One year in, is the apprenticeship levy working yet?

Like most engineering businesses serving oil and gas, power and petrochemical industries, UnitBirwelco is reliant on access to a highly skilled workforce and a fundamental part of this access is through engineering apprenticeships. As such, we take a keen interest in Government support for training and, in particular, support for apprenticeships.

A little over a year ago, the Government introduced a new business levy to finance more apprenticeships as a way to tackle skills shortages in the UK. Irrespective of whether they employed an apprentice or not, companies with an annual wage bill of £3m or more have been compelled to pay 0.5% of their payroll cost into a Government-held training fund which, in turn, businesses could draw on to fund their apprenticeship programmes.

This new levy, or business tax, has come in for some heavy criticism from large sections of industry, but especially from those companies which already pay the Engineering Construction Industry Training Board (ECITB) levy.

More recently, it was announced in the autumn 2018 Budget that small businesses’ apprenticeship fees would be halved from 10% to 5%, with the Government picking up the remaining 95% of the cost. This welcome change is likely to come into effect at some point during 2019 although the official date has yet to be confirmed.

Unfortunately, the first quarter after the levy’s introduction saw a 60% plunge in the number of people starting apprenticeships as companies struggled to get to grips with the new system. Many attribute this steep fall to insufficient planning or thought being given to the mechanics of how the levy would work in practice.

Furthermore, data obtained under the Freedom of Information Act by the Open University found that, of the £1.39bn paid into the levy by English businesses, just £108m had been drawn down, indicating that businesses are struggling to navigate the complex system.

Engineering and manufacturing have long provided the heartland for apprenticeships and it is from these sectors that some of the harshest criticism has come. One of the major issues is that new apprenticeship standard programmes are not ready, which has meant that companies have been unable to spend levy funding.

The apprenticeship levy: tax or opportunity?

Finding the new funding structure too complex – or that the apprenticeship standards currently available don’t meet their training needs – some employers have chosen to write off the Apprenticeship Levy as just another tax. Many are calling for greater flexibility around how they spend their levy.

However, others have been quick to embrace the opportunity to invest in training for existing staff and talented new recruits, benefiting from the additional 10% Government top-up and programmes that complement existing learning and development.

Where apprenticeship standards don’t currently exist to meet specific training requirements, groups of employers – ‘trailblazers’ – are coming together to develop new standards that are relevant to their particular industry. Thus the range of programmes available will soon widen to ensure the levy can be used to plug genuine skills gaps.

The future of the levy

With funds expiring after 24 months, time is running out for businesses that have not yet formulated and implemented a levy strategy. The hope must be that we will see a significant rise in the number of levy-funded apprenticeship starts over the coming months as the deadline draws closer.

October’s announcement by the Chancellor, Phillip Hammond, of a consultation with business on the future of the levy past 2020 also brings hope that it can be reformed to be more flexible and easier to navigate, especially for smaller businesses.