Making the most of the apprenticeship levy

Amid a tightening labour market and mounting skills shortages, apprenticeships have emerged as a cornerstone of workforce development. But the system has been underutilised.

UK government agency Skills England found in September 2024 that employer investment in training has been in steady decline over the past decade, with expenditure at its lowest level since records began in 2011.

Across the UK, almost one in 10 – or more than 2.5 million – roles are in critical demand, with more than 90% being in positions that require training or education. Despite the potential of apprenticeships, a significant portion of apprenticeship levy funds goes unspent.

A 2023 study by skills development group City & Guilds revealed that levy-paying employers – organisations with a pay bill in excess of £3m – utilised an average of just 55.5% of their available funds over the past five years.

“There is still a perception that apprenticeships are difficult to set up and navigate, but there are apprenticeship standards in just about any job function you would care to look at,” – Anthony Clarke, Head of Market Development, AAT.

Targeted help

Apprenticeships help businesses address industry-specific shortages, particularly in accounting, finance and other technical fields where there is increasing demand for skills such as data analytics, digital and business intelligence.

At the same time, apprenticeships improve employee retention as staff who receive training and development are more likely to remain loyal to their employers, while also supporting efforts to create a more diverse workforce.

“Apprenticeships create a talent pipeline that is developed to meet the needs of the employer,” Clarke says. “They reduce recruitment costs and training costs, and apprentices bring a fresh perspective and can be a real catalyst for transformation.”

But many organisations struggle to develop a clear strategy for utilising apprenticeship opportunities, including how to allocate funds, manage unspent apprenticeship levy contributions and align their programmes with broader business goals.

To deliver an effective apprenticeship strategy, employers need clear goals and objectives, and to assess where the skills gaps are, according to Anne Dibley, an associate professor at Henley Business School.

“Whatever business you are in, your strategy needs to start with understanding where you are right now and what you need to get you to your required destination,” Dibley says. “The key components – skills audits, training plans, budgets and success measures – flow from this.”

Use it or lose it

Levy-paying employers must allocate funds wisely, as unused contributions expire after 24 months and are returned to the government.

According to the City & Guilds report, approximately £3.5bn in allocated funds expired between the fiscal years 2017 and 2022.

To mitigate this, employers can transfer up to 25% of their unspent funds to other businesses in their supply chain or community. This supports broader industry development and reduces wastage. For example, North Cumbria Integrated Care NHS Foundation Trust has helped smaller healthcare groups grow their own staff by transferring more than £122,000 of its levy funds to some 15 organisations, largely GP practices across the region.

“We are advising businesses to look across their supply chain, identify organisations that would benefit from the apprenticeships and tell them about it, which is a great way to drive up those skills within the supply chain and build up great partnerships,” Clarke says.

Raising awareness

Only 2% of employers currently pay the levy, which is set at a rate of 0.5% of their total annual pay bill. However, while only the biggest businesses pay the levy, it also funds apprenticeship training for other employers who want to take on apprentices.

Clarke says there is a lack of awareness among small and medium-sized enterprises (SMEs) that, while not directly paying the levy, they can still benefit through co-funded apprenticeships.

SMEs contribute just 5% of training costs and the government covers the rest, making apprenticeships a highly cost-effective investment.

“There is a lack of awareness within that non-levy smaller business space as to how they can engage with apprenticeships and that apprenticeships are available in just about any job type and profession that you can consider,” Clarke adds.

“This is a challenge we have identified at AAT and is why we have an employer team that can help them through the process.”

Growth and skills levy

September 2024

In September 2024, the UK government announced a growth and skills levy that will replace the apprenticeship levy and include new foundation apprenticeships.

New Levy

The new levy will also allow funding for shorter apprenticeships, giving learners and employers greater flexibility over their training than under the existing system where apprenticeships must run for at least 12 months.

Funding

To fund this, employers are being asked to rebalance their funding for apprenticeships and invest in younger workers. This will also involve businesses funding more of their Level 7 apprenticeships – equivalent to a master’s degree and often accessed by older or already well-qualified employees – outside of the levy.

Further details

The Department for Education will set out further details on the scope of the offer and how it will be accessed.

Bespoke learning

Developing an effective apprenticeship strategy isn’t just about utilising funds, says Clarke. Rather, it is about “working collaboratively with your training provider and your professional body” to design a programme that meets your organisation’s needs.

For instance, while technical competencies are a crucial part of mandated professional qualifications, employers should consider more broadly the “additional skills and behaviours that are going to form part of this apprenticeship”, Clarke says.

“It is looking at the wider behaviours and those core business skills that allow individuals to really add value. It is not just about being a technically competent accountant, it is about the wider power skills,” Clarke adds.

Creating a culture of learning – where either the learning and development manager or respective HR team proves the importance of learning to senior leadership – requires buy-in and commitment from all those who will be involved in the apprentice’s journey.

“This will involve making sure there’s tangible data and a strategy they can tap into, which will help them sell the benefits of apprenticeships for the business’s bottom line,” Steven Hurst, director of corporate learning at Arden University, says.

That extends beyond attracting new blood into the workforce. The apprenticeship levy can be used to address skills gaps within the current staff, as well as supporting managers in their personal development.

“Higher-level apprenticeships can also upskill those in senior roles, helping them to advance in their career,” Hurst says.

This article first appeared in the March/April 2025 issue of AT Magazine.

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.