The Apprenticeship Levy – Problems

The Apprenticeship Levy is set to apply from May 2017 and in its original proposed form was intended to encourage businesses and employers to create meaningful apprenticeships. 

However, the current proposal has numerous problems, including how it will apply to supply agencies, some of which our trade association represents. The charge is to be calculated on the whole of the agency payroll, including not only the agency’s regular staff, but also the supplied workers. 

We believe this is grossly unfair as the supplied workforce is the equivalent of stock in a retail business or of services in the financial or education sectors.  Agency workers are not employees in the regular sense (as apparently envisioned in the original government consultation).

Putting aside our arguments about the disproportionate burden on agencies, and the unfair allocation of payment into single point agency cost centres, (which means that only one £3m allowance is allocated, despite the workers being used by multiple employers), there are various consequent areas of concern.

Agencies will have to take the additional cost into account. Many already operate on the lowest possible margins. Given that agencies must make a profit to survive, how will the cost be met? There are four very clear options: absorb it, pass it on to candidates, pass it on to hirers, or go bust. Let’s rule out passing it onto candidates as that would be illegal.

Agencies absorbing the cost will see a lower net profit. That may be acceptable to some, but most will be under pressure from shareholders to increase the profit charge. This means that there will need to be multiple negotiations and, given the shortage of skillsets available for the education sector, market forces are likely to prevail. In order to avoid insolvency, agencies may have to pass the charge onto the education establishments, at a time when money within the sector is already very tight. Does this make sense? 

Then there’s the question as to whether the education sector really needs apprenticeships. As schools and universities are caught by the levy, with local education authorities and larger schools likely to have a payroll in excess of £3m, not only will they have to meet their agencies’ additional charge for supplied workers, they will also have to pay into their own fund. For what purpose? Who will actually use the money in the fund? For those using agency workers, how will the money accumulated in the fund by agencies either be accessible to, or be applied by, the hiring establishment?

Perhaps the use of the word ‘apprenticeship’ is a misnomer. For example, how many existing regular employees will want to be called apprentices, given the demotion in status that the term implies?  Shouldn’t the levy really be called ‘the training and skills levy’, since employers can access funds for internal training purposes, as long as the training standard is recognised? Some 266 brand new standards are currently under development or awaiting final approval- see http://bit.ly/2e73gLei – including an apprenticeship to be an entrepreneur.

(Yes, it’s approved!) So presumably the issue is not a shortage of apprentices, but a shortage of quality training for both new and existing staff.

Much money is being invested in these new programmes and whilst it’s hard to criticise an extensive retraining programme, I ask whether there has ever been a proper review as to whether state funds should be applied so indiscriminately. Even if these training programmes solve the country’s skills shortage, our members are being asked to subsidise them and there will be a cost to everyone.

If (as is rumoured) it is a desperately needed tax, then surely the government should just state that fact instead of putting everyone, including our members, through the ringer. I, for one, would have no objection if, after an appropriate review and reduction in cost, the net result is applied to training in a targeted way in those sectors that really need it, with the burden of contributing to the fund spread more equitably. Full details of our campaign can be found on the ARC website at http://www.arc-org.net/campaigns/the-apprenticeship-levy/

As the impact of next year’s Apprenticeship Levy becomes clearer, more professional and trade bodies are raising their concerns. As chairman of ARC, I am keen to hear from any sector that will be affected by the introduction of the levy, including Further Education, so feel free to drop me an email to  [email protected]

Adrian Marlowe, chairman of the Association of Recruitment Consultancies (ARC)