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Is the apprenticeship levy a help or a hindrance?

17 Oct 2019 By Hollie Ryan

Businesses are still struggling with the inflexibility of the scheme, but it remains a valuable tool, says Hollie Ryan

Last month, the Confederation of British Industry (CBI) called for “urgent steps” to be taken to reform the apprenticeship levy scheme. Its report, Improving the Apprenticeship Levy, highlighted that the levy has been so unpopular that it is at risk of becoming a roadblock to government efforts to modernise the skills and training system. 

The levy was introduced in 2017 in an attempt to combat growing skills shortages and boost productivity. The aim was to create three million new apprenticeships by 2020 by requiring employers with an annual wage bill of more than £3m to contribute 0.5 per cent of that bill to the levy. Employers receive a £15,000 allowance, as a deduction from their wage bill, to fund the training and assessment of apprentices. However, more than two years down the line, employers are still struggling to get to grips with the scheme and it looks increasingly unlikely that the government’s initial targets will be met. 

A critic’s voice

The main issue that we have seen businesses struggle with is the levy’s inflexibility and complexity, particularly the 20 per cent ‘off the job’ training rule and the shift from previously understood skills frameworks to the newer standards. There is also a significant perception among employers that the levy is simply tax in a different guise. This is a further barrier as many companies are therefore not approaching the levy in the right way, let alone engaging with it and considering how it could benefit their employees. 

Unsurprisingly, this has led to a drop in the number of new apprenticeships and a poor uptake among employers in using their levy funds. Indeed, more than £3bn in apprenticeship levy funding remains untouched, with organisations accessing only 14 per cent of the funding that has been available to them since May 2017. 

Change: too little too late?

The government reformed the levy in October 2018 by reducing apprenticeship fees for small and medium businesses (from 10 per cent to 5 per cent) and permitting employers to transfer a quarter of their training funds to another organisation within their supply chain. However, these reforms did not go far enough and simply fuelled criticism of an already troubled scheme. 

It is hoped that the government will fulfil its promise to launch a public consultation on the levy in 2020. Indeed, the CBI implored the government to take urgent action, proposing various improvements that would prevent the levy from becoming a barricade to everything it set out to achieve. One of the recommendations is that the levy should be allowed to evolve into a ‘flexible skills levy’ so that it benefits a wider variety of jobs. 

What can employers do?

Despite the levy’s shortcomings, employers should not be deterred from accessing their levy funds.  The scheme remains a valuable tool that can be used to attract talent and train new and/or existing staff to fill any skills gaps.  

What’s more, even businesses that do not contribute to the levy can benefit from its funding. Levy-paying employers should check the balance of funds available in their levy ‘pot’ and be mindful that the funds will expire after a 24-month period. Employers should also identify skills gaps in their workforce, remembering that funds can be used to upskill existing staff.

It is imperative that the levy improves so that it can fulfil its objectives. However, with the government slow to introduce more aggressive reforms, significant improvement to, and engagement with, the scheme appears to be a distant reality. 

Hollie Ryan is senior associate at Stevens & Bolton

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