Free apprenticeships for under 25s wiped out by costs
The benefits of free apprenticeships for under 25s will be wiped out by the rise in the minimum wage and national insurance contributions.
This is according to new analysis from the Institute of the Motor Industry.
The government announced in the Autumn Budget that it would remove the five per cent co-investment for SMEs training under 25 apprentices, saving employers an estimated £650–£800 per apprentice.
However, it also announced in the Budget that it was increasing the apprentice minimum wage from £7.55 to £8.00 per hour. This comes after a rise in National Insurance employer contributions announced earlier in the year.
Combined costs
According to IMI calculations, both measures combined mean SMEs will not be able to take on apprentices for free and will actually face higher wage costs.
It found that SMEs employing a Level 2 technician save £650 on training but pay £819 more in wages and £122.85 in additional employer NI which means a net cost increase of £291.85.
Meanwhile, employing a Level 3 technician offers savings of £800, but wages of £819 plus £122.85 in NI which means a net cost increase of £141.85.
Additional costs
Nick Connor, CEO of the IMI said: “We were delighted to see the government’s commitment to apprentices and their fair pay in the Autumn Budget, which was further underlined in the recent announcement that reforms to the apprenticeship system will help to tackle youth unemployment with 50,000 places allocated.
“However, having now analysed the costs in detail, it appears the reality is that SMEs will actually face additional costs that are likely to create more barriers to offering apprenticeships.
“A poll of IMI members has shown that many do not believe the Autumn Budget reforms will make apprenticeships more affordable, with wage costs rather than the training contribution, the real financial barrier. And, if guidance for SMEs to offer apprenticeships remains complex, this will create a further barrier for already time-poor organisations.”
Financial impact
Connor continued: “The reforms are well-intentioned, but the financial impact is negligible for the employers who need the most support. To boost apprenticeship take-up, the government must address wage affordability, not just training fees.
“Automotive has experienced a 30% decline in apprenticeship starts since 2018/19, an average loss of over 500 apprenticeships per year. And, sadly, it seems the government’s intent is not going to do anything to help the 96,000 SMEs that make up such an important part of the sector.
“To deliver on its ambitions for apprenticeships and tackling youth unemployment, the government must go further by removing additional financial and administrative barriers facing all businesses, regardless of size, recognising that while fair pay for apprentices is essential, rising overall employment costs and system complexity continue to act as major obstacles.”
