Report urges government to transform apprenticeship levy into training provision

11 Jan 2018 By Miriam Kenner

Graduates jobs to expand in 2018 to highest level since EU vote

More than half of the 1,000-plus employers currently paying the apprenticeship levy want it replaced with a more flexible ‘training’ version, according to research published today (11 January).

The CIPD report, Assessing the early impact of the apprenticeship levy, found that 17 per cent of employers that paid the apprenticeship levy surveyed supported the existing system, while more than 53 per cent would instead prefer a training levy.

The CIPD report cited government figures indicating a decline in apprenticeship starts, with 48,000 new apprenticeships started between May and July 2017, a 59 per cent fall on the same period in 2016.

An Institute of Student Employers (ISE) study, also published today, found that in 2016 apprenticeship vacancies grew 13 per cent and rose by nearly 20 per cent in 2017.

The government introduced the apprenticeship levy in April 2017 to boost low productivity in the UK, with a target of three million apprenticeship starts in the public and private sectors by 2020. Organisations with a salary bill of more than £3m must pay an 0.5 per cent tax on their payroll, which is converted into training vouchers supplied by the government to spend on ‘high quality’ apprenticeships.

Nearly half of surveyed levy-payers, however, said they may ‘rebadge’ their current training activity to comply with the new regulations and to reclaim their allowance. Of those, 52 per cent said they would rebadge existing training into level 2 apprenticeships, which the CIPD said equated to five GCSEs, offering “much poorer returns to individuals in terms of future wages and often providing limited progression”.

But the survey also revealed that four in 10 of levy-paying employers said the levy would make little or no difference to the amount of training they offered. 

A fifth of levy-paying firms, including a third of those that are SMEs, said they would write off the levy as a tax, rather than use it to develop apprenticeships, the CIPD found. Nearly a quarter of employers surveyed were unaware of whether they were liable to pay the levy, while one in eight had yet to calculate its cost.

Lizzie Crowley, CIPD skills adviser, said the research suggested “the straitjacket of the apprenticeship levy” was “forcing many firms to rebadge a lot of their existing training as apprenticeships, as they seek to claw back the levy they pay”, which she said created “bureaucracy and cost”. 

“Apprenticeships are extremely important, but other forms of training are equally valuable and often more flexible and better suited to the needs of organisations,” she added. 

A move to a more flexible training levy would continue “to prompt greater employer investment in skills, including apprenticeships” – which was more responsive to the needs of employers, Crowley said. 

The survey was conducted in early July 2017, only three months after the launch of the levy. While still too early to assess its full impact on employer behaviour, and overall investment in workforce training, the CIPD research offered “insight into the likely direction of travel”, supported by government data, said Crowley. 

Mark Dawe, chief executive of the Association of Employment and Learning Providers, told People Management that “the levy is less than a year old and employers have a two-year window to spend their funding, so we agree with the Commons education committee chair that it’s far too early to be calling for the levy to be used for other forms of training.

“We also think the CIPD’s concerns about level 2 apprenticeships are overstated. Official data since the levy began actually points to a marked shift by employers to higher-level provision to the extent that we are worried that the levy reforms are now misaligned with the government’s own social mobility agenda.

“This is having a particular impact in sectors such as social care and hospitality, with high-volume, lower-wage employment and typical lower margins where many of the first steps in education and training are taken.”

The CIPD urged the government to review the levy to ensure it was flexible enough to respond to employers’ needs. It recommended a government-run awareness campaign to promote the levy and its benefits to businesses in England, a £13m annual fund for HR support to small businesses, and an apprenticeship standards review – to be conducted by the Institute for Apprenticeships and Technical Education.

The report comes as the ISE found the graduate jobs market will expand in 2018, with employers expected to add significantly more graduate job vacancies, in a return to double-digit growth. Growth was last at that level before the EU referendum vote in 2015, when graduate vacancies rose 13 per cent, followed by an 8 per cent drop in 2016.

Apprenticeship vacancies had made up for some of the shortfall, and as employers responded to the introduction of the apprenticeship levy, apprenticeship vacancies continually rose during the same period, the ISE said.

The number of apprenticeships increased 13 per cent in 2016 and 19 per cent last year, according to the ISE. Compared to 2017, employers plan to offer 1,501 more apprenticeships this year, a 32 per cent rise.

The ISE annual Student Recruitment Pulse survey also reported that 103 of the UK’s largest student employers hired nearly 13,000 graduates and almost 5,000 apprentices in 2017. This year, they aimed to offer around 1,500 graduate jobs.

Stephen Isherwood, ISE chief executive, said: “Over the last couple of years the recruitment season has been heavily influenced by the Brexit vote and nervousness over the economy, but we’re now seeing a return to normal state of play.”

Mark Jackson, Fujitsu EMEIA lead for internal mobility and junior talent acquisition, added: “We need more junior talent to help our business continually adapt to the market. The highly agile workforce coming out of university is an attractive one for many organisations”.

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