HR · 16 October 2017

Government urged to reform apprenticeship funding for small firms

Three quarters of small business owners don’t feel they sufficiently understand the rules around hiring apprentices
Three quarters of small business owners don’t feel they sufficiently understand the rules around hiring apprentices

The number of young apprentices joining UK firms fell by 41 per cent in the last year, according to official figures, leading to calls for government to reform how apprenticeship funding is delivered to small business owners.

Figures from the Department for Education (DfE) revealed that since the introduction of the Apprenticeship Levy in April 2017, the number of young people entering workplace training schemes in England dropped by 61 per cent. The levy was introduced to give employers greater control over in-work training.

Responding to the DfE’s figures, Mike Cherry, chairman of the Federation of Small Businesses (FSB), suggested confusion around the new system and the allocation of funding could had contributed to the decline in apprenticeships.

Under the Apprenticeship Levy, companies with an annual payroll above £3m are charged 0.5 per cent on annual bills to fund the government target of three million new apprenticeships by 2020.

Small business owners might not pay into the fund, but they can draw from. In May, a “co-investment” system was introduced, meaning non-levy paying employers could receive a 90 per cent subsidy on the cost of hiring apprentices. For the smallest firms, the government provides full apprenticeship funding for 16 to 18 year olds.

Read more: What smaller employers need to know about the Apprenticeship Levy

“Changes to apprenticeship funding may be partly responsible for driving down the number of apprenticeships, which is bad news for everyone,” Cherry said.

“It’s early days in the government’s apprenticeship programme, but these figures do coincide with an increase in the compulsory employer contribution and a greater focus on levy-paying businesses over smaller employers.”

However, while Cherry accepted that a programme of such significant reform would take time to “bed in”, he emphasised the importance of supporting employers in creating apprenticeships.

“As the government has highlighted, apprenticeships are crucial if we are to tackle the skills shortage and increase the social mobility of our young people,” he added.

Recent research also uncovered a lack of awareness around hiring apprenticeships among small business owners in Britain. According to one study, three-quarters of small business owners don’t feel they sufficiently understand the rules around hiring apprentices, despite roughly the same proportion recognising the benefits apprentices can bring to companies.

To support the government’s 2020 target, Cherry urged policy makers to provide greater incentives and opportunities for small employers.

“Small businesses have a key role in providing apprenticeships in across the whole of England and particularly for younger workers, with 70 per cent of those firms that have an apprentice taking on 16 to 19 year olds.

“Government should reconsider the current funding arrangements and incentives for taking on younger apprentices, recognising that this group needs more support as they move into the workplace for the first time.”

Majority of small businesses fail to understand the value of apprenticeships

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ABOUT THE EXPERT

Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.

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