DCCI chief: Is it time to rethink the apprenticeship levy?

May 2017 saw the introduction of the apprenticeship levy. Designed to help the government meet its target of three million apprenticeship starts in five years from May 2015, this new tax was introduced for larger businesses with a payroll of £3million plus, requiring them to pay a levy that they then can draw on to […]

May 2017 saw the introduction of the apprenticeship levy. Designed to help the government meet its target of three million apprenticeship starts in five years from May 2015, this new tax was introduced for larger businesses with a payroll of £3million plus, requiring them to pay a levy that they then can draw on to support the cost of apprenticeships in their business. Businesses with a payroll of £3m plus must pay a level of 0.5 per cent of their payroll costs over £3m less a £15,000 allowance.

DCCI chief executive Ian Girling

There has been widespread negative press coverage regarding the levy and it hasn’t proved to be popular with many employers. It’s been especially unpopular with those employers who have invested in and supported the apprenticeship programme for many years as a key part of their recruitment and training programmes and the levy is essentially another form of taxation. A 2016 Dorset Chamber survey of 20 Dorset businesses paying the levy revealed many were unhappy with the levy and saw little benefit from the scheme in terms of incentivising them to create new apprenticeship vacancies. It’s also been reported many employers are simply converting existing staff on to apprenticeship programmes as opposed to creating new apprenticeship vacancies and are seeking ways to claim the levy back on other training. Businesses have also complained at the complexities in using the levy to pay for training.

What is concerning is the major fall in numbers starting apprenticeship schemes; new starts in the period August to October this year stood at 114,000, down from 155,700 in the same period in 2016, a drop of 27 per cent. Government data showed that in the May to June quarter, covering the period when the levy came into effect, apprenticeship starts plunged by 59 per cent in the previous three months at 69,800. Critics say employers are being deterred from creating apprenticeship posts because of increased costs and the complexity of the new scheme.

Many employers and business groups have spoken out against the levy. “The levy is nothing but a tax,” said Sir John Timpson, chairman of Timpson. “The only way to get money back is a tortuous process of changing your training programme to fit government guidelines.” The EEF have described the situation as “at breaking point”. Research by the British Chambers of Commerce found nearly a quarter (23 per cent) of levy-paying firms have no understanding of the apprenticeship levy or don’t know how their company will respond to it. Sixty-six per cent of these companies haven’t taken any direct action to use the funds or don’t know about it. For over half of levy-paying businesses, it represents an added cost, with 56 per cent not expecting to recover any or only a portion of their payment, compared to 36 per cent who expect to recover all or more of their payment. Employers are stating they find the levy costly, a blunt instrument and complex.

Our view is employers should of course be encouraged and importantly incentivised to invest in the apprenticeship programme. We also know apprenticeship providers in Dorset are doing their best to advise businesses on how to benefit from the levy. Apprenticeships offer businesses a tremendous opportunity to recruit and train the skilled workforce we need now and in the future. With apprenticeship programmes now ranging from intermediate to degree level covering all industries, they offer a huge range of qualifications and we would encourage all businesses to embrace the apprenticeship programme. However, it would seem the levy is not working for many businesses and perhaps it’s time for the government to reconsider its plans on encouraging employers to invest in apprenticeships and come up with a more business-friendly approach.

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