Issue #12: State of the UK Apprenticeship market

Apprenticeships, everyone's favourite vocational pathway.

Apprenticeships in England have passed the “dinner party” test. That is, they are now a suitable topic of conversation among the English middle-class.

A recent report found 45% of parents said apprenticeships were the best preparation for life. With only 4% saying the same about degrees.

I haven’t been to one of these dinner parties, I assume they’re a riot.

I jest, this is good to hear. I often field questions on the U.K. apprenticeship market. Some people even pay me for it, which is nice. Maybe more people will pay me now.

I thought I'd spend this week writing up a recap of some of the apprenticeship trends I saw in 2022, and some things to look out for in 2023.

First, a quick primer on how the apprenticeship system works.

Big four providers continue to grow

Earlier in January, the UK government released enrollment data for 2021/22. I spent last week going through the numbers and pulling out some interesting bits.

The number of apprentice enrollments in the U.K. has declined by 42% since 2016.

That seems like a bad thing.

But the number of enrollments in digital apprenticeships has increased by 17% in the same period.

That seems like a good thing.

The good thing is the section we're going to look at today.

But what's the story here?

Well, it's what is happening across the three levels of apprenticeships. You did read the box at the top, right? 

Here's the detail you need, there are three levels of apprenticeship:

1. Intermediates are mostly entry-level jobs, primarily manual or retail skills, typically taken by learners who leave school at 16.

2. Advanced is equivalent to first-year university skills.

3. Higher apprenticeships are the same level as a university undergraduate degree.

As the table below shows, digital intermediate apprenticeships have declined a lot since 2016.

From a high of 6,260 in 2018/19 to only 60 in 2021/22.

In comparison, enrollments at advanced and higher level have both increased.

In simple terms, the number people getting trained for entry-level roles has gone down, while the number getting trained at advanced and higher levels has increased.

This shift reflects a change in focus from digital apprenticeship providers. The big four in the sector (Babington College, Multiverse, Corndel, and QA) have all chosen to focus on advanced and higher-level apprenticeships.

These are typically taken by existing employees rather than school leavers.

Critics argue that this focus is a good thing for the U.K. economy because the roles trained are higher skilled. Higher skills = higher wages – but it’s worth looking into this in more detail.

To start, let’s look at which providers have benefited most from this shift. Multiverse, Corndel, Babington College and QA remain the top 4 providers across the sector.

Between them they enrolled over 17,000 learners in the year to December. Or 55% of all digital apprenticeship starts in England in 2022. 

All four providers have grown by selling more advanced and higher apprenticeships. Growth has been particularly sharp for learners over the age of 25.

A recent report from the Sutton Trust found over-25s account for over half of those taking degree apprenticeships. And that middle-class and wealthy students have disproportionately benefited from these qualifications. The report's findings questions whether apprenticeships do create a diverse talent pipeline. 

Other research shows employers are using the levy to fund training for older, middle-class learners. Or for training they would have paid for anyway. Less intermediate enrollments indicates employers are hiring fewer school-leavers into entry-level roles. A trend we saw continue in 2022.

Unfortunately, the government doesn’t release this data by provider. But it’s a fairly open secret among the larger providers that 70-80% of learners fit into the over-25s bucket.

New routes into apprenticeships have been created by this approach. And it would be acceptable if it were what the expansion of the apprenticeship levy had intended. But it isn't the whole story.

The UK Government set an agenda to "grow the number and quality of apprenticeships". And has set objectives to widen access to apprenticeships. In part, to ensure that programs at all levels support social mobility for people from diverse backgrounds. It is on this aim that The Sutton Trust report says the UK govt. has failed.

Many large employers use the levy to fund apprenticeships for their senior staff. And who can blame them? If they don't use their funds by the end of every year, the money goes to SMEs to spend on their own staff training.

So employers are understandably focusing on training their existing workforce. After all, those entering the workforce are a tiny percent of the total.

The Industrial Strategy Council found that four in five of the U.K.'s 2030 workforce are already employed. With millions facing acute under-skilling in digital, management, and STEM.

Companies need to find places to spend their levy money. And they are using the funds to upskill and reskill their existing employees.

So just be aware that when people talk about apprenticeships being an alternative to university, they are not just talking about undergraduate students….

What next?

The levy still has cross-party appeal, but many want to see it reformed.

The wonderfully titled Confederation of British Industry (CBI) says it has been "a significant extra tax for businesses". Ouch. And that has prevented many smaller companies from accessing funding.

While other business leaders claim that "millions go unspent" from the levy each year.

The Labour Party says it would expand the levy to allow spending on non-apprenticeship training. Although this would be a nightmare to administer.

All that is largely irrelevant. The next UK election isn't until 2025. So don't expect any significant changes to the levy this year.

In 2023, I expect to see the gap between the big 4 providers and everyone else grow.

It is still challenging for new entrants to become registered apprentice providers. Which creates a nice moat for anyone currently on the register. And prevents anyone new from challenging the big 4.

How will the big 4 continue to grow? It has to come through new products. The growth from the last two years came through new data literacy training at the advanced level.

But this will slow down in 2023 as more providers offer similar products. First-mover advantage is vital in apprenticeships, where product differentiation is complex. The next cycle will come from new product areas. Look for providers offering new courses in AI, sales, and product management, for example.

Corndel and Multiverse have the funds to capitalize on this next phase.

Both companies reported £27m in revenue in 2022. Although Multiverse's revenue includes £1.5m from their US operation. With a staff of 60+, their bet is on US rather than UK expansion in 2023. Although the large cash reserves on their balance sheet means they could be competitive in both markets.

Expect the smaller, more focused digital providers to play a key role this year too. Bootcamps remain keen to offer apprenticeships. I'd expect we'll see one or two major European or US bootcamps enter the market this year. Either in partnership with a smaller digital provider (e.g., Baltic, Estio, Decoded) or through an acquisition. The large bootcamps missed their window between 2017-19 to become apprenticeship providers.

As one of the few guaranteed revenue streams in the UK, it's too big a market to pass up now.

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