Apprenticeship levy sparks funding fears

Chancellor George Osborne’s combined Spending Review/ Autumn Statement contained a number of surprises – not least of all his dramatic U-turn on slashing tax credits.

Many in the engineering community, however, were awaiting clarification on the government’s ambitious apprenticeships scheme - originally set-out in the Conservative Party’s 2015 election manifesto.

The scheme promised to create three million new apprenticeships by 2020, but many within industry had complained about being been kept “in the dark” as to how the government’s apprenticeship strategy would be put into practice. Cue the Apprenticeship Levy.

There are several future challenges which must be overcome before manufacturers can support the new Levy

EEF head of policy Tim Thomas

The Apprenticeship Levy was first introduced in the Chancellor’s 2015 Summer Budget. It is designed to encourage larger firms to take on more apprentices and help bridge the skills gap.

Money generated from the Levy, which is expected to be in the region of £3 billion, will be used to fund the government’s five-year apprenticeship scheme.

In his Spending Review/Autumn Statement, the Chancellor announced the Levy will stand at 0.5% of a company’s payroll and will affect businesses with a wage bill of £3 million and over.

As part of the Levy, employers will receive a £15,000 allowance against the Levy and those with a wage bill of less than £2 million will be exempt from the levy and will pay zero tax on it.

There is still, however, concern over how the Levy will be managed and how the funding will be controlled.

Tim Thomas, head of employment and skills policy at the manufacturers’ organisation EEF said that although the Chancellor’s Levy announcement does balance the need to secure future employer funding to invest in quality apprenticeships at a rate that the employers affected can afford, it is not supported by business.

“There are several future challenges which must be overcome before manufacturers can support the new Levy. Employers must be able to control the funding, with the lowest possible level of red-tape,” Thomas said.

“Any level of funding available to employers must allow them to cover the real cost of providing a quality apprenticeship with predictable and stable funding over the long term,” he added.

The Confederation of British Industry director-general Carolyn Fairbairn said the Apprenticeship Levy represents a “widening of the net” in which smaller businesses will now be caught out.

Likewise, Stewart Segal, chief executive officer of the Association of Employment and Learning Providers, said the Levy will apply to more businesses than previously thought because the “£3 million benchmark means that employers with less than 150 employees could be included in the Levy”.

“We need to understand a lot more of the details but we have recommended that the rules around the Levy need to be very clear and simple if we are to see an effective implementation by April 2017,” Segal said.

There is a glimmer of hope, however, say some industry representatives.

It’s time to rid ourselves of any apprenticeship snobbery about the quality of these new routes into professional careers

CMI director of strategy Petra Wilson

In an effort to allay fears and ensure the effective management of the apprenticeships scheme, Osborne said a Levy Board would be created.

Experts hope the Levy Board will give businesses a voice on how funds generated by the Levy are spent. It will also give companies the chance to work with the government to ensure a focus on quality.

“We look forward to working with the new Levy Board, in particular to make sure that due attention is paid to improving the quality of apprenticeships, not just increasing the volume,” said Ian Wright, director-general of the Food and Drink Federation.

Meanwhile, Petra Wilton, director of strategy and external affairs at the Chartered Management Institute, said it was time business took responsibility for the cost of apprenticeships – especially if they want a skilled workforce.

“There may be some grumbling in boardrooms about this new Levy but it’s time to rid ourselves of any apprenticeship snobbery about the quality of these new routes into professional careers.”