UCAN | Finding Your Way Around the Apprenticeship Provider Market

Apprenticeship Sector Size and Historic Drivers and Trends

Apprenticeships are the UK Government’s flagship method for introducing new transferable vocational skills to the adult population in England.

Employers are incentivised to employ new staff or upskill existing staff through an apprenticeship by being offered a minimum of 95% of the cost of the training.

The Government funds apprenticeships through the Apprenticeship Levy. This is a stealth tax introduced in 2017 whereby all employers whose PAYE ‘group’ has an annual payroll of over £3m have the Levy applied to the monthly PAYE bill above £3m at a rate of 0.5%.

The Levy is accessible to all employers not just those who pay it. It is claimed on their behalf by APAR approved training providers and paid direct to the training providers through the Government funding system.

Modest additional financial incentives are provided to employers, apprentices and training providers for hiring apprentices aged 16-18, or 19-24 with an education, health, and care (EHC) plan.

The Government spends approximately £2.5 billion annually from the Apprenticeship Levy. Any unspent Levy funds are returned to the Treasury under the "use-it-or-lose-it" rules.

It is estimated that the £2.5 billion spent is only 55% of the total collected illustrating a substantially untapped market.

Apprenticeships are authorised and regulated by a Government department, the Institute for Apprenticeships and Technical Education (IFATE). This is soon to be replaced by a new department Skills England whose objective is to reinvigorate the market.

IFATE sets the minimum term and funding value available to the training provider. For example, a non-technical level 2 apprenticeship with the minimum legal term of 1 year can have a maximum value as low as £4,500. Some technical apprenticeships with a term of 4 years can have a maximum value of £27,000.

IFATE have authorised 665 standards as at 2023. They are available from level 2 to level 7 across a wide range of sectors and the profile of sectors and volumes of starts is given in the table below.

Barriers and Market Challenges

The number of starts has been stagnating for a number of years and contributory factors include:

• The Pandemic.
• Continued economic decline with effects on recruitment.
• Burden of bureaucracy inherent in the funding and delivery regulations making them inaccessible particularly to smaller businesses.
• Quality and completion issues. The average national completion rate in 2023 was only 55%. The ONS has historically criticised this as ineffective use of public funds.
• Quality and compliance with the DfE’s Education and Skills Funding Agency (ESFA) standards are critical for sustained funding.
• Barriers to entry for new providers inherent in the regulation.
• Undervalue of the training by IFATE.

The unattractiveness of the market for providers is exacerbated by:

• The excessive cost of employing an End Point Assessment Organisation (EPAO) to complete the apprenticeship at between 10-20% of funding.
• The reduction in funding caused by regulatory reductions to reflect the prior knowledge and experience of the apprentices at between 5-20%.
• The dependency on successful completion of the apprenticeship for 20% of the funding which will not be received until a minimum of 3 months after completion. So, for a 12-month apprenticeship that is 15 months to wait.
• The impact of regulation which is led by Ofsted.

The lack of perceived profitability through the IFATE funding rates and heavy cost of delivery to meet regulatory requirements has resulted in a declining and fragmented marketplace from which employers can access the training. This is demonstrated by the number and type of providers on approved on the Government Apprenticeship Provider and Assessment Register (APAR formerly RoATP) in the tables below.

The unattractive regime and rigor of the APAR application process has seen training provider numbers dwindle and fragment into almost a cottage industry as illustrated in the table below.

Main provider APAR Approval Year

89% of all providers start less than 1000 apprentices each year.

75% of all providers start less than 500 apprentices each year.

60% of all providers start less than 300 apprentices each year

Only 117 providers have entered the market since the Government forced reapplication to the register under a more rigorous regime in 2021.

Without exception the very largest supplier fails typically as a result of Ofsted inspection.

Apprenticeship Market Future Drivers and Trends

• Government Ambition: Targets for apprenticeship starts, focusing on quality and relevance to industry needs. This drive is reflected in the new Government’s manifesto.
• Emerging Sectors: Green energy, artificial intelligence, digital and cybersecurity present new opportunities for apprenticeship programmes.
• Shift Towards Higher-Level Apprenticeships: driven by Government policy. This is likely to change now post-election with concerns having been expressed over the value of many degree level apprenticeships and on disengaging the high number of unskilled people of working age across the UK. This will be impacted positively by immigration policy.
• Focus on Quality and Outcomes: Emphasis on the quality of apprenticeship delivery and learner outcomes is increasing and Ofsted inspections and employer feedback play significant roles in maintaining high standards. Providers must implement robust support mechanisms to assist apprentices in achieving measurable practical engagement through legally mandated Off the Job Hours, and completing their programmes on time whilst meeting auditable regulatory requirements. Further, providers are inspected in terms of their information advice and guidance on careers by MATRIX accreditation requirements.
• Expansion of Online Learning: The shift to online learning during the pandemic has highlighted the potential for flexible, remote apprenticeship delivery. Providers can leverage technology to offer blended learning models. Distance learning is not allowed.
• Collaboration with Employers: Strong partnerships with employers are essential for developing relevant apprenticeship programs. Providers can collaborate with industry to create bespoke apprenticeship pathways that meet specific business needs.