Apprenticeships are changing: The Levy a year in

Since the introduction of the Apprenticeship Levy a year ago there has been a shift from Intermediate Apprenticeships to the Advanced and Higher Apprenticeships, which are vital for increasing productivity. NIESR's Matt Bursnall and Stefan Speckesser discuss the changes.

Data from the Institute for Apprenticeships on approved and planned Apprenticeship Standards suggest that Higher Level Apprenticeships, in particular degree apprenticeships, will grow further. 

If successful, the new Standards could help build a second, professional route of high-level education to deliver qualifications for associate professional roles, benefiting workplace productivity and social mobility. However, there are also risks, for example if the Levy-funded apprenticeships simply replaced existing under and post-graduate studies, which would have also been undertaken in the absence of the Levy, and did not result in a genuine increase in skills investment.

With many of the emerging Apprenticeships taking up to four years to achieve, we will begin to be able to estimate the full impact of the Levy in a couple of years.

Initial drop of apprenticeship starts

Since 6 April 2017, a UK employer with a pay bill exceeding £3 million per annum pays the Apprenticeship Levy, which is charged at 0.5% of their annual pay bill. Each Levy-paying employer has an account on the Digital Apprenticeship Service to give them more control over how their Levy contribution is spent on apprenticeships, which combine paid employment with study. They can top up their Levy if their apprenticeship training requirements exceed what the Levy can purchase and can transfer up to 10% of their contribution to other employers in their supply chain.

Initially, the introduction of the Levy in the final quarter of the 2017/18 academic year reduced the number of apprenticeship starts markedly: apprenticeship starts were down 59% compared the same period in the previous academic year. In the first quarter of this academic year, the difference declined, but is still 26.5% lower than the period before the Levy. While starts are likely to increase further, we cannot yet fully anticipate the extent to which the quality of the apprenticeships is changing under the Levy.

However, some broader trends become apparent from learner data and data of emerging Apprenticeship Standards, i.e. the apprenticeships currently in the process of approval by the Institute for Apprenticeships.

Changes to higher level apprenticeships

While many apprenticeships are still aiming for Level 2 qualifications with intermediate knowledge, skills and competences of specific occupations, the shares of Advanced and Higher Apprenticeships with qualifications at Level 3 and above have grown. Overall, the proportion of Advanced Apprenticeships in the first quarter of the 2017/18 academic year is now about the same (44%) as the share for Level 2 Intermediate Apprenticeships (45%), after it had been 53% for Intermediate Apprenticeships in 2016/17 and typically around 60% in other recent years. In some subjects, such as Engineering, Heath and Leisure/Tourism, Advanced Apprenticeships dominate, and there are now considerable shares of Higher Level Apprenticeships in Science (50%), ICT (25%) and Business (20%) (Figure 1).

Source: Department for Education (based on 114,380 starts of Q1 2017/18)

When comparing the overall 495,000 apprenticeship starts of 2016/17 with the starts of 2017/18 by levels (Figure 2), the growth of Higher Apprenticeships in almost all subject areas stands out, and especially in science/mathematics, ICT and construction. In contrast, the shares of Intermediate Apprenticeships declined in all subjects apart from education.

Source: Department for Education (494,900 of Q1-Q4 2016/17 compared to 114,380 starts of Q1 2017/18)

Many higher level apprenticeships and degree apprenticeships planned

Based on a look into the Institute for Apprenticeships’ database (taken a snapshot earlier this week on 26 March 2018), we can expect strong growth of apprenticeships with higher level qualifications, including undergraduate or postgraduate degrees (Figure 3). The database currently holds 542 existing or planned Apprenticeship Standards. While two thirds of the 246 existing Standards are at Intermediate and Advanced Apprenticeship level (Levels 2 and 3) which existed for many years, there are now many apprenticeships aiming for higher level qualifications.

Before the introduction of Apprenticeship Standards, the Higher Apprenticeships included mainly Foundation Degrees from a university (a Level 4 qualification). With the new Standards coming in over the next few years, there will be many apprenticeships aiming to include qualifications equivalent to a university degree or even a Master’s degree (Levels 6 and 7), e.g. 17% of the 296 Standards, currently going into be approvals process, aim for Level 6 qualifications.

Source: Institute for Apprenticeship standards, downloaded 26 March 2018

Along with the move to apprenticeships with higher level qualifications will be further change: In sectors traditionally operating an Apprenticeship system, e.g. Construction, Apprenticeships took between one and three years to achieve. Compared to this, many of the incoming apprenticeships will take more than three years to complete (Figure 4), e.g. 40% of the Level 6 apprenticeship will last for more than four years.

Source: Institute for Apprenticeship standards, downloaded 26 March 2018 (based on all approved Standards)

Since higher level apprenticeships are also more costly to deliver than Intermediate and Advanced Apprenticeships, most will apply the maximum amount of funding: 20 (75%) of the approved Level 6 apprenticeships are associated with the maximum of £27,000 of funding, while there are 51 further Standards, where approval of the funding band is pending. In summary, we can expect that a large segment of degree-type education (at the costs of a degree for people with satisfactory pre-existing qualifications) will be undertaken through the apprenticeships route and funded by the Levy.

Source: Institute for Apprenticeship standards, downloaded 26 March 2018 (based on all approved Standards)

Higher level apprenticeships, but overall impact remains unclear

It is positive that under the Levy, more apprenticeships are aiming for higher level qualifications, which are associated with significant earnings improvements compared to Level 3 technical or academic qualifications. This tendency is already emerging from reported apprenticeship starts, but will happen even more often once the incoming Standards are operational.

Since apprenticeships are organised by employers, incoming Standards could help create a second, professional route of high-level education for associate professional roles. Using the Levy funding in this way could create new opportunities for high-level education, e.g. for those already working in firms, and help improve social mobility. However, there are also significant risks to the success of this policy, for example if the Levy-funded apprenticeships simply replaced existing under and post-graduate studies, which would have also been undertaken in the absence of the Levy, and did not result in a genuine increase in skills investment.