The government has announced that, as part of its long-term economic plan, it plans to create three million new apprenticeships by 2020. It was announced in the Queen’s Speech on 27 May 2015 that new legislation, namely the Full Employment and Welfare Benefits Bill, will introduce various duties on ministers to report annually on progress towards this target and also on achieving “full employment” in the UK and the highest employment rate in the G7.

While the creation of three million new apprenticeships by 2020 is a positive news story, it has led to concern amongst employers about how these new apprenticeships will be funded.

Current position

At present, the government provides 100 percent of the funding to cover the training costs for apprentices aged between 16 and 18, and 50 percent for 19 to 24-year-olds. The funding is paid via the Skills Funding Agency (SFA) direct to the training provider responsible for providing and supporting the apprenticeship.

Apprentices are entitled to be paid the applicable national minimum wage for time spent “on-the-job”, which is currently £2.73 per hour for those under 19, or who are over 19 but in the first year of their apprenticeship, and employers are responsible for paying apprentices’ wages.

Employers may also be eligible for a £1,500 apprenticeship grant which are available to help small and medium sized employers to recruit new apprentices aged between 16 and 24. Employers can claim support for up to ten apprentices. The grants are in addition to any training costs for apprentices and do not have to be repaid.

What may change?

Under new proposals, it is anticipated that employers could be expected to contribute a third of the funding to cover the training costs for an apprentice, with the SFA contributing £2 for every £1 an employer contributes to the external or “off-the-job” training and assessment costs of an apprenticeship. The SFA contribution will be capped – depending on the applicable apprenticeship standard – at £2,000, £3,000, £6,000, £8,000 or £18,000.

There may then be additional payments on top of the capped contribution for small businesses of up to 50 employees, for successful completion of an apprenticeship and for taking on 16 to 18-year-old apprentices. The new proposals and incentive payments are reflective of concerns about the quality of apprenticeships, which have been criticised for being disproportionately low-skilled, and the fact that very few apprenticeships are taken up by school leavers looking to secure their first job.

Funding will continue to be paid to the training provider but the providers will have to compete to win contracts from employers. This should mean that good training providers are in a position to deliver a greater number of apprenticeships and work throughout the country. It is also hoped that this will lead to be a better quality of apprenticeship which is more sector specific and more targeted to employers’ needs.

What will this mean for employers?

However, one of the main advantages to employers in taking on apprentices has been that they are relatively inexpensive and the fact that government funding shared the costs burden. The new proposals may mean that there is far less incentive for employers to take on and train inexperienced young people as the costs of doing so will increase.

Unless other measures are introduced to encourage employers to hire apprentices to offset these additional training costs this may mean that the government has bitten off more than it can chew in terms of apprenticeship reform and youth unemployment over the next five years.