Employers, apprenticeships and the levy – all change?

Becci Newton takes a closer look at what we know about the levy six months on

The apprenticeship levy (which is payable by employers with a pay bill of more than £3m annually) came into operation this April, and already several issues have been raised, with critics questioning its configuration and effectiveness. While it will undoubtedly take time to understand the impact of this policy change, it is worth considering what appropriate expectations should be in the short term, as well as what issues are arising and how we should interpret these.

Some commentators say that the large employers liable to pay the levy see it as a tax. Whether or not this is true, many employers are not taking up their entitlement to funded training. There seems not to have been overwhelming opposition to the policy itself, so it may be that employers have yet to fully recognise the benefit, ie access to training funds, that run in parallel to the payments. Alternatively, they may still be developing their apprenticeship plans since they have a two-year window to recoup their levy costs.

This latter point is intuitive; employers are not willing to react without full consideration of the best approach for their businesses. They may intend to grow their use of apprenticeship programmes over several years and in many ways, rather than as an immediate response to this policy change. Apprenticeships now range from Level 2 (school-leaving level) to Level 7 (equivalent to higher education) and some involve degrees, enabling access to training from the point of labour market entry to career progression into professions. It is logical that employers may seek a mixed use of their levy budget and have a number of purposes for it – with some focused on increasing diversity and working to CSR concerns, and some targeting management development for more senior staff.

The large employers in scope of the levy include those in the public sector, where austerity is writ large and new recruitment can be constrained. This may lead employers to ‘convert’ existing staff roles to apprenticeships rather than recruit into new apprenticeship vacancies – a long-term criticism of the scheme.

However, it is possible to think differently about this. The opportunity to offer existing staff training to support career progression using levy funding is a rational choice; it offers employers a speedier return on their investment through realising more rapid productivity from an apprentice who is not starting from ground zero, while also providing the means to motivate and retain existing effective staff. MBA programmes are seeing a resurgence, in part as a result of employers making this decision about their use of levy funds.

The equal cost of training and limited financial incentives for the younger age groups are said to be constraining the intake of young people into apprenticeships. Criticisms of the limited number of places for 16 to 17-year-olds have run over many years, but some argue that the problem is increasingly affecting 18 and 19-year-olds. Time will tell in respect of the age of new starters; however, as the educational level of training has been rising, many new apprenticeships are now not suitable for the youngest people. The government target of three million ‘starts’ as a result of the levy may well not be reached, but it is not clear that this is the right target: our attention should be on the quality of training and outcomes.

There are interesting dimensions to what we are seeing result from the levy implementation, such as the potential positive impact on employee engagement, that need to be assessed and valued. A focus solely on ‘traditional’ apprenticeship entrants and the number of starts achieved in the short term is unlikely to capture the full picture of this policy change.

Becci Newton is principal research fellow at the Institute for Employment Studies