The Apprenticeship Levy: Helping to fulfil the needs of employers

As the Government has recently highlighted, apprenticeships work. According to Skills Minister Robert Halfon, over 90% of apprentices currently go into work or further training. It’s therefore no surprise that more are desired, and, with the introduction of the new Apprenticeship Levy, more should be delivered.

The new levy is now just weeks away. As of 6 April 2017, the start of the new tax year, all UK employers who have an annual pay bill of at least £3 million will be required to invest in apprenticeships, through a charge of 0.5 per cent against their annual pay bill. This equates to less than two per cent of employers.

In England, control of apprenticeship funding will be put in the hands of employers through the Digital Apprenticeship Service; and each employer will receive an allowance of £15,000 to offset against their levy payment. If they choose to, employers can spend their levy contributions on apprenticeship training. If they don’t invest this money within a two year period then it will be returned to the Government to invest in apprenticeships elsewhere.

While most of the focus has been on those larger companies required to pay the levy, it’s important not to lose sight of the fact apprenticeships can prove an invaluable resource for small businesses too. According to 2014 research AAT carried out with CEBR, apprentices were worth around £1.8 billion to the UK’s net economy in the previous year. More recent AAT research found that some SMEs were realising the benefits of the scheme, with around a quarter planning to take on at least one apprentice in the coming 12 months. Of those SMEs who already did take on apprentices, around 50 per cent kept on at least half of them for the longer term.

SMEs make up around 99 per cent of all businesses in the UK, and are a significant pool from which to drive up apprenticeship numbers. The fact that so many SMEs we spoke to were retaining a good number of their apprentices demonstrates how successful apprenticeship schemes can lead to sustained employment.

Sources of advice areas such as the Informi web site for small businesses offer small businesses thinking about taking on apprentices some practical tips and guidance on how to do so.

The new levy should help address decades of widespread underinvestment in skills. In addition, it should support realising the Government’s target of three million apprenticeship starts by 2020.

However, a focus solely on chasing apprenticeship starts targets is not enough. This needs to be backed up by a focus on timely apprenticeship completions and sustained employment, along with a focus on the schemes being high-quality and meeting the needs of the wider economy. Currently, almost 30 per cent fail to complete their apprenticeship, while in some sectors, apprenticeships appear to hold little value in the eyes of employers and don’t offer enough transferrable skills for the individual – benefitting no-one.

It was interesting to note that the Institute for Fiscal Studies, in a report issued in late January, concluded that the large expansion of the target risked “increasing quantity at the expense of quality,” – something that AAT has long since argued.

With some relatively minor changes, the levy could provide a real opportunity for companies to develop high-quality apprentices for the benefit of their own workforce and related productivity into the UK workforce as a whole. It could also be extended, perhaps to an ‘Apprenticeship and Skills Levy’, meaning the monies raised are also improving high quality traineeships and other forms of training to benefit the skillsets of other employees. There is already political support for such a change. AAT and ACCA surveyed MPs across all parties on this issue, with two in three supporting our suggestion that the levy could be developed in such a way to allow broader funding for skills other than apprenticeships.

One issue that most can agree on is that the introduction of the levy will help focus the attention of employers on the benefits apprentices can bring. Hopefully, this will also lead them to consider having, or improving on existing, structured training programmes. Our research suggests that this helps not only the employee but also the organisation, as it is likely to improve their productivity, and also their loyalty to the company, as training schemes can help people feel valued.

With approximately 20 per cent of our 80,000 student base taking an apprenticeship, AAT takes a keen interest in this area. In general terms, the levy is a good thing for British businesses, but increasing its flexibility would foster improved productivity across the whole workforce, deliver greater value for money and yet have no significant revenue implications for the taxpayer. This would benefit individuals, employers and the economy as a whole.

Mark Farrar, Chief Executive of AAT (Association of Accounting Technicians)