Chancellor brings forward £700 million apprenticeship reform package

14 Mar 2019 By Maggie Baska

Changes set to come into force next month met with mixed reactions, as experts lament ‘inflexibility’ of levy

Chancellor of the exchequer Philip Hammond has brought forward changes to apprenticeship funding designed to help small and medium-sized enterprises (SMEs) invest in apprenticeships. 

In his spring statement yesterday, the chancellor said next month will see the amount SMEs are expected to contribute towards training apprentices as part of the co-funding arrangement drop from 10 to 5 per cent, estimated to bring a £695 million saving for businesses.

This change was first announced in last year’s autumn budget, and will now come into effect on 1 April.

Hammond also brought forward to next month the increase in the amount of levy funding that organisations will be allowed to share with their supply chain, which is set to increase from 10 to 25 per cent.

In a statement somewhat overshadowed by a series of crucial parliamentary votes on the future of Brexit, the chancellor said investing in people was key to raising the UK’s productivity, not just investing in physical capital.

“We’re committed to returning technical and vocational skills to the heart of our educational system with the new T-level system on track to deliver the first three routes in 2020; the first phase of the National Retraining Scheme starting this summer; and the apprenticeship programme rolling out 3 million new high-quality apprenticeships,” Hammond said.

Experts have met the chancellor’s announcement with mixed reactions. Many welcomed the funding but pointed out historic problems with the levy itself that could hinder the uptake of apprentices. 

Responding to the statement, Jane Gratton, head of skills at the British Chambers of Commerce (BCC), said the reduction of apprenticeship levy co-funding rule was an “important step in the right direction”. She said reducing the costs for employers would encourage more firms to take on new talent, and train and upskill their wider workforce. 

But Gratton added: “The inflexibility of the apprenticeship levy means there’s still not enough training taking place in businesses, and this will hamper efforts to boost productivity. We’re unlikely to see training volumes increase until there is significant reform of the system.”

In his statement, Hammond also indicated there would be a review into how national minimum wage (NMW) levels are set, with the “ultimate objective of ending low pay in the UK”.

He announced the government would undertake a review later this year of how it sets minimum wage levels, and appointed economist Professor Arindrajit Dube to review the international evidence on the employment and productivity effects of minimum wage rates. 

“This study will support the extensive discussions that we will be having with employer organisations, trade unions and the Low Pay Commission itself over the coming months starting with a round table which I will chair next month,” Hammond said. 

The study will then inform how the government sets future NMW levels from 2020. Currently, the NMW is set to rise from £7.83 to £8.21 in April.

Neil Carberry, chief executive of the Recruitment and Employment Confederation (REC), said firms will welcome the commitment to consulting on the future of the National Living Wage (NLW) and NMW, but that recruiters want the government to also focus on upcoming tax changes which could affect businesses.

“Without clients taking responsibility for contractors paying the right tax, law-abiding firms may be undercut,” he said.

But Paul Holcroft, associate director of Croner, said the review of low pay might be welcomed less by employers and payroll departments. He said the review “mirrors the government's recent efforts to improve protections under the Good Work Plan”. 

“This could see minimum wage rates increase in the future which is likely to come at a considerable cost to a large number of employers,” Holcroft said.

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