The state of apprenticeships

A decline in skills and “the missing million” 

Over the last few years, the UK has experienced a severe shortage within the trade skills sector as it struggles to keep up with current construction demands. Recent data from Make UK Modular shows that an additional 950,000 workers will be required to meet the demand by 2030 for the UK to meet Net Zero requirements. With Brexit legislation impacting the import of construction materials and an aging workforce, the UK must act fast to meet current demands.

Government figures from 2023 have shown that apprenticeship starts for 2022/2023 fell by 3% on the previous academic year, due to falling numbers in small and medium-sized employers. In his recent Autumn Statement, Chancellor Jeremy Hunt promised to invest £50 million towards apprenticeship training in engineering and other “key growth areas”. Although encouraging, details about how this will be implemented have yet to be announced. 

According to research published by the Chartered Management Institute in 2022, apprentices who qualified in 2019 are projected to add £7bn to the economy by the end of 2029. Investing in apprenticeships and creating a positive infrastructure that not only encourages young people to pursue work-based learning but also streamlines the processes in which businesses take on new apprenticeships, will be a key factor in future UK economic growth going forward. 

Apprenticeships also allow businesses to upskill in areas that matter most and develop career paths within core areas of their business. In data released by gov.uk in 2023, “86% of employers said apprenticeships helped them develop skills relevant to their organisation”, with 74% of employers saying that “apprenticeships helped them improve the quality of their product or service”.

Current Situation 

How Levy funding is impacting apprenticeships 

In 2017, the UK government introduced ‘the apprenticeship levy’. This levy mandated that businesses with a wage bill exceeding £3 million annually, must contribute 0.5% of their payroll costs to a training fund, which they can then use for specified training schemes. According to the recent annual Economic and Fiscal Outlook published by the Office for Budget and Responsibility, the cash raised by the apprenticeship levy will surpass previous predictions and reach £4 billion by 2024-25, over £300 million more than what was initially forecasted last year. 

This is, in part, due to intense restrictions on what employers can use levy funding on. For example, if you are an apprentice and can’t commit to a year-long course to pick up a skill you could probably learn in half the time, you would miss out on valuable levy funding. 

For many firms, the ‘levy’, which was originally set up as a solution to tackle the skills and labour shortages, has become a barrier that continues to swallow funds that are not being used effectively. Organisations such as The Chartered Managers Institute are calling on the government to improve the apprenticeship levy system to become more ‘flexible’ in how the levy can be spent to cover a wider range of high-quality training. 

But what real impact is government legislation having on businesses and apprenticeships? 

According to the government figures released in 2023, under-19’s made up just over a quarter (28%) of new apprenticeship starts in the 2022/23 academic year. This smaller number is down to many companies using their levy funds, not to bring on school-leaver apprentices, but to help existing staff members pay for degrees and retain talent. However, this disproportionately affects younger people from entering the workforce through the apprenticeship route and when faced with the crisis of an “aging workforce”, the levy is having limited impact in solving the problem.

A recent paper published by The National Federation of Builders outlined the apprenticeship levy itself as “not fit for purpose”. In the foreword to the report Herman Kok of The Lindum Group, who chaired the working group that produced the paper, wrote that “the use of apprenticeship levy can be ‘fudged’ by re-classifying an existing employee as an apprentice when gaining a new skill – resulting in a number of middle-aged middle-management ‘apprentices’ enrolling as under-graduates to gain a (further) degree at one of our universities”.  

However, this does not mean there is not an appetite for young apprentices. A recent survey conducted by Survation for Business London (formerly ‘the London First campaign group’) shared that even though 80% of businesses aimed to hire at least one apprentice in 2022, only 1 in 6 businesses believed the levy system is working well and a staggering 48% of businesses had to return their levy funding to the treasury as they couldn’t spend it.

As an industry already hampered by a major skills shortage and low growth prospects, there is an argument that reforms to the apprenticeship levy are necessary to boost productivity and ensure longevity by enabling trade businesses to bring in new blood.

SMEs and Apprenticeships 

As the cost-of-living crisis continues to impact the UK economy, a recent survey by Vodafone has shown that as businesses continue to feel the pressure to tighten their budgets, they have had to make the difficult decision to re-think their investment in their apprenticeship schemes. The data shows that more than half (51%) of UK SMEs have cancelled plans to take on an apprentice due to cost-of-living concerns such as energy and transport. Furthermore, 21% said they simply couldn’t afford to take on an apprentice. 

The survey also showed that 20% of SMEs are unsure how to go about hiring an apprentice and 44% are unaware that there’s even funding available from the apprenticeship levy. With SMEs making up over 99.9% of UK businesses, these are startling numbers to contend with. 

Half of all SMEs surveyed stated that the funding would encourage them to hire apprentices. Some people may consider that these statistics highlight a failure to provide adequate guidance for businesses, and in raising awareness of the apprenticeship levy, so that businesses can take advantage of the funding and hire apprentices.

The government itself has taken some steps to challenge this through Minister John Glen’s recent media campaign to urge students to undertake apprenticeships as an alternative to a traditional degree.

To tackle the lower percentage of apprentices benefiting from the levy, Toby Perkins, the Shadow Skills Minister for the Labour Party recently told attendees at the Association of Employment and Learning Providers national conference, of Labour’s commitment to provide additional spending for a “ringfenced budget” towards funding apprenticeships in SMEs.  

Labour has stated that should they come into power after the next election, employers who pay into the apprenticeship levy will be able to spend up to 50 percent of their contribution on non-apprenticeship courses. However, at least 50 percent of their contribution must be spent on funding apprenticeships. Although, this seems like a straightforward strategy to tackle the disparity in current levy spending, sector and provider leaders are concerned that due to larger employers being more likely to spend more of their levy contributions, this would leave little money for SMEs to fund apprenticeships. Despite this, Perkins has stated that “there will be no reduction in the amount of funding available to fund non-levy payers”. 

Labour has also unveiled plans to implement “Skills England”, a new agency that will be responsible for a new non-apprenticeship course list containing qualifications that reflect current industrial strategy priorities. This will be a separate entity from the Education and Skills funding agency, which provides apprenticeship funding. This new “Skills England” agency is designed to meet the needs of businesses and workers who are looking to upskill in areas not covered by the current levy. 

Whether the current Conservative government or a subsequent government can implement their proposed transformation of the apprenticeship levy system, amendments are needed for UK businesses to get the most out of the system than what they are currently receiving. Alongside this, when looking at the government statistics released in 2023, it is evident that more awareness needs to be raised among SMEs that funding for apprenticeships is available and barriers removed so that we can build our workforce to meet the demands.

Trades Sector 

Traditionally, the construction and trades sector has been a key driver in the UK’s economic growth. However, in recent years the sector has been hampered by challenges, namely the “missing million” construction workers required to fulfil net zero construction goals by 2030. 

Brexit posed another challenge as we’ve also seen a significant amount of EU trade workers leave the UK following the legislation. According to a report by the UK Skills Index in 2023, around 35% of the industry’s workforce is now over 50, and with a 36% fall in new houses being built in 2023, the lack of labour workers has become even more critical. 

Although many factors have contributed to the current state the industry finds itself in, the reported lack of apprenticeship “starts” within construction has been a significant contributor. To meet the current demand, the report calculates that the construction industry must increase the number of apprenticeship starts by 25,000 per year to address the skills gap with a focus on recruitment and retaining new talent.

Checkatrade, a website that connects homeowners with reputable, local tradespeople has launched its own initiative – ‘Tryatrade’, a careers program for schools set up to inspire and encourage young people to pursue careers within the trades industry. They work with schools, particularly the Year 10 and 11-year groups, to provide them with resources and initiatives along with access to people already working within the trades sector who can provide them with guidance on how to enter the industry. 

Meeting training goals may also require employing newer ways of training. The continuing adoption of artificial intelligence (“AI”) tools such as ChatGPT has already transformed how we provide education in the UK. Traditional models of apprenticeship require students to split their time between working and studying. Utilising the power of AI could allow employers and educators to mix the two, bringing the cost of tuition down to provide a more tailored work experience that focuses on the needs of the student.  

Furthermore, as the construction industry works to close a “skills gap”, a blanket approach to providing and assessing apprenticeships might not be the way forward. With the current apprenticeship structure facing calls to diversify to allow for a variety of learning pathways, there should also be an allowance for a model of more specific, specialised courses that trades businesses can utilise to address their skill gaps. 

Summary 

When considering the state of apprenticeships in the UK, it’s impossible to do so without also considering the impact of the events of the last five years and the implementation of the much-debated apprenticeship levy. Over the coming years, the role that apprenticeships will play in navigating the challenges the UK has faced (particularly in the construction and trades sector), will be central to the success of meeting current targets and giving the economy the boost it requires. 

If the previous stark figures are anything to go by, the pressing need for skilled workers to meet the demands of a rapidly evolving landscape, compounded by factors like the cost-of-living crisis, an aging workforce, and Brexit requires immediate action. 

While apprenticeships offer a promising solution, the decline in apprenticeship starts, and the rigidity of the apprenticeship levy, raises genuine concerns and is at risk of becoming “not fit-for-purpose”. After considering last year’s government figures, flexible levy spending, increased funding for work-based training, and a more proactive approach to making sure that people from all backgrounds can take advantage of the opportunities that an apprenticeship can provide will be key factors in solving this challenge.