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Why the government’s Apprenticeship Levy is failing

Why the government’s Apprenticeship Levy is failing

Since the introduction of the apprenticeship levy in April 2017, there has been little sign of success. A new enforcement that was supposed to allow for more businesses to take on more apprentices has resulted in confusion and resentment.

What’s gone wrong?

Complaints range from the levy being similar to a normal business tax, to it being excessively hard to operate and understand as a system – especially for small and medium-sized enterprises (SMEs).

Many argue it also runs the risk of devaluing apprenticeships such as engineering and manufacturing. The Open University obtained data under the Freedom of Information Act which revealed that while a huge £1.39bn has been paid into the levy in just one year since its introduction, only £108m has been pulled out of the online system to be used, less than 0.1%.

Businesses have been unimpressed. Alan Tuohy, Managing Director of Playfords Building Services complained: “It’s been an absolute disaster… it’s not so much a tax as a money recycling scheme.”

Not only is the failure of the levy having an impact on businesses, it also appears to be affecting potential apprentices. As of February 2018, there were 21,800 apprenticeship starts, a 40% drop on the 36,400 from the year before.

A taxing system

Many businesses view the levy as little more than an added tax on the company. It is seen as a tiresome cost rather than a potential future investment. As the system stands at the moment, many larger businesses are putting into the levy far more money than they will ever get back.

Fionnuala Horrocks-Burns, who acts as the employment and skills policy adviser for the British Retail Consortium, revealed that many retailers are simply “writing the levy off as a tax”. A survey taken by the Chartered Institute of Personnel and Development to assess the early impact of the apprenticeship levy, found that a mere 17% of employers that had to contribute and pay the apprenticeship levy actually supported the new system. The levy seems too bureaucratic and costly for many businesses to be fully on board; they simply aren’t getting out of it what they put in.

An overcomplicated process

Not only is the levy costly, but it is also complicated to operate as a system. The businesses and employers pay their due levy through Pay as You Earn (PAYE), which is collected monthly by HM Revenue and Customs.

Up to this stage, it is relatively simple and similar to how employers are used to paying income tax and National Insurance. From here, it gets complicated. Employers can access the funds for their apprenticeship via an online digital service from which they receive vouchers to pay for the apprentice training.

One boss of 110 staff argues: “There are lots of businesses who just can’t go through all that. It’s a fiasco.” Employers are simply struggling to navigate the system while also juggling other things. Even when employers do manage to operate the system and get the required vouchers for apprenticeships, not all training programmes have been certified properly and so the apprentices cannot be sent on the required course.

It is devaluing apprenticeships

Somewhat ironically perhaps, one of the biggest issues facing the levy specifically aimed at boosting apprenticeships is that it diminishes and devalues them.

The levy doesn’t distinguish between different industries, but rather requires all businesses with an annual pay bill above £3m to contribute; according to Alan Tuohy you get “big companies creating apprenticeships in things like customer service and cleaning”.

While these jobs may be essential, do they really constitute apprenticeships? Big companies who have to pay in a substantial amount of money establish these ‘cheat’ apprenticeships to ensure they get their money back. While this is understandable from a financial point of view, it also completely undermines the point of the levy.

Engineering and manufacturing have often been the backbone of the apprenticeship sector and yet these are hugely technical fields and as such the cost of training is so high it exceeds the maximum funding available from the levy. The levy caps the possible funding for any single apprentice at £27,000, but some firms say they can spend up to £100,000 for some apprenticeships.

On top of this, some standard training programmes are not actually ready yet. In high-cost sectors such as engineering, construction and manufacturing, the immediate cost needed to set up the new training deters many. Verity Davidge, Head of Education & Skills Policy at EEF, voiced many businesses thoughts when she said that: “It’s far easier for training bodies to deliver lower cost and lower risk apprenticeships than to offer a four-year engineering apprenticeship, which has high upfront costs.”

The future

Since it became clear that the levy was failing in its original form there have been many ideas proposed as to how best to improve it. Some issues appear to have simpler fixes. Chancellor Philip Hammond has said that £80m would be diverted to SMEs to help them work the online system so they can claim the money they need to support apprenticeships in their business.

To encourage apprenticeships in areas where the UK may have specific skills shortages, mainly STEM sciences, it has been suggested that there be a review on the maximum funding available. Doing so and increasing the funding cap would allow more companies to facilitate apprenticeships that have a higher cost.

Supermarkets specifically need a reform of the levy due to the fact that while they pay around £180m per annum into it, in total it costs them a fifth more. Current requirements dictates that apprentices have to spend 20% of their time in training (away from college) which means companies have to pay someone to backfill the jobs left empty for one day a week. Perhaps this 20% requirement can be reviewed.

A good idea – poorly implemented

A spokesman from the Department of Education said that: “Government will continue to work with employers on how the apprenticeship levy can be spent so that it works effectively and flexibly for industry, and supports productivity across the country.” So, while there may be many aspects of the levy that need tweaking and some fine tuning, as a whole it is aimed at achieving what is desperately needed for any growth in economy – an industrious and skilled workforce to grow business and boost productivity.

Incentivising businesses to employ apprenticeships makes sense; a highly skilled workforce is the backbone of any economy. As apprentices acquire skills they can offer excellent productivity to their sponsoring business and learn how it works in detail – they can go on to become incredibly valuable employees. Let’s hope the government can tweak the delivery of the programme so it can work for everyone. It seems there is a long way to go.

How Red Flag Alert can help

If you’re a college looking for businesses to partner with, we have the perfect solution. Red Flag Alert works with colleges across the UK to help them find the best businesses to offer apprenticeships with.

Our business data is the most comprehensive in the UK; we have detailed information on 6.5 million businesses and our data is updated with 100,000+ changes every day. This data can be used to build target lists of business that are relevant for your students. The data can be segmented by:

  • Location
  • Sector
  • Turnover
  • Director name
  • Many more filters

This allows colleges to target alumni, find businesses in the right sector and approach businesses which qualify for the levy.

For a free demo get in touch with Richard West on Richard.west@redflagalert.com or 0344 612 412 6699.

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