BL-2022-002117 - [2025] EWHC 2794 (Ch)

In July 2015, the government proposed to replace the existing system of funding apprenticeship training with an “Apprenticeship Levy” (“the Levy”), with effect from 1 April 2017. This meant that funding for employed apprentices would no longer be funded from general taxation, but rather by way of a levy of 0.5% of the pay bill of all employers with an annual pay bill of £3 million or more. The funding available for apprenticeships for non-levy-paying employers would be limited to whatever the levy-paying employers did not spend. Accordingly, it was anticipated that the amount of funding available to non-levy-paying employers would be constrained after 1 April 2017.

It was estimated by the relevant Minister, on the advice of the SFA, that £440m could safely be committed in the first instance for “non-levy new starts” for 2017/18 on the basis that at least that amount could safely be assumed would be unspent by levy-paying employers and available for carry over. The SFA later explained to the sector that the £440 million was also calculated as the amount required to maintain existing volumes for non-levy new starts. It was, however, impossible to predict in 2016 how levy-paying employers would react to the new system, and there was considerable uncertainty as to how much would be available for non-levy paying employers. Sir Peter’s strategic concern was that the SFA should maintain stability in the transition to a very different new system. The levy represented a business opportunity because more funds were likely to be available for apprenticeships than there had been before, but it also represented a significant change in that the market for non-levy apprenticeships for SMEs was likely to contract.

From May 2016 3AAA had regular meetings with Karen Sherry of the SFA and shared its business plans. Ms Sherry was impressed with 3AAA’s plans for growing the levy business. Following the KPMG investigation, the SFA increased 3AAA’s funding allocation in 2016/17 from its 2015/16 level, by over 25 percent to £31.05 million. The parties agree that, even with the introduction of the Levy, the Funding Agreement provided for substantial funding after 1 April 2017. This was because there was a carry over for existing learners who would remain funded. Peter Marples placed a figure of £18 million on the carry-over from 2016-17.

To address various concerns about the impact of the new changes, the SFA devised a proposal to cap the initial funding allocation for each provider for non-levy-paying employers at £5 million, which was announced on 25 October 2016 (the ‘Non-Levy Cap’). There was the prospect for funds received from the levy funded apprenticeship budget to be recycled to non-levy apprenticeships in excess of this cap during the year, as and when it became available.

In November 2016 Kirsty Evans of the SFA spoke to a number of providers to provide comfort about the Non-Levy Cap and explained that the overarching SFA strategy was to get the right amount of money to the right providers by way of additional funding notwithstanding the cap. One of the providers she spoke to was Ms McEvoy-Robinson at 3AAA. Ms Evans encouraged 3AAA to grow its levy business as that was in Ms Evans’ view the future of apprenticeships. Ms McEvoy Robinson’s reporting of these conversations in relation to non-levy business to Trilantic was rosy, but Ms Evans was clear, and I accept, that while she was encouraging that there could well be as much money available to 3AAA in 2017-18 as in 2016-17 notwithstanding the cap, there were no guarantees and 3AAA should have plans in place for that not happening. Ms Evans expected the spending by levy payers to ratchet up quite quickly after the first year so that there would be progressively less money available for non-levy starts. Ms Evans was clear, and I accept, that it was going to be anything but business as usual when the levy came into effect.

I also accept Peter Marples’ evidence that the levy represented an opportunity for 3AAA and he was not concerned by the Non-Levy Cap. He had calculated that they had carry-over on 3AAA’s existing contract from 2016-17 and income from subcontracting from colleges, over and above the £5 million cap giving it a start he calculated of £29 million non-levy funding starting 2017-18. He also believed that, notwithstanding the SFA’s sector wide concerns for the non-levy market, 3AAA itself could grow its non-levy funding because 80% of 3AAA’s provision was in the 16-18 year old market where there was a statutory entitlement to be funded for apprenticeships and, as an Ofsted Grade 1 provider, 3AAA would expect to receive funding for that area. In addition, it would have Levy funding, where 3AAA intended to significantly grow its business with Levy paying employers.

Ultimately, the Levy was introduced but the Non-Levy Cap was not.