Phillip Speed, Education Finance Specialist, Nucleus Commercial Finance

The Apprenticeship Levy has brought major change for employers and training providers alike – but it seems to be the SMEs (as is often the way) that are feeling the sharp end of the deal. The Levy paid by businesses with a pay bill of more than £3 million and the 10% upfront contribution that smaller businesses must pay are argued to be equivalent. But there’s no escaping the fact that this cost will be felt much more keenly as an outgoing on an already smaller balance sheet, rather than as a tax.

In speaking to small businesses, there’s a clear feeling that the changes were imposed, with little explanation of the rationale, or incentives. This will be galling for SMEs for whom the importance of apprenticeships has been so heavily promoted in recent years. While colleges and training providers are grappling with the new requirement to ‘think like businesses’, with all the associated financial skills, small companies face a challenging and unexpected new expense. These financial skills are in rich supply with the Levy payers, however – many have spotted the opportunity to save money by scrapping their L&D budgets, using the Levy to cover both apprenticeship and management training costs.

Recent statistics from a survey carried out at the AELP (Association of Employment and Learning Providers) conference reveal that non-Levy apprenticeship start numbers have halved. This is an unintended consequence of the failure to engage SMEs fully in the consultation and education process when implementing major policy changes. Put simply, it was short-sighted of the Government to consult the big business minority on a structural overhaul that would affect the majority.

There’s another big question looming over the varying impact of the new scheme in different regions within the UK. It’s no secret that the majority of large business headquarters are based in the capital and major cities, leaving whole counties – in parts of Cornwall and Wales for example – with very few, if any Levy-paying employers. This could have major implications for local skills shortages. Just recently, Devon-based Skills Group highlighted that a lack of skilled construction workers is slowing down the growth of this industry in the South West.

In the same survey, respondents shared their views on what the next steps should look like if these non-Levy paying apprenticeships continue to fall. 47% think the Government should increase the non-Levy funding allocations for SMEs, 24% would look for them to abandon cash contributions required from non-Levy paying employers completely, while 21% would look for a return to fully funded 16-18 apprenticeships.

In a bid to resolve these issues, Skills Minister Anne Milton has overhauled the system by re-opening the procurement process. Needless to say, it is encouraging to have a representative that is engaged with and listening to the – significant and founded – concerns of the organisations affected. The changes, which mean that training providers can tender for non-Levy allocation, are designed to create a more robust and competitive system. This should drive up the quality of apprenticeships, though will create another bunfight around the application process. Training providers who are already delivering must go through the rigmarole of reapplying, SMEs risk losing long-standing relationships with training providers, and learners face choosing between quality and stability in a potential provider switchover for unsuccessful bidders.

The intent, to deliver high-quality education through apprenticeships and vocational training, is entirely right. But I worry about the disruption that this scheme has caused, through failing to get SMEs on board at the outset. The interim result is a programme that is widely misunderstood, and piling additional pressure onto small businesses who are already struggling to find finance.

Data from the FSB shows that small businesses accounted for 99.3% of all private sector businesses at the start of 2016, and 99.9% were small or medium sized. If SMEs are to be continually highlighted as the engines of the UK economy, they should be accorded the respect and voice that status deserves.

Phillip Speed, Education Finance Specialist, Nucleus Commercial Finance

About Nucleus: Nucleus Commercial Finance provides businesses with the finance they need to flourish long-term in a changing landscape. Our experienced team takes a human and solutions based approach to structure finance deals that fit each individual business. Our specialist education team has years of experience working in the sector – we understand the needs of education providers and our Education Finance products have been designed specifically to help colleges and training providers with cash flow, apprenticeship funding, specialist projects and growth.

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