The Department for Education’s apprenticeships programme may not be financially sustainable, the National Audit Office has warned, in a report that warned the department is unlikely to meet its targets for the programme.
The apprenticeships programme launched in 2013 to help boost productivity in the UK and encourage employers to invest in training following several decades of decline.
But in a report published yesterday, the spending watchdog warned DfE faces a potential overspend in the coming years that could force it to restrict public funding for apprenticeships because the cost of training apprentices is higher than expected.
And the department is “very unlikely” to meet its goal of creating three million apprenticeship starts by 2020, according to the NAO.
Employers with a paybill of more than £3m pay into a levy, which they can use to train apprentices, along with a 10% top-up from the government. Funding is also available to support smaller businesses train apprentices.
But in 2017-18, levy-paying employers used only 9% of the funds available to pay for new apprenticeships – some £170m of the almost £2.2bn available and less than the 13% DfE had predicted.
This meant DfE also spent less than expected. The department had a £400m underspend on the programme last year, which is expected to rise to £500m in 2018-19.
However, this trend could be reversed in the coming years because employers have been opting for more expensive ways of training apprentices, the NAO said.
Employers can choose to train apprenticeships using either a qualifications framework – which will be phased out by 2020-21 – or a standard designed by an employer group. The average cost of training an apprentice on standards in 2017-18 (around £9,000) was around double what was expected when budgets were set in 2015, making an overspend likely in future.
This has created “concerns about the long-term sustainability of the programme”, the NAO said.
“Spending is demand-led, driven by employers’ decisions about how many and what types of apprenticeships they want,” the report said.
“There is a clear risk that the budget may be insufficient should demand pick up in the way that would be needed for the programme to meet its objectives.”
Even if apprenticeship starts remain at current levels, spending could rise to more than £3bn a year once frameworks have been phased out completely, the watchdog calculated.
“The department recognises that there are ways to control spending if necessary,” it said, including limited the number of new apprenticeships or reducing the of public funding for certain types of apprenticeship. “However, these measures are likely to be unpopular and could damage confidence in the programme.”
The government is unlikely to meet its goal of creating three million new apprentice starts by 2020 because of the rate at which the number of new apprentices has declined since new payment arrangements were introduced in 2017.
In 2017, the Education Skills and Funding Agency – which oversees apprenticeships policy and funding – added additional rules for the programme, including a requirement for apprentices to spend a fifth of their paid hours in on-the-job training.
There was a spike in starts in April 2017 – the last month employers could use the previous funding arrangments – but after this, numbers dropped “substantially”, the report said.
There were 375,800 starts in 2017-18 – 25% lower than the 509,400 starts in 2015-16. DfE had not projected a drop after the reforms, but had instead expected a “broad year-on-year increase in starts”, according to the report.
“To meet the target of the million new apprenticeships by March 2020, the rate of starts would need to double for the remainder of the period,” the report concluded.
The report comes less than a month after the Cabinet Office announced it would not run its Fast Track apprenticeship scheme this year as it had put the programme under review.
The fast track scheme, launched in 2013, was an important plank of the civil service’s response to the government’s three million new apprentice starts.
To aid this target, the civil service aims to have new apprentices make up 2.3% of its workforce by March 2021. Figures published by the Cabinet Office last year showed it was well on its way to meeting that target, but a CSW analysis of the statistics showed some departments were lagging far behind.
Diversity targets "not stretching"
The report was also highly critical of the government’s targets for widening participation in apprenticeships by people from under-represented groups. It is on track to meet its targets of having 11.9% of apprentice starts come from Black, Asian and minority ethnic backgrounds, but this proportion is less than that of BAME people in England’s working-age population (14.9%) or pupils at the end of Key Stage 4 (20.7%).
Likewise, it is set to meet its target for apprentices with a learning difficulty, disability or health problem – but like the BAME target, this is “not stretching”, the NAO said.
Meanwhile last year, the department failed to meet its target of having a quarter of apprentices come from the most disadvantaged backgrounds each year. Just under 23% of apprenticeships came from these backgrounds in 2017-18.
The NAO also criticised the government for having no targets related to gender equality, “despite the notable under-representation of women in science, technology, engineering and mathematics apprenticeships”.
In a statement, apprenticeship and skills minister Anne Milton said the programme "gives employers the opportunity to provide new and existing staff with a range of opportunities to gain skills in the workplace and makes sure we have long term investment in apprenticeships".
“The number of people starting training on our new employer-designed standards is rising year on year and we will continue to work with employers to help them develop their apprenticeship programmes.
"Apprenticeships enable people to get a great job and career, and give employers the skilled workforce they need. “We have increased flexibility for levy paying employers so they can transfer 10% of their levy funds to other employers and we will increase this to 25% from April.”