High-skilled apprenticeships have high returns – but funding via a ‘crackdown’ on higher education courses is challenging

The Conservative Party has announced a plan to raise the number of people in ‘high-skilled apprenticeships’ by 100,000 per year by the end of the next parliament. These additional apprenticeships are to be offered as an alternative to university places that would be axed due to the previously announced ‘crackdown on rip-off university degrees’. 

It is unclear whether the additional 100,000 apprenticeships per year refers to an increase in the number of people participating in an apprenticeship at any given time, or to the number starting apprenticeships in a given year. This distinction is crucial to understanding the scale of the ambition. In the most recent academic year for which we have data, over twice as many people were participating in an apprenticeship in England (752,000) than the number of new starts (337,000). An additional 100,000 apprenticeship starts would represent a 30% increase, but 100,000 more participants would increase participation by 13% and return apprenticeship participation to its 2016 peak. 

Research in England suggests that apprenticeships are one of the most successful types of vocational education for boosting earnings. But delivering such a large increase while maintaining the quality that drives these returns will also be challenging, not least because the government would need to persuade employers to offer new apprenticeships. 

Crucially, it is also far from clear that scrapping courses taken by 13% of undergraduate students, as is reportedly the Conservatives’ aim, would lead prospective students to take up apprenticeships instead. Most importantly, students would be free to switch to other higher education courses, and universities would be free to accommodate them – or indeed to start new degree courses to replace those that have been cut. Shifting a large share of these students into apprenticeships would require convincing students of the benefits of apprenticeships, not just ‘cracking down’ on apparently low-value higher education courses.

Increasing the number of apprentices will require an increase in public spending

The maximum yearly cost of an apprenticeship is £9,000, so an expansion on this scale could cost around £900 million each year. The Conservative Party proposes to finance additional public expenditure through savings from scrapping existing degree courses. But it is unclear whether the savings would be large enough to fund this expansion of apprenticeships. 

The Conservatives have reportedly estimated that they could save £910 million per year by scrapping courses that taught 13% of students, implying a saving of around £13,000 per student. If the policy led to a one-for-one fall in the number of undergraduates, this level of savings looks achievable. It is roughly in line with the average cost of undergraduate education per student (taking official estimates for the average loan write-off per borrower and accounting for per-student teaching grants). If cuts were successfully targeted towards courses with low future earnings, the savings from lower loan write-offs could be even larger. However, if tougher regulation merely redistributed students within the higher education sector, the reduction in the student loan bill would be smaller.

In the long run, the net effect on the government finances will primarily depend on the effect of the policy on the earnings of individuals who would otherwise have enrolled in ‘low-value courses’. The Conservatives cite IFS research estimating that one in five students would have been better off not attending university. But on any given course, some individuals would have benefited financially and others would not. The key question will be whether lower future taxes paid by those who would have benefited will be outweighed by higher tax payments from those who are financially better off with the alternative – for example, an apprenticeship. 

The aim to pay for a larger number of apprenticeships via hugely uncertain future savings on student loans also looks oddly indirect. Apprenticeships are currently funded by a dedicated levy on larger employers, but currently the levy raises around £550 million per year more than is allocated to apprenticeship budgets. Accessing this money would leave less in general revenues, but could (partially) provide a more certain funding base for this reform.