Apprenticeship levy could do more harm than good

Posted on 2 Oct 2015 by Fred Tongue

British manufacturers are unsure about the new plans to introduce an apprenticeship levy and see it as a tax on business, according to the EEF.

The current plans to increase the pay for apprenticeships by 57 pence to £3.30 per hour have been criticised by the EEF, who suggests that the levy will not increase the quality of apprenticeships in the country but could have the opposite effect.

The proposal was announced by the Chancellor of the Exchequer in the Summer Budget and, after a Government consultation on an apprenticeship levy which closes today, EEF has expressed concerns about the proposal.

Tim Thomas, head of employment and skills at EEF, the manufacturers’ organisation
Tim Thomas, head of employment & skills, EEF

EEF’s head of employment & skills policy, Tim Thomas commented:  “Companies have serious concerns as to how the scheme will work in practice and perceive it is simply a tax on business which will do little to improve the quality and quantity of apprentices we urgently need.

 “If this proposal is to avoid being a pile them high, sell them cheap approach and actually increase the quality of apprenticeships as well as hitting the government’s 3 million target, then the government must sit down with employers as a matter of urgency to design a workable scheme.”

EEF has said that half of all small companies and three quarters of all large and medium companies are planning to recruit in the next twelve months, and that this is proof manufacturers are already investing in apprenticeships.

If the government target of 3m new apprentices is to be met by creating 600,000 new placements a year then EEF believes that 120,000 should be in the engineering and manufacturing field and any new levy system should ensure the Government meets this target.

Employers fear that, under the current plans, they would lose out financially and that the Government’s claim that, “employers offering apprenticeships will get back more than they put in” doesn’t have any evidence to back it up.

Under the assumption that the levy is 0.5% of payroll, companies of more than 250 employees would have to double the number of apprentices that they recruit.

The CBI has also weighed in this morning, saying in a press release that, “All funds raised by a new Apprenticeship Levy must be ring-fenced for training with the levy rate set at a fair level by a new politically independent Levy Board.”

Katja Hall, Deputy Director General, CBI.
Katja Hall, Deputy Director General, CBI.

CBI deputy director-general, Katja Hall said: “Business is committed to working with the Government to tackle head on the skills shortages many of our high-growth sectors face, and we have been vocal in our support of employer contributions in the past.

“The UK must do better in producing more technicians which is at the very heart of our skills problems. But at a time when firms are already investing over £40bn a year on formal training and increasing apprenticeships, there is a high risk it could undermine the system not strengthen it.

“A new levy won’t be welcomed by business, so we want to see a new politically independent Levy Board setting the rate based on clear evidence with the funds ring-fenced.”

The CBI is calling for the levy to be simple and to give employers real control, uniting standards and funding in one body. It believes that a payroll-based levy would need to be significantly lower than 0.5% of total payroll to be affordable.

CBI members are clear that if the levy is set too high, firms won’t be able to deliver the significant amount of training necessary to get more apprenticeship funding back than they put in. That risks less money being available for firms to invest in other forms of training and a reduction in apprenticeship opportunities.

On top of financial loses, manufacturers do not feel the levy would increase the provision or quality of apprenticeships. The EEF has suggested that the it could have a detrimental impact on quality and that there is a possibility that companies could rebadge training as apprenticeships in order to meet the levy without having to alter their current system.

The EEF has made the following recommendations to help address the concerns of employers:

  1.  The levy contributions from larger firms must not be used to fund non-levy payers.
  2.  Government must meet all the training costs needed for level 2 English and maths and other functional skills.
  3.  Every £1 paid into the levy must be spent on training – with Government funding any administration costs and no quango intermediaries involved.
  4.  The levy must deliver the announced policy commitment that employers can get back more from the levy than they pay in. Should this result in the levy being overspent, then Government must subsidise the overall funding pot to ensure employers can continue to recruit apprentices as their business needs.
  5.  Those employers paying into the levy must have flexibility on what it is used for, including costs associated with training apprentices.
  6.  Government must not take this policy is isolation. There is an immediate need to address issues such as increasing the quality and quantity of the candidate pool and access to quality, relevant provision.
  7.  The levy, and the vouchers, must be simple for employers to operate.
  8.  The levy, and its rate, must remain predictable and stable over time.
  9.  Employers should be involved in setting the levy rate, and deciding upon its distribution, which could include all forms of vocational training, and be free to allow greater support for employers providing higher quality apprenticeships.