How the Co-op is helping small business start apprenticeships through levy-sharing

The Co-op’s successful Levy Share project is providing funding and advice for small businesses to get started with apprenticeships.

When the Government’s apprenticeship levy was introduced in 2017, it had a bold aim: to create 3m apprenticeships within three years. Five years on, it’s fallen short of this figure (the pandemic clearly hasn’t helped matters here) with the number of people undertaking entry-level apprenticeships slumping from 494,900 in 2016/17 to 321,400 in 2020/21, according to research by the Chartered Institute of Personnel and Development (CIPD). 

Despite this, the levy can be hugely beneficial for SMEs: they can draw on this pool of money to fund 95% of an apprentice’s training costs. Even though these companies can access apprenticeships for less money, the levy is supported by just 17% of employers surveyed by one recent CIPD poll. Apprenticeships may also be failing on diversity too: in 2020/21 ethnic minority 16-18-year-old apprentices made up 8.1% of new starts (although the same communities make up 14.4% of the UK population), according to analysis from further education newspaper FE Week.

Unused levy up for grabs

The problem isn’t a lack of funding, but rather, large companies paying into the levy (employers with a pay-bill of more than £3m each year are required to pay 0.5% of their payroll into the fund) and not spending the funds efficiently enough. Any unused levy expires after 24 months and is returned to HMRC. In 2019, 45% of firms surveyed by accounting firm Grant Thornton had yet to spend a single penny of the money they had paid into the levy. More than £250m was handed back to the Treasury in 2020-21, a sum which could have funded over 25,000 apprenticeships.

The Co-operative Group may have found the perfect solution. In February 2021, it launched the Co-op Levy Share scheme. By persuading large companies such as Boots, Mastercard and the Royal Mail to pledge their unused levy funds into the programme, it can allocate this money to SMEs hoping to establish an apprenticeship (under current rules, levy-paying companies can donate up to 25% of their unused levy to other companies to fund apprenticeships). Just 18 months after launching, over £15.4m has been pledged, creating over 1,000 apprenticeship opportunities.

“It’s very common for these levy funds to be unspent,” says Louise Timperley, apprenticeship manager at the Co-op. “Many companies we speak to want to be proactive rather than just having this sum sitting there and having nothing to do with it.”

Breaking the mould

So far, the Co-op’s scheme has led to apprenticeships in industries traditionally populated by male workers. In Wales, for example, a female teenager from Pakistani heritage has started a welding apprenticeship at a company which couldn’t access enough levy funds to pay for another new-starter. As Timperley explains, “It’s like the film Flashdance but in real life.”

The Co-op Levy Share scheme is also available to help fund accountancy apprentices.  

The Co-op started exploring the idea of a levy transfer scheme in 2020. “At the time our levy pot was around £5m a year, but we were only spending £2m on our own apprentices,” explains Timperley. “We knew many other large businesses also had spare [funds in the] levy, but also ethnic minority backgrounds weren’t being represented across apprenticeships. So, we decided to pool our unspent funds together and make some inroads into tackling some of that underrepresentation.”

£20 million raised so far

When the Levy Share scheme was launched, the Co-op set the ball rolling by putting £500,000 into the kitty. It initially set a target of £15m in donations (Timperley: “we thought we’d get £5m a year”). Thanks to a flood of levy-paying firms wanting to get involved, this bar has since been raised to £20m. Part of the scheme’s success is the way the algorithms of its website pair larger firms with those smaller companies seeking apprentices.

The Co-op Levy Share website has been compared to a dating app. In the same way users of matchmaking services can find the perfect partner by narrowing down criteria to age or hair colour, levy-paying firms can specify a geographic area or industry where they would like to support apprentices. Then, the algorithms weave their magic and the levy-paying firm is hopefully paired with an SME which has already registered with the scheme and entered its details. After the two companies are linked, funds are transferred directly from the levy donor’s digital apprenticeship service account to the SME. Apprenticeships can start more-or-less immediately.

Larger companies can also choose an individual firm, perhaps one in their supply chain or in the same sector. The Direct Line insurance group, for example, donated £325,000 in unspent levy funds to finance apprenticeships at autism charity Autism Initiatives.

More help and less bureaucracy than dealing with the Government

The simplicity of the Co-op Levy Share’s website has been praised by SMEs who have found the government system too complex and lacking a human touch (accessing levy funds is done entirely online through the Government website). By contrast, the Co-Op Levy Share has a dedicated support person (Sandra Kelly) who businesses can talk to over the phone or on video and be ‘hand-held’ through the process. It’s a boon for time-pressed companies, says Timperley.

“Many businesses don’t have large HR teams or a dedicated resource to look after apprentices: quite often it’s the boss who organises this,” she says. “With the government system, there’s no personal side; SMEs can’t just tick a box and something happens… Small business owners can have real conversations with Sandra, or on email, and receive the specialist support which the government system is currently lacking. Instead of watching YouTube videos [to figure it out], she can get you started within 10 minutes.”

The Coop Levy Scheme can also reduce SMEs’ admin burden by matching them with a suitable training provider.

Hands-on help

Once the larger firms have transferred their funds, the relationship doesn’t end there. “The scheme can be an arms-length arrangement or as hands-on as you wish,” says Timperley.

Many levy-paying firms actively choose to fund SMEs in their supply chain, such as accountancy practices. Others may choose to finance businesses working in their sector. Timperley cites the example of the scheme’s largest donor, BT, who have pledged over £4m to support talent in the tech sector “helping small/independent businesses flourish and build pipelines.” Many of these larger firms now offer mentoring and coaching with the firms they’ve been coupled with.

Then there are those levy-paying businesses who, according to Timperley, “aren’t necessarily fussy about who they’re matched with – they just want to make a difference,” she says. “In terms of corporate social responsibility [CSR] and public relations, it’s proved invaluable to many larger firms.”

Last year, the Co-op funded apprenticeships for 42 firefighters in Greater Manchester. “Of course, firefighter apprentices are very different from Co-op apprentices,” says Timperley. “But it’s great for us to extend our reach into the community to work with apprentices that have nothing to do with Coop”.

Access for all to apprenticeships

Above all, it’s hoped the Co-op Levy Share scheme will realise its ultimate goal: to address the paucity of underrepresented groups in apprenticeships. Timperley says that 40% of the apprentices supported through the scheme are non-white British. The Co-op is working with Business in the Community’s race advisory board to ensure BAME candidates who secure positions thanks to the scheme can receive support.  “We’ve also got a number of apprentices who have declared accessibility and have caring responsibilities, which are often barriers for people to get into apprenticeships,” adds Timperley.

The Co-op – which has long been recognised for its pioneering community-led programmes – currently has more than 1,200 apprenticeships across the group, spanning its Manchester HQ to food stores and funeral homes. Timperley sees the Share Levy scheme as an extension of that.

“Within five years, we’d like to see that we’ve not only supported thousands of apprentices, but also they’ve moved within their own businesses, become leaders themselves and perhaps hired more apprentices,” she says. “For any small businesses who haven’t got apprenticeship schemes but think it’s too difficult, I’d encourage them to jump in and take a look. We’d be more than happy to give businesses that support.”

Christian Koch is an award-winning journalist/editor who has written for the Evening Standard, Sunday Times, Guardian, Telegraph, The Independent, Q, The Face and Metro. He's also written about business for Accounting Technician, 20 and Director, where he is contributing editor.