£3.3 billion of unused apprenticeship levy funds have been returned to the Treasury – should you be thinking about apprenticeships?

Apprenticeship levy and funding

Employers with a pay bill of over £3 million per year are required to pay the apprenticeship levy, which is a set rate of 0.5% of their total annual pay bill. According to the Department of Education, currently only 2% of employers in the UK pay the apprenticeship levy. Those employers have a digital account where they can spend their levy funds to pay for apprenticeship training. Though smaller employers do not pay the apprenticeship levy, they benefit from the funding generated by it, as they pay just 5% of the cost of apprenticeship training, with the Government paying for the remaining training fees.

The levy funds almost 650 different types of apprenticeships. And if you thought apprenticeships could only be used for skilled manual labour jobs for those of school-leaving age, you’d be wrong. Apprenticeships are categorised into four levels:

• Intermediate or level 2, which equates to a GCSE level qualification;
• Advanced or level 3, which equates to an A Level qualification;
• Higher, or levels 4 and 5, equating to a Higher National Certificate or Foundation Degree; and
• Degree, or levels 6 and 7 which equate to a Bachelor’s or Master’s degree.

Examples of higher or degree level apprenticeships include accounting finance manager, robotics engineer, senior people professionals and marketing managers.

According to the Government’s statistics on apprenticeships, during the 2022/23 academic year, there were a total of 703,670 people in active apprenticeships, with 275,630 of those starting in this academic year alone. Of those starting in the 2022/23 academic year:

• Under 19s only accounted for 24.8%;
• Higher apprenticeships account for almost 34% (an increase of 6.1% from the previous year); and
• Degree apprenticeships accounted for 15%, which is also up by 9.3% from the previous year.

Due to the apprenticeship levy ‘use it or lose it’ rule, funds which are not spent within two years are returned to the Treasury. A freedom of information request in 2022 showed that since May 2019, more than £3.3 billion of unused apprenticeship levy has been returned to the Treasury.

What should employers consider?

For both large employers who pay the levy and smaller employers (who do not pay the levy but get the benefit of a substantial subsidy available for training fees), it’s worthwhile considering long-term recruitment strategies and whether there are areas within your business that could benefit from apprentices. Levy-paying employers in particular should review their digital account to assess the funds available to them.

It is important to be aware of the law on employing apprentices and the necessary contractual requirements, which differ between the different UK nations. Our inbrief on apprenticeships provides a useful overview on the legal position, or, for more advice on apprenticeships, contact Lee Nair, Abi Frederick or Saffron O’Gorman.