The industrial strategy Green Paper and the apprenticeship levy

We assess the relationship between the levy and the skills development pillar of the Government’s industrial strategy.

Apprenticeship levy – a brief outline

From April 2017, UK organisations with a payroll in excess of £3 million will need to pay a levy of ½ per cent of that excess. The amount attributable to employees based in England will be transferred to a dedicated digital account and can be used for up to two years to pay for their apprentices’ training. Any money not spent after that point will be returned to the Exchequer. The Government will top up each monthly payment into the digital account by an additional 10 per cent.

Detailed rules have been laid down by the Skills Funding Agency about how and where the money can be spent. Essentially, it can only be spent on approved training and assessment for the employer’s own apprentices starting their training after 1 May 2017. More details about how the levy will work can be found in this briefing here.

The wider picture

The launch of the levy is just part of a number of interlocking initiatives aimed at boosting the skills of the UK’s workforce, a project that has become ever more urgent given the likelihood of a “hard” Brexit in 2019.

“Developing skills” has been set as the second of the 10 “pillars” in the Government’s new industrial strategy, which was launched with a Green Paper earlier this year. The skills chapter explains what action the Government is planning to take to tackle the UK’s skills shortage and low productivity.

As well as the levy – which is the latest development in a long process of modernising apprenticeships in England – there is a considerable focus on the development of the new “T-levels”. These will be the culmination of plans to simplify the bewildering array of technical qualifications and replace them with 15 “technical educational routes”. A new £500 million funding package to support the delivery of these new qualifications was announced in the Spring Budget.

Next month the newly created Institute for Apprenticeships will start work. It will begin by assuming responsibility for the new apprenticeship standards, which the Government hopes will be given a significant funding boost as a result of the levy. It is expected that next year it will also assume responsibility for the new technical qualifications.

More stick than carrot?

On the face of it, forcing larger employers to pay more for the training of their apprentices is not the most obvious way of boosting the quality and number of apprentices. However the way the levy is structured means that generous funding is still available for employers who spend more on training their apprentices than is taken from them by way of the levy. In addition it makes no sense at all to underspend.

However, what may happen in time is that some levy paying employers will re-organise their staff development programmes so that money previously spent on developing staff who are not apprentices will be re-allocated to equivalent training covered by one of the new apprenticeship standards. That approach is not however without legal and practical difficulties. For a start, the levy can only be spent on new apprenticeship starts, and it will not be that easy to re-configure existing career development paths to fit within the apprenticeship standards currently available.

Smaller employers will continue to be eligible for co-funding on broadly the same basis as at present, though the precise funding procedures and proportions of contributions are due to change. Some small employers will not be required to make any payment towards the cost of training and assessment. It will be at least two years before we know whether the levy will actually raise any new money for central government, given levy paying employers have been given up to two years to spend the money in their digital accounts.

It is particularly hard to predict the impact of the levy in the public sector. Some have argued that it makes little sense to impose the levy on centrally funded organisations, since the Government is in a position to influence the take-up of apprenticeships in other ways. However for now it appears that this criticism has been brushed aside and the Government remains committed to introducing the levy across the board, though it is also pursuing plans to set targets in the public sector. As things stand most larger English public bodies will be asked to achieve average annual apprenticeship starts equivalent to 2.3 per cent of their workforce in the four successive financial years starting in April 2017.

A drive towards higher apprenticeships

It is possible that employers new to employing apprentices will focus more heavily on degree apprentices, rather than developing entry level apprentices for 16-year-olds. That is because the higher training costs allowed for degree apprenticeships are likely to “soak up” the levy more effectively. Higher level apprenticeships may also be a more convenient way of reconfiguring staff development programmes rather than focusing on entry level jobs. However, the number of approved standards at this level is currently relatively few.

Although this is not always made explicit, that is arguably the strategy behind the launch of the new T-levels. In future 16-year-olds may be encouraged to spend more time in the classroom before progressing to higher apprenticeships, rather than taking up short-term entry-level apprenticeships, many of which will not deliver the more advanced skills the Government is so keen to foster.