Action must be taken before apprenticeships are unaffordable for SMEs

Despite positive changes, such as halving co-investment costs, many UK small businesses are still struggling to take on new apprenticeships after the 2017 reforms.

The Federation of Small Businesses (FSB) believes that both the upcoming Review of the Apprenticeship Levy and the Spending Review 2019 are opportunities that the Government cannot afford to miss if we are to safeguard vital provision of apprenticeships that small firms currently rely on and to reverse the downward trend of new starts.

The FSB research shows that of those small firms that employed apprentices before and after the 2017 reforms, over a quarter (27%) say the reforms have had a negative impact on their business. Recruiting an apprentice (42%), management time (29%) and the 20 per cent off-the-job training (24%) were seen as the three biggest challenges when engaging with apprenticeships.

Government stats show that since 2015/16, Level 2 and Level 3 apprenticeship starts have fallen sharply by 45% and 13%, respectively.

FSB National Chairman, Mike Cherry, said, “Small businesses are champions of apprenticeships as they are a great way to tackle skills shortages that often affect smaller businesses and to give young people their first step into employment. They are also a great way of promoting social mobility and helping those furthest from the job market into work.

“Worryingly though, our research shows that many small firms are turning away from apprenticeships with some of the 2017 reforms being the cause. Changes like the explicit requirement for a minimum of 20 per cent off-the-job training, are causing real headaches.

“The more recent halving of the co-investment requirement to 5% is a major step forward to reduce the cost of apprenticeships. Small businesses need more support like this if they are to continue to be the champions of apprenticeships.

“It must not be forgotten that our small firms provide 60% of private employment and it is for this reason that they must be the ones driving the system forward.”

In response to the findings, the FSB has made the following recommendations for the government:

• Put small businesses in control of non-levy apprenticeship funding through the Apprenticeship Service after their migration to the Service.
• Develop a ‘matching service’, hosted via the Apprenticeship Service, to support levy-paying employers to pass on unused funds to non-levy-paying employers.
• Extend the current £1000 incentive to those businesses with less than 50 employees who take on a new apprentice aged between 19-24 from selected labour market disadvantaged groups including people with a chronic mental health condition and ex-offenders.
• Consider the feasibility of an incentive for start-ups who have never taken on an apprentice.
• Make training-related travel free for all young (16-24-year-old) apprentices working for employers with less than 50 staff to ensure small business employers, particularly those located in rural areas, are not disadvantaged by prohibitive travel costs.

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