How are companies coping with the apprenticeship levy?

31 Jan 2018 By Verity Buckingham and Julianna Khudoliei

A year after the scheme was introduced, Verity Buckingham and Julianna Khudoliei assess its effectiveness and find the results are not promising

Radical changes implemented by the UK government in 2017 were intended to ensure that every big company plays its part in bringing up a new generation of skilled apprentices and that high standard training is provided in each relevant industry. 

The apprenticeship levy became payable from 6 April 2017 by all employers with an annual pay bill of more than £3m. It must be reported and paid to HMRC through PAYE. In many ways, it is a 0.5 per cent tax on the employer's payroll. 

How the levy is used depends on which part of the UK an employer is in. In England, employers can create an account on the apprenticeship service allowing them to access levy funds to pay training providers and manage apprentices whose worktime is at least 50 per cent in England. Those funds cannot be used to pay wages, travel and statutory licences or other costs related to apprenticeships. Even companies with a pay bill under £3m can apply for apprenticeship funding from the government to support their programmes. Groups of companies can also collect their available funds into one single pot. 

In Scotland, Wales and Northern Ireland, the levy funds are used by their governments to support apprenticeships, such as the modern apprenticeship system, and training centrally – so funds are not available directly to employers.

The scheme was set up with good intentions to transform training and create three million apprenticeships by 2020. However, in reality, employers seem unaware of the basics of the scheme. The BBC recently reported its findings, which show that three-quarters of companies had not yet started to take any action.

The Institute of Directors (IoD) has said that rushed implementation of the levy and lack of information from the government caused a lot of confusion among employers and many businesses are still not even aware of the scheme. 

Seamus Nevin, head of policy research at the IoD, says that 40 per cent of its members do not understand how the training courses work and only 20 per cent know how to reclaim levy funds. Many employers believe the apprenticeship levy is just another tax on companies. 

Some aimed to use the funds available to provide their senior management with MBA courses. However, the Institute for Apprenticeships (established to administer the levy in England) promptly ruled that no more than £18,000 can be spent on any master's level degree courses. This is considerably less than the average cost of an MBA at the Financial Times' highest-ranked business schools in the UK. 

The apprenticeship levy was primarily implemented because of skills shortages in the job market, a problem that costs the British economy more than £2bn a year. However, in November 2017, the Department for Education (DfE) published information confirming that apprenticeship numbers in England had fallen 59.3 per cent since the introduction of the levy. 

Compared with the 117,800 people who started apprenticeships between May and July 2016, only 48,000 people started during the same months in 2017. The biggest decrease (75 per cent) was seen in intermediate apprenticeship numbers, while advanced training courses saw a 48 per cent decrease. The DfE said this was expected and its goal remains to boost apprenticeship numbers by 2020. 

In light of Brexit, and the expected reduction in skilled migrant labour, further action seems to be needed to educate employers about the levy scheme and encourage them to take on apprentices and train more people. 

Verity Buckingham is a senior associate and Julianna Khudoliei a trainee at Dentons

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