Government scraps the cap on small business apprenticeships

Accountancy firms to benefit as the Government ends ‘the cap of 10’ for apprenticeships.

As of last month, the cap that limited many SME employers to no more than ten apprentices at any time has been lifted, writes Gareth John, Director of First Intuition.

This is excellent news for employers, apprentices and the economy.

For several years, employers who don’t pay contributions to the Apprenticeship Levy (those with annual payroll bills below £3 million) have suffered a limit on the number of apprentices they could reserve levy funding for through the Apprenticeship Service.

At first, such companies were permitted just three learners at any time. Thankfully, this was later increased to a ‘cap of 10’ – but there it has remained since 2020.

Accentuating the skills gap

This artificial limit has created significant issues for SMEs. We’re already in a time of growing skills shortages, where commercial demand is gradually recovering from the difficult period under COVID.

A lot of accountancy firms are also what I term ‘large non-levy’ employers. They are big enough to have substantial recruitment needs but are below the £3 million payroll threshold for the levy.

Penalising progression

A specific problem many of these firms suffered was that the accountancy sector enjoys strong levels of student progression, particularly those studying for the AAT. A school leaver might typically start at level 2 and then progress onto levels 3 and 4 to complete their AAT qualification, and even progress further onto level 7 to study for the ICAEW, ACCA or CIMA qualifications and become a fully qualified chartered accountant.

Whilst this is fantastic for the career prospects and social mobility of those young adults, it means that a single learner can ‘use up’ one of those precious 10 available places for up to six years.

You can imagine it doesn’t take a large annual intake of new trainees to quickly fill the ‘cap of 10’. This was compounded by the glitch in the system where, if an apprentice started and then dropped off their programme, they were often still counted towards the ‘cap of ten’ and so didn’t even free up a place for funding their replacement.

Government reset

In response to significant pressure from the skills sector, the Department for Education (DfE) reset the numbers on the Apprenticeship Service to nil in the first half of both 2021 and 2022. This allowed SMEs to continue recruiting and starting apprentices, but was only a short-term fix implemented one year at a time. There was a lack of long-term planning by the DfE around the position of non-levy employers.

By early 2023, much like a dreaded anniversary of an unpleasant event, the annual worries about the ‘cap of 10’ resurfaced yet again. Will the numbers be reset as in past years? Will it be an annual reset or is it a one-off? Will the limit be increased above ten?

This was causing a number of problems:

• Employers were forced to reduce recruitment expectations at a time when they needed more and more talent
• Young adults were being denied career opportunities
• SMEs – which tend to be significant employers in small towns and rural areas, and of young adults from disadvantaged backgrounds – were being limited
• Employers had to make tough and unfair choices about which of their trainees they start as apprentices, and which they don’t
• There was a lack of consistency in how a trainee is supported when they move from one level with an apprenticeship, to another level without
• There was a lack of consistency between the treatment of one cohort and the treatment of the next  
• The perverse situation where learners for whom the pandemic apprenticeship incentives had been claimed were now unable to progress to their next level

Businesses plans hampered

In some respects, the biggest issue was the lack of clarity about what would or wouldn’t happen with the reservations cap. Even by March 2023, there had been no announcement on the matter by the DfE which left SMEs unable to effectively plan their recruitment and support plans for apprentices through the rest of this year and into 2024.

I was fortunate to meet the Skills Minister Rob Halfon in February which gave me the opportunity to lay out these issues, and the impact they were having on a growing number of employers. He took what I said seriously and said it was something he would look into.

I was therefore extremely pleased when he announced in late March that the ‘cap of 10’ would not just be reset again, but was to be scrapped entirely as of 3 April 2023. There would be no more artificial limit on the ability of non-levy employers to plan and implement their recruitment and training plans.

Benefits from removing the cap

Removing the ‘cap of 10’ has given non-levy SMEs the clarity they need to plan recruitment, and the flexibility to start as many apprentices as they need. This is fantastic not just for them and for the wider economy, but also for the young adults and other individuals who will be able to benefit from such a great start to their careers.

AAT shared my relief as this will affect many of the firms who train students for their qualifications! Anthony Clarke, Business Development Manager at AAT, said, “This is welcome news for SMEs as we know that some have previously had to put Apprenticeship recruitment plans on hold due to the cap. Removing the cap will allow SMEs to recruit and train more apprentices across all levels of the Accounting Apprenticeships and help develop the future workforce.”

I would like to thank all of those voices across the skills sector who joined mine in tirelessly raising this issue with the DfE over the last three years, and to the DfE themselves for listening and acting in the sensible way that they have.

Gareth John is a qualified chartered accountant and tutor at First Intuition.