Apprenticeships are a rewarding way for school-leavers to forge a prosperous career, but the system that funds them in England is under scrutiny.

A damning report published by the EDSK thinktank recently claimed organisations are abusing the system: spending hundreds of millions of pounds on “fake” apprenticeships – relabelled courses, including MBAs for chief executives.

Introduced in April 2017, the apprenticeship levy makes large organisations set aside 0.5% of their payroll for apprenticeships. But an explosion in the number of pricey, high-level apprenticeships for people already in work is draining the apprenticeship budget and could “crowd out” youngsters, according to the Resolution Foundation.

The number of GCSE-equivalent apprenticeship starts nearly halved between 2014/15 and 2017/18, from 298,000 to 161,000. The number of apprenticeship starts equivalent to bachelor’s degrees and above more than doubled, from 20,000 to 48,000. Over 25s accounted for 65% of these higher-level apprenticeship starts and the majority were already employed, the Resolution Foundation said.

Employers rebranded existing training courses as apprenticeships to “avoid losing money” they paid into the levy, says Tom Richmond, director of the EDSK thinktank: unspent funds are lost after 24 months. Some £11m of unspent funds expired in May 2019, the first month of the expiry process.

Small businesses do not pay the levy, but can draw on the money if they pay for 5% of training costs, with the government covering the remaining 95%, up to the funding band maximum. But thousands of small firms cannot access training because of a funding shortfall, according to the Association of Employment and Learning Providers.

The levy is in danger of failing those it was set up to help, as much of the money has been diverted to older workers. Photograph: Alto Images/Stocksy

Employers and training providers are calling for the levy to be reformed, because it is not running smoothly. There were 393,400 apprenticeship starts in 2018/19, up 5% on the year before but down significantly from the 564,800 starts prior to the levy’s introduction.

What’s more, 45% of 510 firms surveyed recently by accounting firm Grant Thornton had not spent a penny of the money they had paid into the levy so far.

But for other employers, apprenticeships are a boon. The insurer Axa spends nearly all of its levy pot, says Emma Austen, head of professional qualifications. “The levy is a fantastic way to develop our staff,” she says. “All of our apprentices are in permanent roles that fill a business need and further their learning. Most people stay with us after the apprenticeship.”

Dan Richards, UK and Ireland recruitment director at professional services firm EY, is also bullish on apprenticeships. “Apprenticeships are one way to increase entry routes into the profession. They have helped us to diversify the talent that we attract,” he says.

To improve the system, Richmond calls for a new definition of an “apprenticeship”, benchmarked against systems in other countries, and only applicable to level 3 courses, equivalent to A-levels. He also wants ringfenced apprenticeship funding for 16- to 18-year-olds; training courses for low-skilled jobs like pouring pints to be scrapped; and degree apprenticeships excluded from levy funding.

However, Neil Carberry, chief executive of the Recruitment and Employment Confederation, wants looser, not tighter, funding rules. “The apprenticeship levy should be a ‘skills levy’ that companies can draw down upon to fund whatever training is work-relevant, meets their workforce needs and is regulated by Ofqual,” he says.

Joe Fitzsimons, head of education and skills at the Institute of Directors, also wants government funding to cover an apprentice’s wages while they train for at least 20% of their time off-the-job. “This is a real sticking point for organisations, as it’s a large cost to cover.”

With a huge hole in the apprenticeship budget, the government seems likely to make some reforms to the levy. But it remains to be seen what form that will take.