Releasing Funding from Degree Apprenticeships to Support NEETs

Dear Alan,

Thank you for continuing to engage with our work on young people who are NEET. It was a pleasure to host you at our Resolution events, and it is great that you have put the issue at the top of the political agenda.

It is clear that there are up-front costs to providing more education, training and help into work for NEETs, even though in the long run there should be significant savings – as well of course as young lives transformed for the better. The challenge is to identify how to meet the up-front costs. The Growth and Skills Levy is an important source of funding, but it is increasingly focused on over 25s who are already in employment. Instead, the priority should be on young people. We have estimated that the rebalancing of its funding towards younger people could shift about £1.5 billion towards programmes for younger NEETs.

There is a further way to release more money from the levy to get more help to NEETs. One use of the levy is to fund degree apprenticeships: this money should instead fund training programmes for NEETS. This is a useful programme which is proving very popular as it does what it says on the tin and provides a higher education combined with employment. However, it cost over £600 million in 2023-24. Since then, the Government has announced cutbacks in spending on level 7 Master’s courses, and our proposal to end funding for over 25s would remove more. Nevertheless, there would still be substantial savings of up to an additional £240 million a year from ending levy funding for degree apprenticeships.

Spending the levy on NEETs is much more effective way of spreading opportunity to young people than spending it on degree apprenticeships. Our own research shows that over 25s account for more than two-thirds of levy-funded degree-level apprenticeship starts, and four-in-five older apprentices already worked for their employer before they began. Much of this spending is therefore upskilling people who are already in good jobs, rather than helping young people into work. Nor are degree apprentices currently more socially diverse than university students: 5 per cent come from low-income backgrounds, compared with almost 7 per cent of undergraduates (Sutton Trust, 2022). Apprentices are also more likely to be White British, have better GCSEs, and less likely to have been eligible for free school meals (Cavaglia et al., 2020).

The pay returns to degree apprenticeships look to be good. You will recall that the progressive case for graduate repayment has always been that if graduates are in well-paid jobs they should pay back for the cost of their education. There is no reason why people graduating from degree apprenticeships into well-paid jobs should be exempt from this principle. It is wrong to impose a levy on employers and use it to fund people into high-paid graduate jobs when the money could instead be used to help get NEETs into work.

Degree apprenticeships have many supporters and they should be available to more young people. As the funds raised by the levy are limited, the number of degree apprenticeships is also limited. If tuition were funded through loans, the limit set by the levy budget would be lifted and more people could participate. And there would be scope for providing access to maintenance loans as well to help with accommodation costs.

In our proposed model the apprentice would remain an employee, paid by their employer, who would continue to provide on-the-job training. The tuition for the degree element, currently paid from the levy, would instead be financed like any other higher-level qualification – a tuition fee loan under the Lifelong Learning Entitlement, repaid on the same income-contingent terms as other graduates. Employers would remain free to pay some or all of the fees, as many already do for professional qualifications. Employers’ direct costs would be unchanged: they would continue to pay wages and provide training, while the tuition would be covered by the apprentice’s loan rather than the levy. We would therefore expect employers who value degree apprenticeships to continue offering them. Meanwhile the levy would continue at its current level whilst focussed more on younger people and lower level qualifications.

If there were concerns that employers would offer fewer degree apprenticeships under this model, the levy could continue to fund a capped share of the tuition, with the rest met through the apprentice’s loan. Firms tend to under-invest in training for fear of staff being poached, so there is a case for public support, but it need not cover the full cost when learners can co-invest, as with other qualifications. This would still release substantial sums for young NEETs.

We hope you will consider this option to ensure programmes for NEETs can be properly funded. This shift of funding would be a double win. It would help NEETs. It would also boost apprenticeships by removing the cap on degree apprenticeships so they can expand as well.

I am copying this letter to The Rt Hon Baroness Jacqui Smith, Minister for Skills and releasing it publicly.

David Willetts