Chancellor announces review of apprenticeship levy rules

Employers hope for more flexibility, with funding to be shared across supply chains

Businesses have welcomed the chancellor’s announcement of plans for changes to the controversial apprenticeship levy system, hoping a further review will lead to a more flexible system. 

In his speech to the Conservative party conference in Birmingham today, Philip Hammond pledged to “engage with business on our plans for the long-term operation of the levy, working hand-in-hand with employers to ensure that every young person can fulfil their potential and achieve their dreams”.

According to reports trailing the announcement, this would include making it possible for employers to share up to 25 per cent of their funds with businesses in their supply chain, as well as increasing access to courses in STEM subjects, potentially making levy funding available to benefit a wider range of employees.

Lizzie Crowley, skills advisor at the CIPD, welcomed the chancellor’s announcement but cautioned that apprenticeships were only part of the answer to filling the UK’s skills gaps. 

“We would really be keen on a much more flexible tool to be deployed to support increasing investment in equally valuable forms of training,” Crowley said. “Within individual sectors, there are particular skills gaps and challenges, and we would like to see the government working with sectoral bodies to understand what the real pinch points are in those sectors.” 

She suggested part of the apprenticeship levy funding could be used to increase skills development for gaps in each sector. 

Meanwhile, Dr Adam Marshall, director general of the British Chambers of Commerce, said: “We have spent months pushing ministers to make practical changes to the way the apprenticeship levy works, and the measures announced today are an important step in the right direction. However, the review announced by the chancellor must introduce greater flexibility to the apprenticeship system, to ensure that businesses of all sizes can find and train the workforce they need.”

Stephen Martin, director general of the Institute of Directors (IoD), added: “It is no secret that at times business leaders have felt neglected over the past few months and we hope these announcements will mark a change in direction by recognising the contribution they make to our economy. 

“IoD members have long called for change to the levy system and the introduction of greater flexibility over the use of funds will be celebrated, as will the promise of further engagement.”

And Mark Dawe, chief executive of the Association of Employment and Learning Providers, remarked: “It’s great to see the Chancellor speaking about apprenticeships and the need to look at the levy. The review should focus on increasing starts for young people, starts among smaller businesses and starts at lower levels.”

The levy, which was introduced in April 2017, requires organisations with an annual payroll of at least £3m to pay 0.5 per cent of that into a digital account. This payment can then be reclaimed as vouchers to spend on apprenticeships training within two years. 

When it was first launched, only employers were able to spend their funds paid in. Earlier this year, the scheme was tweaked to allow businesses to offer up to 10 per cent of their funds to other organisations

However, the system has been the subject of much criticism. In February, Labour peer Lord Alistair Darling described the first year of the levy as a “strikingly hit-and-miss affair”

The 20 per cent off-the-job training requirement in particular has sparked a great deal of ire. Last year, employers panned it as “frankly impossible”, while MPs derided it as a “burden” on employers during a parliamentary hearing this May. 

Other research has suggested employers are failing to engage with the levy. A response to a freedom of information request submitted by the Open University, published this April, revealed just 8 per cent of levy funds had been spent in the first 10 months of its operation, with £1.28bn sitting unused in digital accounts. 

According to an official report published last month, the number of new apprenticeships in the UK fell 28 per cent between August 2017 and June 2018 for the 2017/18 academic year. The report revealed there were 341,700 new apprenticeships in the year leading up to June, compared with 472,500 in the previous 12 months.