Apprentices now earn more and cost less

The government will fully fund training for 20,000 new apprenticeships from April 1, in a move to help SMEs absorb staffing cost increases ahead of the national minimum wage rise.

From April, the minimum hourly wage for workers will be raised in line with inflation. Apprentice pay will see the biggest boost by 21.2% to £6.40 per hour as the government seeks to motivate young people into the workforce.

To counterbalance the rise, Whitehall has declared it will allocate £60 million in funding for apprentice training fees. 

Announcing the money pot at a conference for small firms on Monday, prime minister Rishi Sunak said it “will unlock a tidal wave of opportunity” for SME talent and recruitment.

Government foots bill for apprenticeship training

Under the government’s previous apprentice support package, small employers were able to claim back 95% of apprentice upskilling costs such as assessing trainees or paying for learning materials like textbooks and software.

This latest raft of measures will see the government raise its subsidy to cover 100% of training costs. Perhaps more impactful is a planned increase to the amount of funding that employers who are paying the apprenticeship levy (a fund used to pay for apprenticeship training and end-point Assessment) can pass onto other businesses. 

Under the new rules, large employers like ASDA and BT Group who pay the apprenticeship levy will be able to transfer up to 50% of their funds (previously 25%) to support other businesses, including smaller firms, to take on apprentices. 

Employers struggle to afford increase

The enhanced support for hiring and training apprentices will be welcomed by small employers. Labour shortages have left many SMEs with stretched workforces and a shortage of required skills, causing hiring regret amongst employers.

At the same time, hiring for talent has become more expensive following months of record-high inflation. With real wages drastically outpacing SME profits, the result has been a widening skills gap and rising levels of stress and burnout in the workforce.

That was due to worsen this spring. Far from breathing new life into the business landscape, April 1 promises expensive wage growth with the new minimum living wage rate, which will see pay for workers aged 21 and over reach £11.44 per hour, up from £10.18.

In attempting to accommodate for the increase, many firms have had to lay off staff, particularly in sectors with poor profit margins like retail and hospitality. Some brands have even faced PR crises as employees accuse them of backing down on pay promises.

Brewdog CEO, James Watt made headlines in January when he declared that the Scottish brewer would stop paying staff the Real Living Wage, arguing that to do so would increase company payroll by an “untenable” 26%.

Young people needed in the workforce

The government’s surprise investment into apprenticeship schemes is likely a response to Office for National Statistics (ONS) data, which last month showed that a record number of young people are currently not looking for work.

Three million people under the age of 25 are choosing to remain unemployed, the data shows, as the next generation of workers shows increasing antipathy towards work and career progression. 

Partly, this is due to the high number of young people leaving college or sixth form and entering higher education.

Graduates are increasingly putting off recruiters with their demand for higher wages, with many arguing (perhaps correctly) that entry-level salaries are not enough for them to pay back student loans and cover higher rent costs.

Those in Westminster would agree. The prime minister has previously argued that too many university degrees are “ripping off” students and not giving them the skills required to succeed in the modern workplace, such as Artificial Intelligence.

Apprenticeships mean Gen Z can earn while learning – a prospect that will be more enticing come April when pay packets are fattened up by the new minimum apprentice wage.

Business advantage

The new round of funding is the prime minister’s first economic speech since the Spring Budget two weeks ago, which noticeably failed to answer business demands for greater employee support measures.

Organisations disappointed by the budget will be buoyed by this week’s announcement. Apprentices have been shown to contribute over half a billion pounds to UK small businesses in cost saving measures.

By investing in entry-level roles, companies who employ and train apprentices can ensure a future pipeline of talent for smarter succession planning.

Long-term, this could drastically lessen the impact of the hiring crisis and give the next generation of workers a more sustainable route into employment.

That said, support is still required in the short-term. With a record number of people still out of the workforce, immediate financial aid such as lowered business rates will also be needed to get SMEs through today’s perilous economic climate.

Lee Roberts is Small Business Comparison Expert at Bionic. Roberts describes the scheme  as “welcome news for business owners looking to train up staff and for young people looking to kick start their careers. Let’s just hope this support package is the first of many.”