Apprenticeship Levy

Two-and-half-years on the policy has failed to reverse dwindling apprenticeship numbers

First announced by George Osbourne in the July 2015 budget, the Apprenticeship Levy is intended to encourage businesses to train staff. The levy is paid by employers with a wage bill of over £3 million, who then pay 0.05% of the portion of the total wage bill above £3 million into a digital fund ring-fenced for apprenticeship training. Any money in the digital fund unspent after 24 months is claimed by HMRC, giving an incentive for businesses to have an effective training policy in place.

That same year, David Cameron pledged that 3 million new apprenticeships would be created by 2020, a promise that has been reiterated by the Conservatives up until very recently. The Levy came into force at the beginning of the 2017/18 tax year, during which apprenticeship starts fell by a quarter, a fall of 119,100. It became clear that the decline was a result of more than just teething problems with the policy, as businesses struggled to use their pot effectively.

Firms could simply ‘rebadge’ existing training schemes to avoid paying what would otherwise amount to a tax. A recent report from Ofsted said that whilst “this might meet the rules of the levy policy, it falls well short of its spirit.” There is also evidence of a fall in the quality of apprenticeship schemes as businesses scramble to spend as much of their pot as possible, leading to low-quality training, poor governance and general mismanagement.

In setting such an ambitious target the government received criticism for prioritising quantity over quality, but the stark reality is that the policy has thus far failed on both. Furthermore, despite the creativity employed by some firms to spend their pot instead of losing it, the Education and Skills Funding Agency (ESFA) found that of the £1.39 billion saved by businesses in the Levy’s first year, just £108 million had been withdrawn. Even the Department for Education struggled to set an example, managing to spend just 4% of its own £1.8 million levy pot.

Suggestions that the levy should become a more generic “Skills Levy” to accommodate more types of training come with good intentions, but risk resetting the business communities’ understanding of the policy.

Overall, evidence suggests that businesses are beginning to get up to speed with the levy, and whilst calls for greater flexibility should not go unheard by the government, there is also a risk that any major change could confuse a policy that is already suffering from poor uptake and a lower than expected profile. If the Government’s bold vision for Apprenticeships is to become a reality, a careful balance must be struck, and the business community must be brought along every step of the way.