Why you can’t afford to ignore the apprenticeship levy

Go on, check again. Yes, it really is a Conservative government in power!

It may seem surprising that a Tory government, which is traditionally associated with a free market ethos and limited public-sector intervention, has introduced two huge labour market interventions since it was elected in May. These are the introduction of the National Living Wage and, more recently, proposals for an apprenticeship levy.

Both announcements are liable to add significant costs to businesses. We’ve already explored the impact the National Living Wage could have on hospitality and retail businesses in a recent blog post, but what are the potential implications of the apprenticeship levy?

The government stresses that the levy will help to address the need to increase businesses’ investment in training.  In fact, the number of businesses training their staff increased by two per cent in hospitality, and four per cent in the retail and travel industries between 2011 and 2013.

However, if raising employer investment were the government’s sole aim, it would introduce a broader training levy and not limit it to apprenticeships. Most people accept that the levy is a means to fund the government’s target of creating three million apprenticeships by the end of this Parliament.

Let’s get the ‘three million’ figure out of the way:

• It does not equate to any labour force projections for the types of jobs suitable for apprenticeships
• It is likely to be met – but achieved in some areas where apprentices are not the most appropriate skills solution
• It is driving most decisions about apprenticeships across government.

Why is the government so focused on apprenticeships? Put simply, it sees a clear equation between an increase in apprenticeships and an increase in productivity, and  believes that apprenticeships provide a greater return on government investment than full-time further education.

The danger is that the policy around the levy could not only undermine this (fairly simplistic)argument, but damage it in a similar way to the Labour government’s Train to Gain initiative, which had limited to no impact on productivity before 2010. 

At the same time, hospitality, passenger transport, travel and retail employers have invested a considerable amount of time in developing new apprenticeship standards - stretching standards that create clear career progression routes.

Businesses working on the trailblazers (the groups of employers that have developed the standards and assessment plans) see real value in them providing a route to attract, develop and progress talent in their businesses.

The focus on quality apprenticeships has been at the heart of the reform process to date, which is why so many businesses see them as an important solution.

Their concern is that, if the levy is poorly implemented, it could undermine this quality, provide poor or no returns for businesses and not address the productivity challenge that is central to the government’s economic strategy.

Here are a few of the potential pitfalls that businesses need to be aware of:

• The proposal is for all large businesses to pay the levy and it assumes that, if businesses are investing in apprenticeships, they will see a return. Currently, not all businesses have a stable workforce that suits apprenticeships. Do these businesses re-engineer their workforce to be able to offer apprenticeships or stay as they, not employ apprentices and pay a levy they will not benefit from?
•  The CBI has suggested that the levy could be 0.5% on PAYE. For some businesses this will mean a lot of apprentices – many more than they need and could benefit from. If the system isn’t flexible, it could result in some people doing an apprenticeship that will not benefit them or their business.
• There is a real danger that some employers who invest heavily in training and development may shift their training expenditure to apprenticeships because of the levy. This would mean less meaningful and effective training and development to meet their other business needs and could hamper productivity, not increase it.
• The scope of the levy is so tight that it fails to support the critical progression onto apprenticeships, such as selection and pre-employment programmes, as well as the management infrastructure needed to support, develop and progress apprentices within a business.

As more information emerges, there will be other issues that business will need to consider. It is early days, and information is currently sketchy as the government consults with businesses and training providers.

But most worryingly, because the announcement was made in the summer, too few businesses are aware of the levy and are not even considering what it could mean for their operations.

Given the visitor economy’s size with 5.4m employees, it is critical that businesses start thinking about the levy’s impact and respond collectively to government. People 1st is currently collecting employers’ views and has already provided some recommendations to government – you can add your thoughts here.

It is also critical that the government avoids a 'one size fits all’ approach, and takes into account the different ways apprenticeships work in each sector. It should work with existing trailblazers to look at how the levy can be implemented to help our industries which, in turn, will help it achieve its aims to raise productivity.