Apprenticeship Levy Update

Posted: 4th of October 2016 by Anonymous

Get the latest on the Apprenticeship Levy Update

The Apprenticehip Levy Update is out and in brief:

  • Nearly all employers will only have to pay 10% of the cost of training an apprentice
  • There is to be a £2,000 incentive to take in 16 - 18 year old apprentices, and 19 - 24 year old care leavers and young people with a education, health and care plan.This will be split 50/50 between the employer and the training provider
  • Employers with less than 50 staff will not pay anything toward the cost of training a 16 - 18 year old apprentice or a 19 - 24 year old care leaver or person with and EHCP.
  • £471 per qualification will be paid by government to training providers for Level 2 English and maths training purposes
  • Where an apprentice is in need of additonal learning support the government will pay up to £150 per month to support provision of this.

Update on Apprenticeship Levy following Cabinet reshuffle

It's been a busy week in politics to be sure, we have a new Prime Minister, Theresa May and an almost totally new cabinet.  One significant change is that Nick Boles, the previous skills minister in charge of apprenticeships has resigned his post and Nicky Morgan has been replaced as education secretary by Justine Greening who now has a much bigger remit than Morgan had. 

As a result of change, the update on the Apprenticeship Levy which had been expected on July 14th has been delayed. 

What was the expected update anticipated to include?

It was expected that the update on the 14th would provide key information on provisional funding bands for apprenticeships, the level of government support towards the cost of apprenticeships for non-levy paying employers, the level of extra payment employers could expect for hiring 16 - 18 year olds and the amount paid to deliver English and maths training for apprentices.

The web is filled with questions about the apprenticeship levy. Not Going to Uni is dedicated to the promotion of apprenticeships as a method of kicking off your career - so naturally, we're interested in understanding how the levy will or won't support the apprenticeship agenda.

What is the apprenticeship levy?

The apprenticeship levy is a tax on business. A strong argument in support of introducing an apprenticeship levy was made by Professor Alison Wolf in her paper Fixing A Broken Training System in July 2015.

As Wolf points out in her report, ‘almost everyone agrees that apprenticeship really is a good idea. They are an excellent and cost-effective way of developing high-level skills […]’ (Wolf, 2015, p12) However, although almost everyone thinks that more apprenticeships are needed, not only for business to grow the skills that it needs, but also to offer young people a genuinely excellent way to develop their skills and enter the work force, this growth needs to be funded somehow – hence the levy.  

It’s not unreasonable to surmise that those who benefit from apprenticeships (business) should not only have a greater influence over how they are developed and assessed, but ought also be more involved with supporting them financially.

What is the objective of the levy?

The primary objective of the apprenticeship levy is of course to generate the funds needed to support the growth of apprenticeships.  However, there are other objectives also.  For example, previously, apprenticeship funding was paid to training providers, based on outcomes.  The levy will see the power of choice placed firmly in the hands of the employer, which means that they will be able to access funds, select a training provider and pay for training though the new digital services system.

Who will pay the apprenticeship levy?

Every business that operates within the UK and has an annual salary pay bill of over £3 million will pay the apprenticeship levy at a rate of 0.5%. The levy itself will be offset by an allowance of £15,000 per annum.  This effectively means that you would have to have an annual salary bill of greater than £3 million before you actually pay the levy, because 0.5% of £3 million is £15,000. Therefore, if your business has an annual salary bill of only £1.5 million you will not pay the levy because 0.5% of £1.5 million is £7,500, offset this against the allowance of £15,000 and it still leaves you £7,500 (Note – this employer will not receive an additional £7,500 because of the allowance).

Connected companies and the levy

If your business is part of a larger group of connected companies, you will only get the one allowance of £15,000 and you will have to divide the levy allowance out amongst the companies at the beginning of each tax year and this will be fixed.

What about employers who pay an industry training board levy?

Many employers already pay a levy in relation to industry training boards and one of the questions raised had been whether they would have to pay two levies. The answer to this question appears to be a resounding yes.  Where employers already contribute to a levy system such as this, they will also be expected to pay the apprenticeship levy.

Will charities pay the levy?

Charities, which are not exempt for the levy have also raised concerns that money raised from the voluntary sector might end up being used by private sector companies.  There are some concerns that charities may see a drop in support from members of the public who are unsure where their donations will be used.

Will those who pay the levy get back more than they pay in?

We have heard time and time again that anyone who employs an apprentice will receive far more than they contribute through the levy, but how?

The government has committed to an apprenticeship levy top up.  For £1 that enters an employer’s digital account the government will add 10p.  So, if through your contributions your digital account receives £1,500 in a month, you will be able to access £1,650 to spend on apprenticeship training.

What is the digital apprenticeship service?

Employers will be able to create an online account with the digital apprenticeship service.  Through this they will be able to monitor their funds, and pay for training and assessment for their apprentices.

Use your apprenticeship levy funding it or lose it

After 18 months, if employers have not used the funds in their account to buy training and assessment, these funds will expire.

Through the digital service employers will also be able to select an apprenticeship standard or framework, choose an approved training provider and assessment organisation and post their apprenticeship vacancies.

Because the apprenticeship levy is a hypothecated tax is there a danger that other training and skills development will be negatively affected?

The funds available to employers through the levy system are ring-fenced for apprenticeships only. This means that employers cannot access those funds and use them for any other purpose (not even to cover the costs of setting up an apprenticeship programme). More information will be published in December 2016 by the government, but many are worried that this may have a negative impact on other training incentives.

What has the response been to the apprenticeship levy?

One word probably sums up the response so far – confusion.  The confusion has not just arisen over how exactly the apprenticeship levy will work in practice and whether the digital service will be ready in time. Many questions that were raised appear to have been answered, such as whether a double levy will apply to those already paying into an industry training board levy and whether funding will be available for the last months of the apprentice year 16/17.

Most of the unanswered questions now seem to be around whether the levy will actually improve the quantity and importantly the quality of apprenticeships in the UK and what effect the levy will have on other training and skills development, given the hypothecated nature of the tax.

To what extent will the levy meet its objectives?

The levy is due to take effect in April 2017 and many employers have raised concerns about whether the levy system itself is coherent in terms of providing the intended outcomes.

The Confederation of British Industry (CBI) represents some 190,000 UK businesses, of all sizes, from all sectors, and many offering apprenticeships. It is widely recognised that the UK is facing a massive skills challenge and that apprenticeships (particularly higher apprenticeships) have a vital role to play in addressing this challenge.  Therefore, the CBI is very supportive of growth in apprenticeship numbers.  However, in the CBIs response to the government consultation on the introduction of the levy, they stated that “levies elsewhere have not resolved skills shortages.”(http://news.cbi.org.uk/news/apprenticeship-levy-should-be-set-by-independent-board-and-funding-ring-fenced/apprenticeship-levy-consultation-response/)

If one of the key objectives then is, as it ought to be, to upskill the UK’s workforce rather than simply create 3 million apprentices, there are serious questions being raised as to whether this is an outcome that one should expect to see.

Another, serious question relates to the numbers being driven at.  This government has pledged to create 3 million apprentices by 2020 and this levy is intended to support this objective.  The problem is that some argue that the effect of the levy might be quite the opposite unfortunately.  Some have argued that many of those apprenticeships than may have come to be between 2015 and 2017, will be placed on hold by employers – shrinking the timeframe within which these 3 million apprenticeships need to be created.

Others, such as one CBI member, have argue that the levy may actually cause them to reduce the number of apprentices that they employ because the levy funding can only be used for training and assessment.  One member argued that their current budget for apprenticeships was £2.5 million (inclusive of salary, training and equipment costs). They calculate that the fund raised by the levy will exceed this amount resulting in a 30% reduction in their apprenticeship numbers.

Will the levy reduce apprentice salaries?

From the perspective of the apprentice – some will be concerned that because levy funds cannot be used to cover anything other than externally provided (unless the employer becomes a training provider themselves) training and assessment costs, and is therefore blind to all other costs associated with taking on an apprentice, employers may opt to reduce the salary offered to apprentices.  Traditionally, UK employers have opted to pay their apprentices, on average, above the national minimum wage for an apprentice and the worry is, that where an employer does not reduce apprentice numbers, they may be financially motivated to offer only minimum wage.

How will the apprenticeship levy affect colleges and universities?

Many colleges and most universities, because of their size and number of employees, will pay the apprenticeship levy in addition to others such as the immigration skills levy. 

Greg Wade, Programme Manager at Universities UK has suggested quite rightly, that there a number of things that universities will need to consider, for example:

  • What the balance will be between recruiting new apprentices and developing existing staff
  • Which member of the universities workforce would be best suited to an apprenticeship and at what level
  • Whether the existing apprenticeship standards and frameworks cover those skills appropriate to the development of their staff
  • Who will provide training for their apprentices? [1]

How will the Apprenticeship Levy work for businesses that operate throughout the UK?

For companies that are operational across England, Wales, Northern Ireland and Scotland the levy will be more complex. Although the fine details have not yet been released (further details are expected in October and December) the rough guide is that the levy amount that will be recovered by HMRC will be based on the total salary bill of the company. Employers will only be able to access funding that is proprotional to the number of employees in England. At the moment it is unclear whether this will be employees living in England or employees who work in England regardless of their address. 

As an example:

If a company has a pay bill of £3,000,000 their levy payment will be £15,000 (0.5% of their pay bill) plus a 10% top up contribution from government, so they will have a total levy pot of £16.500. If the proportion of their employees that reside or work in England is 65% they will be able to access £10.725 to pay for external training for apprentices. The details of how monies will be distributed to Wales, Scotland and Northern Ireland have not yet been released.

What happens if the costs of training exceed the money available to the employer?

In the event of employers not having enough funds in their levy pot to cover the costs of training apprentices a model of co-investment will be used where the employer pays the training provider 10% of the costs. The training provider will then be able to access 90% of the funding from the government.*

*this is based on a model of government caps on funding.

Is there any additional funding available for employers?

There is additional funding support available to employers, where their apprentices meet certain criteria.  For example, if an employer takes on an apprentice aged 16 – 18, there is additional funding available to help meet the costs of employing them.  This is payable through the training provider.

There is also additional funding available to support employers who take on an apprentice aged between 19 and 24 who has an Education and Health Care Plan in place, or who has been in the care of the local authority.

Many business-leaders and employers are border-line begging the government to put a halt on the apprenticeship levy until any problems with it are sorted out and there are huge concerns about employers simply rebranding existing employees as apprentices and cutting back on other very important training schemes. Will we see yet another U-turn by George Osborne? Probably not, but maybe a delay at least

 

[1] Greg Wade, Universities UK blog,  The Apprenticeship Levy is coming – what it means for universities, http://blog.universitiesuk.ac.uk/2016/04/20/the-apprenticeship-levy-is-coming-what-it-means-for-universities/ [20/04/16]

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