Black hole fund? Apprenticeship Levy in crisis as £3.3 billion clawed back

a girl training to be a car mechanic

The return of more than £3.3 billion in unspent Apprenticeship Levy funding to a Treasury “black hole” over the last three years has led to calls from across the automotive sector for the system to be urgently reformed.

The Apprenticeship Levy has, since 2017 been funded by employers that pay out salaries of more than £3 million, at a rate of 0.5% of their annual pay bill. Funding is accessible to all other businesses. Although Levy funding can be carried across to the next year, if it is entirely unused after two years, the money is taken back.

According to a Freedom of Information request by the London Progression Collaboration, since May 2019, employers in England across all industries have seen unused Levy funding clawed back to the Treasury at a rate of £95 million per month, totalling £1.1 billion per year.

Anna Ambrose, Director of the London Progression Collaboration, said: “Since 2019, over £3 billion in funds that businesses haven’t used appear to have been lost to a Treasury black hole. This transparency deficit risks undermining confidence that money for apprentices is being used in the most effective and fair way.”

IGA Head of Member Services Frank Harvey said: “The IGA is disappointed at the news that £3.3bn of Apprenticeship Levy funding is being absorbed by the HM Treasury. While it has always being the case that unused Levy funds would be returned to the Treasury, times have changed since the Levy rules were written, and the IGA feels that the unused funds should be made available to encourage and support grass roots apprenticeships.

“At a time when the independent garage sector is crying out for skilled, competent technicians, to hear that much needed apprenticeship funding is unused and is being returned to the government coffers, only serves to indicate the inadequacies of the much-maligned Apprenticeship Levy.”

Frank added: “Reversing the decline of technical skills must be a priority for the government, and apprenticeships are essential to attract the next generation into technical industries.
“The IGA would like to see an urgent review of the levy, as promised by the then-Chancellor Rishi Sunak in his Spring Statement, in order to stem the decline of technical and craft skills, not only in the automotive sector but across all UK industries.”

IMI CEO Steve Nash observed : “It’s clear that many of the underlying causes of the current skills shortages in the automotive sector are not short term, so businesses must think longer term and not just about their immediate challenges. The unspent billions of levy funds returned to Treasury in the past three years will have largely been fuelled by the pandemic and a halt on training, but the industry needs to make up for lost time and the funds are there to do so.

“Our own data confirms that in the next decade the shortfall of skilled workers in the automotive sector will be in the tens of thousands. To counter this, the Department for Education needs to support employers by extending the period of time the levy funds remain in their digital accounts to enable them to act. Apprenticeship recruitment is crucial for the UK economy, but the automotive sector in particular as they can really help to build the skilled workforce that’s going to be so badly needed in the years to come.”

Steve added: “Our Automotive Apprentice ROI Calculator clearly demonstrates that apprentices more than pay for themselves within their training period, and that they become productive within their first year. Apprentices can make a valuable contribution to the more immediate workforce challenges too. So, it makes no sense to let levy funds go unspent.”

Previous research by the LPC showed that since 2014-15, entry-level apprenticeships have fallen by 72% in England, while apprenticeship starts for under-19s have fallen by 59%.

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