Over £3 billion in unspent apprenticeship levy lost to Treasury ‘black hole’ new data reveal

Apprenticeships experts warn that the Treasury must be more transparent on how it spends the billions returned to its coffers

Rigid apprenticeship system blamed for billions of skills funding going unspent by businesses and being returned to the Treasury

More than £3.3 billion has returned to the Treasury in the last three years under the Government’s use-it-or-lose-it apprenticeship levy rules, according to new data collected by apprenticeships experts the London Progression Collaboration (LPC).

A freedom of information request reveals that since May 2019, employers in England have been returning unspent levy funds earmarked for new apprentices to the Treasury, with businesses losing out on the equivalent of £1.1 billion per year or £95 million per month.

The LPC, which to date has helped transfer £10 million of unspent apprenticeship levy from large employers to support small businesses and create over 1,000 apprenticeships, says that it is not clear how the Treasury is making use of the £3.3 billion that it has received from businesses.

The apprenticeship experts warn that this lack of transparency means it is unclear whether the Treasury is using the unspent levy in a way that best supports the places most in need of levelling up, and whether it is helping create more entry-level apprenticeships, after numbers have plummeted in recent years.

To increase transparency, the LPC is calling on the Treasury to publish how many apprenticeships are being created through unspent apprenticeship levy, where in England that levy is being spent, at what levels and in what sectors – as well as where any surplus funds are being used.

The LPC argues that if the apprenticeship levy is to meet its objective of increasing employer investment in training, the Treasury also needs to give employers greater control over how their funds are directed, including by increasing the 25 per cent apprenticeship levy transfer cap. The LPC has seen at first hand the challenges the current system poses to businesses in their work helping firms navigate the complex apprenticeship system and transferring their unspent levy to small businesses.

These findings follow previous research by the LPC which shows that since 2014-15, ‘entry-level’ apprenticeships have fallen by 72 per cent in England, while apprenticeship starts amongst under-19s have fallen by 59 per cent, depriving those most at risk of in-work poverty and at the beginning of their careers the best start in life.

In the most recent three years that data is available, apprenticeship starts in the North have fallen most sharply, with apprenticeships falling by 26 per cent in the North East, 23 per cent in Yorkshire and the Humber and 21 per cent in the North West.

Anna Ambrose, Director of the London Progression Collaboration, said:

“Apprenticeships are vitally important for ensuring people can get on at work and businesses can fill skills gaps, but the Treasury aren’t being transparent about where billions of pounds of apprenticeship funding is being directed.

“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.

“The fact that so much apprenticeship funding is being lost to the Treasury is a symptom of a system that is far too rigid and confusing to navigate for businesses.

“The system should be made more flexible and firms supported to use their levy funding to boost apprenticeship opportunities or transfer their funds to smaller businesses that could benefit from the investment.”

ENDS

Anna Ambrose is available for broadcast

CONTACT

David Wastell, Director of News and Communications, IPPR: 07921 403651 d.wastell@ippr.org

Jack Shaw, Senior Account Manager, LPC, 07447 019243, jack.shaw@ippr.org

NOTES TO EDITORS

1. Unspent apprenticeship levy has returned to the Treasury since May 2019. During the first year £845 million returned to the Treasury. In 2020-21 (May to April) £1.316 billion was returned, and in 2021/22 £1.161 billion was returned (May to March – the final month was not available when the Freedom of Information Request was issued). The reduction in expired levy in October 2021 and the subsequent increase in November 2021 were the result of a delay in transferring levy into employer accounts in October 2019. As a result, employers were granted an additional month to spend those funds to ensure that the 24-month window to spend funds was maintained.

1. Our previous research on the decline in apprenticeships starts – including a regional breakdown - can be found here: https://www.ippr.org/public/news-and-media/press-releases/lpc-apprenticeship-decline-analysis-naw2022
2. Introduced in 2017, the Apprenticeship Levy requires businesses to set aside 0.5 per cent of their wage bill if they pay over £3 million per year. Under Apprenticeship Levy Transfer, levy-payers can transfer 25 per cent of their Levy pot.
3. The London Progression Collaboration is incubated and based at the Institute for Public Policy Research (IPPR). It is an innovative initiative to create new apprenticeships which help low-paid Londoners to progress in work, and which enable the capital’s businesses to develop vital skills. To date, the LPC has secured over £10 million from 75 of London’s levy-payers, which has helped create 1,000 apprenticeships across 250 small businesses - more than one in every 100 apprenticeships across London over the last financial year. Find out more: https://www.thelpc.uk/