Cautious welcome for chancellor’s measures to streamline apprenticeship system

14 Mar 2018 By Dawn Lewis

Spring statement brings extra cash to prepare for T-levels – and Treasury confirms consultation on private sector IR35

Experts have welcomed a commitment in the chancellor’s spring statement to make money available for smaller employers to take on apprentices – at the same time as a consultation into the extension of the IR35 tax rules into the private sector was confirmed.

In his speech yesterday (13 March), Philip Hammond said the education secretary would release up to £80m to support small businesses to employ an apprentice, after admitting that the current system was challenging for such firms.

“Small enterprises with fewer than 50 people employ some 48 per cent of all private sector workers,” said Geraint Johnes, professor of economics at Lancaster University Management School and research director at The Work Foundation.

“So they offer a significant engine for employment creation, and facilitating the adoption of apprenticeships in this area is likely to prove fruitful.”

The apprenticeship levy, which was introduced last April, has been met with criticism from some employers. In February, it was described as “woefully inadequate” at a government select committee hearing. 

The levy, which has been besieged by a lack of understanding and evidence of falling apprentice numbers, is paid by larger employers with pay bills exceeding £3m. These firms set up an account with the National Apprenticeship Service through which they can access funds.

Johnes believes that one of the reasons smaller firms have struggled to utilise the funding opportunities for apprenticeships is that they will not automatically have an account with the service, which has limited their use of apprentices. 

“The extra support [announced by Hammond] implies a transfer of resource from larger to smaller firms, but larger employers will continue to benefit directly from the apprenticeship training when the smaller firms are in their supply chains,” said Johnes.

The Federation of Small Businesses welcomed the promise of more funding. National chairman Mike Cherry said: “It’s good to see £80m of much-needed dedicated funding for small firms that are keen to take on an apprentice. Small businesses are key to delivering the government’s target of three million new apprenticeships by 2020.”

Despite this welcome, some were disappointed that the government did not go further to reform the levy. 

Elaine Gibson, education director at the Chartered Institute of Payroll Professionals, said: “While access to more funding will be useful to businesses, we would like to see wider training opportunities being included through the levy. This would really benefit small businesses that could strengthen the skills and knowledge of their employees through funded opportunities that they may not be able to afford any other way.”

The call mirrors findings from the CIPD’s research into the impact of the apprenticeship levy, which called for the government to transform the levy into a training provision

Hammond also took other skills and training-related steps, including making £50m available to help employers prepare for the rollout of ‘T-Level’ work placements, and highlighting that the construction skills fund will open for bids to fund up to 20 ‘construction skills villages’ next month. 

Launching a consultation on improving the way the tax system supports self-funded training by employees and the self-employed, Hammond’s announcement that the government could extend the existing tax relief available for self-funded work-related training by employees and the self-employed was cautiously received. 

Stephen Herring, head of taxation at the Institute of Directors, said: “We welcome the government’s acknowledgment in the chancellor’s spring statement that a broader, simpler, compliance-friendly tax relief to encourage individuals to undertake training that will directly benefit the UK economy is necessary. 

“Hopefully, the outcome of the consultation will provide a sufficiently generous but focused new tax relief for those individuals who do not already benefit from courses provided by their employers.”

Hammond’s written ministerial statement confirmed that a consultation into off-payroll working in the private sector would be launched in the coming months to consider how to tackle non-compliance in this area, following the experiences of the public sector. The announcement appears to confirm industry belief that the IR35 may be extended to the private sector.

“While the written ministerial statement did confirm that a consultation on off-payroll working in the private sector will be launched ‘in the coming months’, there are still no firm timelines attached to this,” said Samantha Hurley, operations director at the Association of Professional Staffing Companies, which opposed the move to extend IR35 changes to the private sector.

With no new policy announcements made in the statement, Steven Cameron, pensions director at Aegon, said it was disappointing not to have heard more on other key policy areas.

“While automatic enrolment means nine million extra employees are saving for their retirement through workplace pensions, the self-employed are excluded,” said Cameron.

“With the chancellor saying the Conservatives are the champions for small businesses, we need new policies to stop the self-employed becoming second-class citizens in retirement.”

Despite the lack of new policy statements, the coming tax year will bring in several previously announced changes that affect employers, including rises in auto-enrolment minimum contributions, an increase to the pension lifetime allowance, changes to tax bands and changes to income tax rates for those in Scotland.

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