Apprenticeship levy risks providing 'poor value for money', warns IFS

Heavy employer subsidies are in danger of negating additional UK government expenditure to boost quality and quantity.

The current design of the apprenticeship levy system combined with the UK government’s decision to expand the number of places available risk making it “poor value for money”, according to a new report.

The study conducted by think tank the Institute for Fiscal Studies warned that the move to offer more generous subsidies to employers providing such training in England means that government spending on them is only expected to increase by £640 million between 2016/17 and 2019/20. This is despite the fact that the levy, which amounts to 0.5% of employer’s pay bills if they are higher than £3 million per year, is estimated to raise a total of £2.8 billion in fiscal 2019/20.

The issue is that the subsidies mean many organisations will have nothing to pay, or at most 10% of their off-the-job training costs. The government’s aim here is to provide organisations with more of an incentive to hire apprentices, especially if they are aged 19 or more as training costs up until 2017 will be paid for.

But the problem with this scenario, according to the report, is that a “zero or near zero cost of training poses considerable risks to the efficient use of public money” as employers will have little incentive to work with cost-effective training providers. They also have a big incentive to simply re-label existing training schemes as apprenticeships.

Neil Amin-Smith, one of the report’s authors, said: “We desperately need an effective system for supporting training of young people in the UK. But the new apprenticeship levy, and associated targets, risk repeating the mistakes of recent decades by encouraging employers and training providers to re-label current activity and seek subsidy rather than the best training.”

There was also a risk that focusing on targets would “distort policy” and lead to the “inefficient use of public money”, he added.

The report also pointed out that by creating a target of 600,000 new apprentices a year over the course of this Parliament, the equivalent of a 20% increase on 2014/15 levels, there was a risk of “increasing quantity at the expense of quality”.

To make matters worse, the apprenticeship levy is expected to put downward pressure on wages in the wider economy. The report cited the Office for Budget Responsibility, which indicated that the levy would cut wages by about 0.3% by 2020/21. Although only 2% of organisations pay the levy, they employ at least 60% of England’s workers.