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What's the problem with the Apprenticeship Levy?

What's the problem with the Apprenticeship Levy?

14 April 2018

Nowhere is the UK skills crisis felt more keenly than in the construction, utilities and energy sector. An ageing workforce is retiring but young people aren’t being trained in sufficient numbers to replace them or to deploy new technologies such as smart meters.

The Apprenticeship Levy was supposed to change all that, but a series of reports show it falling woefully short. With newspaper reports describing the levy ‘at breaking point’, the Department for Education’s own figures revealed total apprenticeship starts for May, June and July last year fell a staggering 61 per cent compared to the same period in 2016.

One year on 

One year on from its launch, it is clear that businesses are still wrestling with the implications of the levy, which essentially taxes large firms but allows them to recoup the money if they invest it in apprenticeships. While the idea of the levy may be applauded in principle, it was made clear at our recent Industry Skills seminar on the subject that it isn’t a straight choice between training people and paying tax. For example, a number of delegates pointed out that the levy money received for training an apprentice does not cover the full cost of recruitment and employment. Others said it would be foolish to take on apprentices to recoup the levy payments without capacity to manage recruitment and training programmes.

What is the real reason for lower apprenticeship numbers?

Clearly some firms have yet to get to grips with the levy, as summed up in a recent FT headline: ‘Apprenticeship levy leaves businesses baffled - quarter of companies do not understand it or how to respond to it’. But is that the whole story? Maybe it is convenient, at least for some firms, to lay the blame on arcane regulations, but in reality the levy isn't too complicated compared with most tax legislation. In its defence, it provides a secure route for funding and seeks to raise and standardise quality.

It seems some large firms are simply choosing not to invest in apprenticeships. So what is the government to do? It would surely be political suicide to abandon or water down the scheme and face accusations of failing to invest in the future and young people.

There have been calls to cut the cost of the levy on firms. Perhaps increasing the payment rate would be more likely to have the desired effect of encouraging more investment in apprentices, but that would probably only come at the expense of losing other worthwhile initiatives in the construction and engineering sectors. The answer must lie elsewhere.

How to get industry buy in 

With only 17 per cent of levy-payers saying they support the scheme, we need a more rounded approach to get buy-in from industry. One solution that has worked for a number of our clients is to create or convert training programmes for existing staff into apprenticeships that are recognised by the levy. Indeed, there is widespread support for extending the scope of the scheme with recent research showing more than half of employers who pay it want it to cover a broader range of training. 

More flexibility

The answer may be to make the scheme more flexible than it currently is. Here are some actions the government might consider taking to achieve that. 

  • Extend the window within which firms have to use their levy payments to invest in apprenticeships beyond the current two years
  • Widen apprenticeship choices
  • Unshackle the value caps on apprenticeships, which would also help training firms such as ours to contribute more to solving the problem
  • Bring non-apprenticeship schemes into scope
  • Enhance government contributions (co-investments) to non-levy paying firms
  • Do away with the need for the independent end-point assessor structures

At Develop Training, we have been campaigning for action to tackle the skills gap for years. The levy is potentially an important response by the government to what is a fairly calamitous situation. Industry needs to respond too. If by making the scheme more flexible, the government can win hearts and minds in boardrooms and training departments, it will be on the road to achieving what we all need – more people coming into the industry and being properly trained to keep the country’s vital infrastructure running.

Find out more about DTL's range of apprenticeships and the Apprenticeship Levy

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