaced by changes in technology, placing ever more importance on the value of ongoing skills development.

The rate of change in manufacturing is accelerating and shows no sign of slowing down. Digitisation, automation, and the shift towards circular economies mean manufacturing needs to be leaner and more resourceful than ever before. Investing in training and development across workforces – not just at apprenticeship level – is a growing priority. Manufacturers need a skills fund that recognises this.

Government has previously indicated that unspent Apprenticeship Levy funds will be used to support existing apprenticeships. A huge unused sum of £3.3bn implies this type of support may not actually be required. Perhaps the money could be invested in reforming the system and starting a new skills fund that’s better tailored to meeting the specific challenges of different sectors.  

It’s an idea that’s likely to appeal to manufacturers and support their ambitions to drive growth. Make UK research shows 28% of manufacturers believe greater investment in apprenticeships would make a big difference to their ability to grow, whilst 23% said an improved infrastructure would kick-start growth. Now’s the time to reform the Apprenticeship Levy.