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Sunak to scrap SME co-investment for young apprentices

The Prime Minister will also increase apprenticeship levy transfers by up to 50%

The government is set to scrap small and medium-sized employer (SME) co-investment payments for apprentices under the age of 22.

It also plans to increase the amount of funding that can be transferred from apprenticeship levy-payers to other businesses from 25 per cent to 50 per cent.

The reforms will come into force from the start of April, Prime Minister Rishi Sunak is expected to announce this morning.

In a speech to a conference for small businesses, Sunak will say the move will equate to an additional £60 million of new government funding for apprenticeships – presumably the estimated amount it will cost to fully fund SME apprenticeships up to the age of 21.

Sunak will claim that the changes will lead to an extra 20,000 apprenticeships.

The announcements come in response to dwindling apprenticeship numbers in SMEs – last year saw apprenticeship starts in levy-paying businesses grow by 2 per cent while starts for non-levy payers fell 13 per cent.

Starts among young apprentices have also fallen dramatically since the launch of the levy.

The prime minister will say: “Whether it’s breaking down barriers and red tape for small businesses, helping businesses hire more young people into apprenticeships and skilled jobs or empowering women to start up their own businesses – this government is sticking to the plan and leaving no stone unturned to make the UK the best place to do business.

“Taken together, these measures will unlock a tidal wave of opportunity and make a real difference to businesses and entrepreneurs across the country.”

‘This will help SMEs hire more apprentices’
Since the apprenticeship levy was introduced in 2017, only large employers with a payroll in excess of £3 million pay into the levy at a rate of 0.5 per cent of salary costs.

The contributions go towards funding all parts of the apprenticeship system, including funding 95 per cent of training of apprentices in non-levy paying businesses.

SMEs then make a co-investment payment of 5 per cent.

The government said today that it will “fully fund apprenticeships in small businesses from April 1 by paying the full cost of training for anyone up to the age of 21 – reducing costs and burdens for businesses and delivering more opportunities for young people to kick start their careers”.

FE Week reported last month that less than 3 per cent of apprenticeship-levy paying businesses have transferred funds to pay for apprenticeships in smaller employers, sparking calls for the 25 per cent transfer cap to be scrapped.

Announcing the move to a 50 per cent transfer limit today, the government said: “Under the new measures, large employers who pay the apprenticeship levy will be able to transfer up to 50 per cent of their funds to support other businesses, including smaller firms, to take on apprentices.

“This will help SMEs hire more apprentices by reducing costs and enabling more employers to get the skilled workers they need while unlocking more opportunities for young people in a huge range of sectors, industries, and professions.”

The transfer increase is expected to come into effect from April 6.

Simon Ashworth, director of policy at the Association of Employment and Learning Providers, said the end of co-investment for young people was “particularly” welcomed as the “cost and bureaucracy burden to training providers usually outweighed the cash this actually brought in”.

AELP has however called for the end to co-investment for all-age apprenticeships and vowed to “continue to lobby the government to ensure training providers are not unfairly penalised when an employer stops paying their contribution which voids access to the final 20 per cent completion payment”.

David Hughes, chief executive of the Association of Colleges, said the targeted funding for all apprenticeships under the age of 21 will make a “modest difference” to the “dramatic decline in the number of young people undertaking apprenticeships”, but warned the change is “not enough”.

“We urge the government to properly review the levy rules and incentives to ensure the apprenticeship programme works for young people, key sectors and for employers,” he added.

Apprenticeship budget to go ‘over’ £2.7bn in 24-25
The government previously said that the Department for Education’s ring-fenced budget for apprenticeships in England will rise to £2.7 billion in 2024-25.

Today’s announcement said this budget will increase to “over £2.7 billion from next year”. An exact figure for DfE’s new ring-fenced budget has not yet been published.

FE Week reported last month that of the department’s £2.585 billion ring-fenced apprenticeship budget in 2023-24, £2.525 billion, or 98 per cent, is expected to be spent. It means the DfE will hand back £60 million to the Treasury, which could be being used to fund today’s funding announcement increase.

However, the disparity in what is distributed by the Treasury for public spending on apprenticeships compared to how much the levy is generating continues to grow.

Latest Treasury figures show £3.170 billion was received from employers who pay the apprenticeship levy between April 2023 and January 2024, with two months’ worth of receipts to come before the end of the financial year.

A recent Office for Budget Responsibility (OBR) forecast predicted that total apprenticeship levy intake to HMRC will reach £3.9 billion in 2023-24.

When DfE’s ring-fenced budget spend on apprenticeships in England is combined with the £500 million-odd that is handed to the devolved nations from the levy, it leaves around £875 million that was generated by the levy but held onto by the Treasury in 2023-24.



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