If Degree Apprenticeships Keep On Rising, The Levy Will Break

“If it keeps on raining, the levee’s going to break” Led Zeppelin, 1971

We are soon going to have to confront a stark reality; the apprenticeship budget funded by the levy is heading inexorably towards greater and greater overspend.

Led Zeppelin’s 1971 song, “When the Levee Breaks” was based on a 1929 original about the Great Mississippi Flood of 1927. The USA authorities had known about the risk of flooding for years, and in a similar way we can now see that if the volume of degree apprenticeships continues to increase like rising river water, then the UK’s apprenticeship levy system is going to be overwhelmed. The main reason is that higher level apprenticeships are funded at a much higher rate than most others, so despite an overall fall of 31% in the overall number of apprentices starting since 2017, the higher and higher proportion of degree apprenticeship starts is inevitably going to burst the budget.

This is not a prophesy; it’s already happening. A recent article in FE Week revealed that England’s 2024/25 budget of £2.729 billion was overshot by £52m, leading the DFE to have to pull funding in from underspent budgets elsewhere to cover the gap (“DfE raids budgets to cover landmark apprenticeship overspend” Billy Camden, 24^th July 2025). The government has bought itself a bit of wriggle room through its recent decision to defund most Level 7 apprenticeships, which will save around £240m a year from FY 2026/27, but it wouldn’t be at all surprising if 2025/26 sees another overspend.

As the chart below shows – taken from the Institute for Fiscal Studies latest Annual Education Spending report (IfS, Jan 2025, p69) – the proportion of the apprenticeship budget consumed by Level 4-7 starts has trebled since 2017 and shows little sign of slowing down – the latest figures (25^th July 2025) show another 11% year on year rise. Higher and Degree apprenticeships now absorb over 40% of the total budget, while Level 2 continues its dismal trend in the opposite direction, falling from 40% to well below 20%.

Share of apprenticeship budget spent on each apprenticeship level

It’s little wonder the DfE is in no rush to introduce the flexibilities promised with the move to a Growth & Skills Levy, despite being urged by employers to get on with it. Unless there’s an injection of extra funding, the more non-apprenticeship options Skills England adds in, the smaller the apprenticeship budget will get. Unless the alternatives immediately incentivise employers to reduce their demand for apprenticeships, greater flexibility is inevitably going to mean greater budget strain.

So what can be done? Broadly, there are only two options: either increase the total funding envelope for apprenticeships or start introducing some form of rationing to stay within existing budget limits.

The first option is gaining support.  Several think-tank reports are already pressing for an increase in the rate of the levy or lowering the threshold to bring more employers into the system, or both. A recent report from the Fabian Society, for example, proposes the rate should go up from 0.5% to 0.7% and that the threshold should drop from a payroll of £3m a year to £1m a year (“Levying Up: How to Make the Growth & Skills Levy Work”, Joe Dromey & Sasjkia Otto, Aug 2025). But employers are already struggling with the rise in National Insurance contributions, along with pressures from tariffs and other unwelcome developments. For a government trying to boost economic growth, loading further costs onto firms – even in the name of improving investment in skills –  is not an attractive course of action.

The second option might be more palatable, especially to a government committed to opening up better access to training for young people. Some of the more radical solutions – such as directly funding apprenticeships for under 19s and/or Level 2 starts – make a lot of sense, but are probably unaffordable in the current climate. Unpopular though it would undoubtedly be, it might be time to require trainees on higher and degree apprentices to take out student loans, in line with all other HE students, something former Education minister Lord David Willetts has already proposed (“Are Universities Worth It?”, Kings College London, Jan 2025). It’s an anomaly that degrees done through the apprenticeship route are free to students, most of whom are from relatively affluent backgrounds, and hard to justify on social mobility grounds – as Lord Willetts points out, only 5% of degree apprentices were previously eligible for Free School Meals, compared to 17% of the overall university cohort. The risk is that such a move will dampen demand, but it’s likely to make only a marginal difference, just as the steep rise in student loans has so far had little or no effect on higher education uptake in England, indeed has been accompanied by steady growth in HE participation.

Whatever policy choices are made, doing nothing is not an option. If the levy breaks, the consequences won’t of course be as disastrous as when levee flood defences collapse. But restricting access to lower-level apprenticeships whilst letting higher apprenticeships grow unchecked would be a skills and social mobility disaster, risking a further rise in disengaged, demotivated and disaffected young people and creating a bigger problem of skills shortages across the labour market. Unless action is taken, the surge in degree apprenticeships is going to wash other desperately needed opportunities away.