Government urged to tackle flaws to the Apprenticeship Levy system

Local London has joined forces with a coalition of local government and major employers in the capital to propose urgent reforms to the Apprenticeship Levy that will ensure apprenticeships can play a bigger role in the capital’s recovery.

A new paper published by London Councils, the Greater London Authority, London Chamber of Commerce and Industry, London First, West London Alliance, Central London Forward, South London Partnership and Local London, calls on the Government to reform the Apprenticeship Levy and sets out how a number of new flexibilities could incentivise employers to take on more apprentices.

Cllr Clare Coghill, who is Local London’s deputy chair and London Councils’ Executive Member for Skills and Employment, said: “London’s economy has been disproportionately impacted by COVID-19, with higher levels of unemployment and a larger proportion of the workforce on furlough than in other parts of the UK.

“Unnecessary barriers to using Apprenticeship Levy funding means that Londoners are missing out on vital opportunities to gain skills and experience – skills that are essential to London’s recovery. Businesses are also being blocked from creating apprenticeships that help to fill their skills shortages and support their growth.

“Across London government and business, there is a strong consensus that we need to act now to ensure jobs and training opportunities, including apprenticeships, are made widely available. Apprenticeship Levy reform is the best way of maximising the potential of apprenticeships to equip people with the skills they need to thrive in the labour market, move into different industries or roles and ultimately support our recovery from the pandemic.”

An increase in apprenticeships would provide much-needed employment and skills opportunities to Londoners at a time when forecasts predict London’s unemployment total is expected to peak at 7.9% – or 390,000 economically active residents – by July 2021.

The cross-party coalition has also written a joint letter to Skills Minister Gillian Keegan MP listing its proposed solutions.

The Government previously introduced the Apprenticeship Levy to give employers a greater role in addressing skills shortages and to create more apprenticeships. However, the current apprenticeship system is flawed and many employers – including London’s boroughs – cannot make the most of the funds available to them because of flaws in the design of the scheme. Data from government shows £504m of levy funds were lost to levy-paying employers in the first four months of this year alone.

The coalition is calling on central government to introduce greater flexibilities to address Apprenticeship Levy issues. These include:

• Temporarily extending the amount of time employers have to spend their levy from two years to three years.
• Extending the availability of the current employer incentives and increasing them to reflect the higher cost of living, working and training in London.
• Providing additional government support to small businesses looking to take on apprentices.
• Allowing some levy funding to be used for pre-employment training to get people ready for an apprenticeship.
• Allowing levy-paying employers to use some of their levy to contribute towards the wage costs of new apprentices from priority groups.

These changes would lead to a substantial increase in apprenticeship opportunities, minimising the risks of long-term unemployment and supporting the economic and social recovery from the pandemic.

Without reform, Londoners just starting their careers, looking to retrain or needing to break out of unemployment will have access to fewer apprenticeship opportunities.

A recent survey of over 1,000 London businesses in 2020 found that 92% of firms do not employ any apprentices, while over half (53%) of apprenticeship levy-paying firms plan to use less than half of their apprenticeship levy funds over the next year.

Annual data collected by London Councils shows a drop in the number of apprenticeships London boroughs created in 2020-2021 compared to the previous financial year. London boroughs generated a total of 3,137 apprenticeships during the 2020-21 financial year in comparison to the previous year when 3,693 apprenticeships were generated, a decrease of 15 percent. While the Covid-19 pandemic caused considerable disruption to the operations of local authorities, there are systemic flaws to the Apprenticeship Levy that predate the pandemic.

This is an issue across London as well. In 2019/20, the number of apprenticeship starts in London was 24% lower than in the year before the Levy was introduced.