Apprenticeship levy still getting lukewarm reception from business

Written as editor of the New Statesman’s NS Tech and first published here.

The government has just unveiled more detail on its intention to apply a levy on employers with a payroll of £3 million or more in order to get more businesses training apprentices.

This is in a (reasonably arbitrary) bid to get three million people in England skilled up by 2020, but has been designed to tackle the fact that investment in this area has been inconsistent.

The compulsory levy represents a new tax on businesses, one that former Chancellor George Osborne reckoned would bring in £3 billion per year. And depending on who you ask, this a bad move, a good step, or something that just doesn’t go far enough.

Money back

Of around five million businesses in the UK, around two per cent, or 100,000, will fall into the levy system.

The 0.5 per cent tax on the total amount paid to staff working in England is expected to arrive alongside a credit that offsets the first £15,000 levied and a 10 per cent top up from government each month.

That would actually see those companies that only just pass the threshold paying nothing at all.

But for big businesses, take Vodafone, with annual staff pay of almost £500 million, and the bill is likely to run into millions of pounds each year. That doesn’t even cover the apprentice’s salary and if the levy fund goes unspent, it expires after 18 months.

In theory, the maximum cost of training is £27,000 per apprentice, depending on the role, with companies able to directly select what provider they pay for what training.

The Institute of Directors (IOD) has yet again called on the government to stop the plan, not least because of business uncertainty post-Brexit.

Last month, it was also joined by EEF, the UK’s largest manufacturing employers, the CBI and the Charity Finance Group, as third-sector organisations will also be hit, in urging the government to rethink.

“Our members are fully in favour of the levy in principle,” Seamus Nevin, head of skills and employment at the IoD, told NS Tech. “They know they have to step up to plate and train staff.

“But we’re asking for it to be postponed in order to allow time for the government to engage more with employers.

“We’re worried that the three million figure will just become a box-ticking exercise that sees three million apprenticeship starters, rather than people finishing apprenticeships.”

He questions whether quantity will be prioritised over quality, and points to anomalies that mean that things like charities and academy chains will be swept up into the system.

Boost for small business

For small businesses who aren’t hit by the levy, or those with insufficient funds built up to meet the cost of training an apprentice, the government is asking them to pay just 10 per cent of the cost and it will make up the difference.

This means for small businesses, the training for many digital apprenticeships would be 90 per cent funded by government up to the value of £15,000, £18,000 or £27,000, depending on the role.

All of the new apprenticeship standards have been created in consultation with business, so getting yourself a swanky new infrastructure technician, who’d be trained on a curriculum designed by the likes of Microsoft, IBM, Cisco and BT, would see the government cover 90 per cent of your costs up to £18,000.

Cuts to digital?

One criticism of the previous system has been that apprentice training costs have floated towards the top of the brackets assigned by government for different jobs, so new ones have now been outlined that it says will see “maximum value for the tax payer”.

But that means most of the recognised ‘digital jobs’ have had the maximum estimated cost significantly decreased, meaning training providers might be required to do more with less.

“We are disappointed to see that the introduction of the new banding has meant funding for a diverse range of IT apprenticeship standards has reduced significantly, in some cases by as much as a third,” said Lucy Ireland, deputy CEO of BCS learning and development, part of BCS, The Chartered Institute for IT.

“On balance, this is a big step forward,” Anthony Impey, CEO of Optimity, which helped design the new government apprenticeships.

“For a long time, the apprenticeship system has been stacked in favour of the training provider – and there are two losers in that – employers can’t get who they need and learners haven’t always had a great experience.

“Overall, we as employers have to take responsibility for gaps in job market – and because this kind of training has a direct benefit to us. I don’t take on apprentices as an altruistic effort, it’s good business.”

If a small business with fewer than 50 employees takes on an apprentice who’s aged 16 to 18, the government will waive payment altogether and give them an additional £1,000 to cover the cost of getting them up to speed.

This is designed to address concerns flagged by the Federation of Small Businesses that apprentices can represent a cost if it takes a lot of time to manage their new team member.

Not far enough?

Jonathan Clifton, associate director for public services from the IPPR, believes that the latest proposals, don’t go far enough.

“The government is absolutely right to introduce an apprenticeship levy. Following Brexit, British employers may not be able to rely on recruiting migrant workers to fill skills gaps – so we’ll need more apprenticeships to train up our domestic workforce.

“Today’s announcement is a step in the right direction – but it does not go far enough. The proposed apprenticeship levy will still only cover 2% of employers. In the long term, the government should expand the levy to cover all employers – because every firm has a role to play in training up the next generation.”

Interested parties have until 5 September to respond to the latest proposals, with a proposed October launch of the final plan.

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