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What impact have apprenticeship reforms had on employer behaviour?

Peter Dickinson, Institute for Employment Research at the University of Warwick

In spring 2017, the UK government introduced a package of apprenticeship reforms. The most significant of these was the introduction of the apprenticeship levy, a new way of funding apprenticeships. Over the past 20 years, there has been an ongoing shift in the apprenticeship landscape. There has been a large increase in apprentice numbers but also a change in composition. Today’s apprentices are increasingly existing employees of a large organisation that funds their training, aged over 25 and working towards higher-level apprenticeships. In some cases, the spring 2017 reforms have continued these trends. In other cases, they have exacerbated them.

To measure the impact of the 2017 reforms on employer behaviour, the Edge Foundation and the Gatsby Foundation commissioned research from the University of Warwick Institute for Employment Research (IER). The primary aim was to determine why employers reduced their apprenticeship provision after the introduction of the reforms. IER analysed official apprenticeship data, information from a number of published employer surveys and conducted interviews with 23 (levy and non-levy paying) employers. This summary shares some of the most compelling findings.

The levy has altered apprenticeship uptake in unexpected ways

While the research looked collectively at the reforms, the introduction of the levy had by far the greatest impact. Interestingly, those employers who would appear to be least affected by the introduction of the levy (i.e. smaller, non-levy paying businesses) have been more likely to reduce apprenticeship recruitment, whereas larger, levy-paying employers have increased theirs.

It is important to stress that the levy is the key factor here, not employer size. For example, small levy paying employers have tended to increase their apprenticeship numbers, whereas large non-levy payers have tended to reduce theirs. The study found that levy payers have been incentivised to convert their existing training provision into apprenticeships, in order to maximise their levy spend.

Apprenticeships are facilitating fewer young people’s transition into the workforce

A corollary of the above is the reduction in apprenticeships as a mechanism for supporting young people moving from the education system into the labour market. Traditionally, smaller employers were more likely to recruit young people on Intermediate level apprenticeships, providing them with a way of transitioning into the workforce. Instead, apprenticeships are increasingly being used for higher-level skills development for older employees in larger organisations.

Hidden costs seem to be impacting apprenticeship take-up in certain sectors

In addition to the levy, the government’s 20% off-the-job training requirement has also had an impact. This is primarily in sectors and occupations that require certain staff:customer ratios. This can be in occupations and sectors – such as hospitality and retail – where certain staffing levels are required in order to serve customers (e.g. in a coffee shop), or in childcare where staff:children ratios are a statutory requirement.

Having to ‘backfill’ staff whilst they are training can add considerable costs to an apprenticeship. Typically, the sectors most affected are those with lower-skilled workers in lower-waged jobs. Potentially, these occupations and sectors are excellent targets for apprenticeships that help low-skilled workers to gain skills and qualifications, often as a basis for progressing in their careers. However, the additional financial costs of backfilling are proving a disincentive for many employers.

The reforms have therefore provided a ‘double whammy’ to both younger and older people who use apprenticeships as a first step into, or progress in, the labour market.

Key takeaways

Overall, the research suggests that apprenticeships remain an important means through which employers meet their skill needs. However, the reforms – and primarily the levy – have impacted employer behaviour in relation to the numbers of apprentices recruited, and the type, age and level of apprentice they take on.

The reforms have accelerated the trend towards existing employees undertaking higher-level apprenticeships. The levy has led to a reduction in apprenticeship recruitment by non-levy payers (typically smaller businesses) and increased take-up by levy payers (typically larger ones). In some sectors, there are also additional financial disincentives, such as backfilling costs; usually those sectors which recruit and employ large proportions of lower-skilled and qualified workers.

If apprenticeships are increasingly being used to train existing employees of larger firms in higher-level apprenticeships, thought needs to be given to how the training needs of young people, smaller employers, and those wanting to do lower-level apprenticeships might be encouraged and supported.

The IER owes huge thanks to the employers who graciously gave up their time to share their apprenticeship recruitment practices and how these were affected by the reforms and the pandemic. We’re also grateful to Edge and Gatsby for funding this study. We hope the effort put into it will aid their ongoing work in equal measure.

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