One year on, what next for the apprenticeship levy?
This month marks the first anniversary of the Government’s flagship apprenticeship levy policy. Introduced in April 2017, the policy sees employers with an annual wage bill of more than £3m pay 0.5% of their bill into a fund to pay for the delivery of their apprenticeship programmes. The policy was pitched as one of the key vehicles for achieving the Conservative Government’s ambitious target of 3 million apprenticeship starts by 2020; and for ensuring businesses are fully committed to providing high quality apprenticeships by taking ownership of delivery. However, one year on, there are questions about how successful the policy has been in practice. In this note we look at the impact of the levy to date, what is likely to happen next, and what that means for business.
Reaction so far
Both business and the education sector have been vocal in their criticism of the apprenticeship levy since its introduction. Many view the levy as just another tax rather than an instrument of change. The CBI has been a driving force behind making the case for reforming the policy, calling for the levy to be ‘recalibrated’ to focus on quality not quantity. In a speech last month, Deputy Director-General of the CBI, Josh Hardie, said it ‘could be a vital part of the skills system by rewarding those who do their bit and taxing those who do not, encouraging more investment. But the levy doesn’t do that’.
Looking at apprenticeship starts since the levy’s introduction last April makes for miserable reading – rather than seeing an increase, numbers have in fact declined. Department for Education data published in January this year showed there had been a 41% fall in the number of people taking up apprenticeships in the first six months of the levy’s introduction, compared to the same period the year before. The most recent data published at the end of the last month still showed a decrease of 25% in starts from the beginning of the year, but arguably presented a slightly more positive picture than the previous few months.
Research published by the Open University has meanwhile found that employers have so far paid £1.39bn into the apprenticeship levy, but only £108m had been drawn down to use on training. However, while this indicates that many employers have so far seen the apprenticeship as just a tax, some businesses have started using their levy funds to skill up their workforce and establishing new high level apprenticeship programmes.
What next for the levy?
Apprenticeships Minister Anne Milton MP recently acknowledged that ‘It has taken some businesses longer to get going’. However, the apprenticeship agenda is still a priority commitment for May’s government and is regularly cited by ministers during political set pieces and major policy announcements. Apprenticeships remain central to the Government’s social mobility agenda and the emphasis on technical qualifications is likely to increase in the context of growing debates about post-Brexit skills shortages.
Levy paying employers now have the option of transferring up to 10% of their annual apprenticeship funds to one other employer, which could increase to more employers over time. And in a bid to address the ‘challenges the new system presents to some small business looking to employ an apprentice’ the Chancellor announced £80 million to support SMEs in engaging apprentices during the recent Spring Statement.
How can businesses engage?
For businesses the clock is ticking. April 2019 marks the end of the initial two year window before which HMRC can begin to claw back unused levy funds. While there are still question marks over the future of the levy – namely whether concessions such as the transfer policy and increased SME funding will go far enough to incentivise employers – the Government will be looking for more companies to step up, show what they are doing on skills, and communicate constructively how the levy could be strengthened. There is still everything to play for, and businesses that demonstrate their credentials will be better placed to influence the development of the apprenticeship levy in the future. But with only a year to go, they need to act fast.
If you would like more information on the apprenticeship levy and how business can move from compliance to leadership, please email Alice Wood on email@example.com