Apprenticeship levy viewed as a tax by almost a third of businesses

Many employers still failing to invest in training as deadline to use funds looms, survey finds

A significant proportion of businesses continue to view the apprenticeship levy primarily as a tax, according to a new survey which suggests an ongoing reluctance to invest in broader development of staff.

The poll, carried out by YouGov on behalf of Alliance Manchester Business School, found 29 per cent of employers who were aware of the levy viewed it as a tax on business.

There are only three months left before the initial tranche of levy funding, dating back to 2017, will be returned to the Treasury if it is unspent. But the survey of 2,000 employees and 1,000 senior decision-makers found 38 per cent of employers and 58 per cent of staff said they still knew nothing about the levy. 

And 31 per cent of businesses that offered formal training said the levy made no difference to the nature of the training they offered.

The apprenticeship levy was introduced in April 2017 and requires businesses with an annual wage bill of £3 million or more to pay 0.5 per cent of this amount into a fund which can be spent on apprenticeships and other eligible training.

In April 2018, an Open University report found 92 per cent of levy funds held in digital accounts had not yet been used. At the time, 17 per cent of employers said they had no expectation of recouping the funds. 

“Many employers might make the decision to write the levy off as a tax and will not reinvest it,” said Lizzie Crowley, skills adviser at the CIPD. “Apprenticeships might not necessarily suit some organisations’ training strategies. They’re very long programmes, and very specific in terms of addressing skill gaps in businesses.

“Research has identified that many organisations don’t train their staff and firms who don’t initially invest in staff training are quite unlikely to be using the apprenticeship levy funds,” she added. 

Almost two thirds (65 per cent) of businesses in the Alliance Manchester study said they didn’t currently offer any external training to staff because it was too costly. Around a third (32 per cent) said they offered no formal professional development at all.

Crowley said one of the underlying issues affecting uptake of the levy was that a lot of its training requirements necessitated investment beyond levy funding. 

“An individual on a training apprenticeship will be on a minimum of a 12-month training programme. It will involve one day away from the office [each week] and many roles haven’t historically had a long experience of apprenticeships as vehicles towards skill development. 

“Even though the cost of the training is covered for businesses, they need to release their individuals for one day a week, and evidence suggests that people who do apprenticeships are not productive until after the first six months of their training,” she added.

“There are a lot of additional investments businesses need to make in order to make apprenticeship programmes successful above the training, which is the only thing covered by the levy.” 

Dr David Lowe, programme director at Alliance Manchester Business School, said organisations should take greater responsibility when it came to training staff, and in particular executives. 

“Quality leadership development is an excellent way to supplement the skills of individuals with talent, technical ability or industry knowhow with those of quality management, which will ultimately reap results for the business. The apprenticeship levy is ready and waiting to alleviate skills, retention and productivity issues for business, but leaders need to act now to join the dots,” he said. 

Crowley added that imperfections in the current levy system would lead to longer-term issues around skills. “Evidence suggests that the apprenticeship levy isn’t stimulating higher investments in training by businesses,” she said.

“A portion of businesses are not using it and another portion are rebudgeting it, which suggests there won’t be an overall increase in training in the UK economy, which is one of the things the levy was designed to deliver.”

Introducing greater flexibility in how funds could be spent, she said, should be a government priority. “We know that apprenticeships are not the only answer to the UK’s skills challenges. They are part of the solution, but it would be much better if businesses were potentially able to draw down funding to address other skills gaps that are not necessarily addressed through apprenticeship structures and rigid forms of training.”

A Department for Education spokesperson said: “Our apprenticeship programme was designed specifically to be employer driven and employers are using their levy contributions to invest in their staff and the long-term skills and needs of their business. 

“We work closely with employers to help them take advantage of the levy. We meet with them regularly to understand the impact of the changes and use this feedback to improve the system.

“This has led to us making the levy more flexible by introducing transfers in April 2018, allowing levy-paying organisations to transfer up to 10 per cent of the annual value of funds entering their apprenticeship service account to other employers. This will increase to 25 per cent from April 2019.”