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The apprenticeship levy: Are you ready?

29 Mar 2017 By Georgi Gyton

It could be the biggest shift in the way young people are trained for decades. But how businesses plan to put the upcoming payroll tax to use has yet to be seen

From 6 April, all UK businesses with an annual payroll bill of more than £3m will be required to pay 0.5 per cent of it in the form of an apprenticeship levy, whether they plan to take on apprentices or not. If that seems like old news, or strikes you as blindingly obvious given the non-stop chatter on the topic in HR over the past few months, consider yourself an early adopter – even six weeks before the levy came into force, around a third of companies liable to pay it were still unaware it existed, according to City & Guilds.

Many of that unlucky cohort will initially receive little or nothing in return for their cash. The rest of the business world, however, has had a clearer choice: whether to embrace the levy as an opportunity to invest in new or existing staff or decide the potential returns from the funding are not worth the administrative and cultural challenges of establishing an apprenticeship programme, perhaps for the first time.

“Apprenticeships form an important part of bringing new talent into your organisation and, if properly designed and supported, can really add value,” says CIPD skills adviser Lizzie Crowley. “But it’s not a short-term fix for an employer’s skills needs. Organisations need to take a long-term approach to their business plan and potential growth, and assess what part apprenticeships can play in helping to achieve that.”

Right now, there are still a lot of naysayers. Research by the CIPD last summer suggested that only 9 per cent of organisations planned to use the levy to create new apprenticeships, while one in five (18 per cent) said they would use the funding to enhance existing apprenticeship programmes. More than half of employers in a more recent survey by BPP Professional Education planned to turn graduate schemes into apprenticeships, which may or may not represent a retrogressive move.

But as reality bites and digital accounts begin to fill with credit, the pressure will be on to demonstrate a return on the levy. And with Brexit a reality and concerns about skills gaps mounting, there is a once-in-a-generation opportunity to fundamentally rethink the way young people are recruited, trained and supported. “Brexit is obviously going to impact on a significant number of businesses and their ability to access the skills they need,” says Crowley. “A lot of employers are beginning to think about what they can do to attract people from groups they haven’t previously tapped into.”

Some sectors have done more thinking on this topic than others. Banking, with its emphasis on rapid digitisation and optimising headcount, is ripe for the disruption a new wave of apprentices can bring. It’s also in need of positive PR from recruiting a fresh-faced cohort.

Unsurprisingly, Lloyds Banking Group is among those viewing the levy in a positive light. “We have taken the approach that it’s not just a levy,” says Emily Austin, group emerging talent lead for apprenticeships and early career programmes. “We will use it to invest in colleague development more broadly and in a focused and sustained way.”

The bank already has a well-established apprenticeship programme – having created more than 4,300 apprenticeship opportunities since 2012 – and is working towards a target of 8,000 by 2020. That doesn’t mean implementing the levy is free from challenges. “The biggest one is getting people to think about apprenticeships differently,” says Austin. The perception that they are only for 16 to 18-year-olds and those new to the bank is a real barrier to their adoption, she adds: “We have a lot of myth-busting to do. We need to think creatively about how we approach apprenticeships.”

Austin encourages HR and L&D professionals to work closely with others in their business to overcome challenges, and lean heavily on contacts with other employers and professional or training bodies – especially if they are new to the apprenticeship game. “There’s no ‘one’ approach to this. It needs to be a long-term, focused approach that’s right and sustainable for the business and not an overnight fix,” she says.

Facilities management company ABM UK feels that with a well-established training infrastructure in place, it is one step ahead of the game. “Implementing a new scheme will of course take investment from a financial and resource perspective, but with training already such a big part of our culture, the demands of the levy feel like a natural extension to what we offer our staff,” says managing director Andy Donnell.

ABM has appointed a training provider to deliver the additional training it requires and aims to deliver 120 apprenticeships in the first year. Its technical apprenticeship programme includes heating and ventilation, electrical and plumbing, and it plans to extend this to offer facilities management and cleaning and environmental supervision apprenticeships at advanced level.

Donnell says the company is viewing the levy as a chance to “balance the training equilibrium with people at every level”, and to invest in those who haven’t historically benefited from learning opportunities.

But not everyone is so optimistic. Employers in Scotland and Wales that fall within the scope of the levy will still be liable to pay it, even though there are currently no plans by the devolved governments in either country to create similar schemes. “They will be bearing costs they haven’t previously incurred and so will seek to minimise discretionary spend,” says Penny Tamkin, director of employer research and consultancy at the Institute of Employment Studies. “It could drive behaviour in completely the wrong direction, as employers may actually reduce the amount of training they do as a result.”

Fears have also been raised over whether rules will be bent, either through the wholesale rebadging of existing training as apprenticeships – a practice that has caused concern over the past few years, particularly in the retail sector – or through mounting evidence of ‘kickbacks’ among training providers competing for funding. And there is an open question around the lack of legislation requiring a certain proportion of apprenticeships to be delivered at higher level. This, say some, encourages a race to the bottom in standards.

“There seems to be a drive from the government to reach its three million target, rather than give proper consideration to apprenticeships and the role they should play in the labour market and our skills system,” says Crowley. “The government will need to properly review how the levy is actually incentivising employers to behave.”

Iain Mackinnon, managing director of consultancy The Mackinnon Partnership, says that while there has been talk about ‘gaming’ the system, some of the levy rules and procedures are far more complex, and far more off-putting, in the eyes of employers than the government realises. Which means there is a real premium on simplicity.

“It is naïve to think that any old training programme can be rebadged,” he says. “It can’t. Employers have a legal right to call anything they like an apprenticeship, but if they want to use levy money it has to be a statutory apprenticeship.”

The 12-month minimum term will stop much of the temptation to rebadge, Mackinnon believes. And what is classified as rebadging may be up for debate, according to Tamkin: “There is a strong sense that employers are going to look at what they have now, in terms of training and development, to see how much of that could be an apprenticeship.”

Stewart Segal, director of strategy at apprenticeship training provider 3aaa, sees nothing wrong with adapting a current scheme that meets the criteria of an apprenticeship programme, and says this should not be regarded as a rebadging. “The vast majority of training done by employers is online compliance or health and safety training, or short courses. Very little of what an employer will currently deliver is anything like an apprenticeship programme,” he says.

Among companies it is working with, 3aaa has seen a relatively even split between those looking to implement new schemes and those hoping to redevelop existing ones. “Some organisations have existing plans that we are going back to basics on – where we are asking: ‘What are your business needs and skills needs, and do your current programmes address those needs?’” he says.

John Yates, group director at ILM, adds: “There are some interesting conundrums for employers. The majority want to reclaim the whole levy – mainly because it’s financially beneficial, but also because it’s almost a public duty if they are in the public sector. However, they don’t want to train just for the sake of it, they want to make sure apprentices have a role to go into at the end.”

For companies that haven’t managed apprentices before, it’s also a very different way of engaging with employees. “For some, it will be quite tough early on,” says Yates. “And, to a certain extent, if you have an existing programme this will be a bit of an imposition.” But while there are some employers that will forgo the levy, most are going through the transition for training to become more apprenticeship-led, he says.

In the public sector, the picture is clouded further by the requirement for 2.3 per cent of the workforce to be classed as apprentices. Sue Evans, president of the Public Sector People Managers’ Association and head of HR at Warwickshire County Council, has called this “deeply flawed” because of the failure to consider labour supply and the strain on the sector in the wake of widespread budget cuts.

Among some councils, in particular, this has the potential to represent a significant burden. St Albans City & District Council is keen to use it as an opportunity to address skills gaps at the organisation. Amanda Foley, head of corporate services at the council, says it has been working with private providers, as well as the local further education college and university, to understand their perspective, “and to try and influence what they are offering.

“We have skills gaps, as do a lot of councils, in areas like planning and surveying, and we have found it quite difficult to recruit in these areas because of being so close to London. So we are having conversations to help shape what is available locally, and to ensure we can access apprenticeship standards in the skills areas and at the level that we need.”

Jane Pearce, organisational development manager, adds: “We are also looking to offer current staff opportunities to upskill, to refocus their roles or maybe take their career in a slightly different direction.”

The council has no shortage of ideas, but there are still some issues around the detail of the training offer, including the costs involved, which are unclear. “The register of training providers and assessment organisations is still evolving, so there is still a lot to absorb and clarify so that we understand the pricing of the model,” says Pearce. “We need to understand what the training offer is and what it’s going to cost us. Then we will need to profile our spend against the digital account funds we can draw on.”

Matt O’Conner, managing director of grounds maintenance company John O’Conner, says it plans to use the levy funding to roll out the new trailblazer standard for the horticultural industry throughout the business. He believes the levy will “complement and enhance” its existing programme, and plans to use the trailblazer framework for training its operatives and supervisors, giving them the chance to become multi-skilled and specialised – if they choose to.

“We will now have a dedicated fund to draw down on, which should help with long-term planning,” O’Conner says. “I’m sure there will be some bottlenecks to start with, but we feel positive about the change as we’ll now be paying for the training directly and will have the option to mix and match training provision.”

Such optimism is far from universal, but there are small signs it is growing. The government, at least, will hope so: few pieces of employment legislation have garnered quite as much attention over recent years, and the levy itself hasn’t even become fully operational yet. The stakes could scarcely be higher.

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