The government target of 3M apprenticeships and the funding system behind the levy have been singled out for criticism.
The government plans to introduce the levy in April. New legislation will require businesses with payrolls of more than £3M to contribute the equivalent of 0.5% of annual pay outgoings towards the Apprenticeship Levy scheme.
Affected businesses will have two years to invest their levy payments in apprenticeships, while small to medium-sized enterprises (SMEs) will be exempted from the levy. SMEs will be able to access funding for 90% of the cost of apprenticeships.
The levy was estimated to raise £2.8bn in 2019–20. But government spending on apprenticeships in England was predicted to rise by only £640M between 2016–17 and 2019–20, meaning most of the revenue would be spent elsewhere.
“This new funding system is intended to help the government meet its commitment that there will be 3M apprenticeships starting in England between 2015 and 2020,” according to the report.
“However, the significant expansion and design of the new system risks it being poor value for money. Specific elements of the system could end up being particularly damaging to the public sector.”
Nearly half (44%) of new apprentices are aged 25 and over and the new target is likely to increase this fraction. “There is a risk that the apprentice ‘brand’ is becoming just another term for training,” warned the IFS .
The apprenticeship report forms part of the forthcoming IFS Green Budget 2017, produced in association with the Institute of Chartered Accountants in England and Wales and funded by the Nuffield Foundation.
Co-author of the report Neil Amin-Smith said: “We desperately need an effective system for supporting training of young people in the UK.
‘Repeating mistakes of recent decades’
“But the new Apprenticeship Levy, and associated targets, risk repeating the mistakes of recent decades by encouraging employers and training providers to relabel current activity and seek subsidy rather than seek the best training.”
But there was a risk that the focus on targets would distort policy and lead to the inefficient use of public money, he added.
Felllow report author Jonathan Cribb added that with the subsidies for apprentices’ training costs at 90% or 100%, employers are encouraged to take on more apprentices. “But this also provides them with little or no incentive to choose a training provider with a lower price,” he said.
“In addition, the specific targets for most public sector employers in England to employ apprentices could lead to costly, and potentially damaging, re-organisations, and should be dropped.”
Meanwhile, the chairman of the National Skills Academy for Food and Drink also slammed the Apprenticeship Levy in his keynote address at the Food Manufacture Group’s Business Leaders’ Forum last week (January 24).
Paul Wilkinson told delegates at the annual business forum that the levy was a “poisoned chalice”.