Apprenticeships funding system needs re-designing to support needs of SME employers and improve prospects for young people

The apprenticeship system needs urgent action to ensure young people, particularly those from a disadvantaged background, do not suffer a second educational blow following Covid-19. Previous NFER research identified that disadvantaged pupils have been disproportionately affected by the pandemic. Without action to stimulate a recovery in apprenticeship opportunities, these same young people could see their prospects impacted further.

There is a strong economic case for investing in apprenticeships as a key training route to help young people enter the labour market, and to act as a vehicle for social mobility. Recent estimates suggest that disadvantaged young people with an apprenticeship qualification earn, on average, over ten per cent more by the age of 28 compared to individuals holding other same-level qualifications.

NFER’s new report, published today, shows that apprenticeship opportunities for young people (particularly learners aged 16-18) – especially those from disadvantaged backgrounds – have been disproportionately impacted by recent reforms to the apprenticeship system. Indeed, between 2015/16 and 2018/19, the decline in the number of apprenticeships started among the most disadvantaged quintile of apprentices was 30 per cent compared to three percent among the least disadvantaged quintile of apprentices. This had largely been driven by the rapid decline in intermediate (equivalent to GCSEs) and advanced apprenticeships (equivalent to AS and A levels) offered by small and medium sized employers (SMEs).  

The Covid-19 pandemic has exacerbated the decline in starts among young and disadvantaged apprentices, with a further nine per cent decline in apprenticeship starts between March and July 2020, in the most disadvantaged areas in England, compared to all other areas. The latest data on starts shows that the number of apprenticeships (across all socio-economic groups) started by those under 19 are a third lower than pre-pandemic levels, and half their levels in 2015/16.

The Government has introduced incentives to encourage employers to take on more apprentices. Until September, employers who hire an apprentice under 19 will be eligible for a payment of  £4,000. However, these have had a limited impact to date and our report finds that, without further intervention, the availability of apprenticeship opportunities for young people is likely to remain below pre-pandemic levels. This is particularly concerning as young people have borne the brunt of unemployment during the pandemic, and are set to continue to be disproportionately impacted by the fall in labour market opportunities.

A solution is needed which addresses the misalignment of incentives within the current system to ensure that the system is providing high-quality apprenticeships for all young people, and that young people are aware of these opportunities. 

Ensuring SMEs are able to access apprenticeship funding

An unintended consequence of the current apprenticeship funding system is that – whenever there is a risk that the apprenticeship budget is overspent – the easiest way for spending to be limited is by capping apprenticeship starts in SMEs. Given that SMEs employ a greater share of younger and more disadvantaged apprentices, this has a disproportionate impact on apprenticeship opportunities among these groups.

The funding system needs to be re-designed to ensure that it supports the needs of SME employers not only for the critical role they play in our economic prosperity and recovery from the pandemic, but also for supporting apprenticeships among young people, particularly those from disadvantaged backgrounds.

Ensuring equitable access and awareness of apprenticeships

Disadvantaged young people – who have been disproportionately impacted by the recent apprenticeship reforms - face barriers in accessing information about apprenticeships. Therefore improving awareness may help improve equity in access to apprenticeship opportunities.  For example, the Government has recently set up a website for advertising apprenticeship vacancies. Requiring all employers taking on new apprentices to recruit using this website, would make it easier for apprentices to access information about relevant opportunities.

Another concern is that – in light of the disruption created during the pandemic – employers may be particularly wary of hiring younger people, who in even in a normal year, may not have prior work experience or maturity of older workers. Traineeships - short skills development programmes with a work placement which are designed to get young people ready for a job or apprenticeship – are one way of supporting more young people to be ready for apprenticeships.

However, the success of traineeships in supporting access to apprenticeships requires young people, parents, carers and employers to be aware of traineeships. A youth voice census survey in 2020 found that 76 per cent of young people had never had a traineeship mentioned to them. In 2019, less than half of employers were even aware of traineeships. More needs to be done to promote traineeships to ensure greater awareness among young people, parents and employers.

Action is needed now to ensure the system provides high-quality apprenticeships at different levels for young people, and that they are able to access these opportunities in order to ensure that − as we continue to emerge from the pandemic − the apprenticeship system is working to support those hit hardest.