Four years of the Apprenticeship Levy

by Brett Amphlett, BMF Policy & Public Affairs Manager
8 October 2019

Gillian Keegan MP learning about bricklaying at Chichester College. She is the Chair of the All-Party Parliamentary Group for Apprentices and was an apprentice at 16 in LiverpoolIt is four years since the Apprenticeship Levy first saw the light of day. It was the brainchild of George Osborne, the former Chancellor of the Exchequer, during the 2015 General Election. Brett Amphlett, BMF Policy and Public Affairs Manager, updates us on his article featured in the autumn 2016 edition of One Voice, six months before the Levy took effect.

The original aim of the Levy

The Apprenticeship Levy was the preferred choice to fulfil the Manifesto commitment of 3 million new apprentices before April 2020. This equates to an annual run-rate of 600,000 - an increase of 20% on 2014-2015 levels.

In his July 2015 Budget, the former Chancellor announced legislation for this levy to shift the burden of responsibility from taxpayers to employers. Ministers made other far-reaching changes to funding, standards and administration of apprenticeships that affect all firms.

The original aim sought to address:

- poor productivity in the United Kingdom compared to international competitors and
- the significant fall in employers’ investment in workplace training over 20 years.

At the 2018 Conservative Conference, another former Chancellor, Philip Hammond MP, moved to stave off criticism in two ways:

- obligated employers are now allowed to spend up to 25% of Levy contributions on apprentices in other companies
- SME employers not liable to pay the Levy had their share of costs cut in half from 10% to 5% - taxpayers now pay the remaining 95%.

Parliamentary criticism

The House of Commons Public Accounts Committee has reviewed progress so far. MPs found it does not provide value for money. Their report makes for depressing, but familiar, reading.

The Department for Education (DfE) has failed to make progress. Apprentice starts fell by 26% after the Levy was introduced and - although numbers are recovering - the 3 million target will not be reached by the target date in six months. In addition:

- employers are using Levy funds for professional training or management courses that they would have otherwise paid for themselves; and
- the programme is heavily-skewed towards higher-level apprenticeships - Level 2 learners are now only 20% of starts - before the Levy began, 40% used to be Level 2.

In July, using the Tory Leadership contest as camouflage, HM Treasury sneaked out its response. On all six criticisms, the Government accepted the PAC recommendations without quibbling. The next day, the Minister for Skills and Apprenticeships resigned before Boris Johnson took over as Prime Minister - she is a Remainer and refuses to work for him.

Employers’ criticism

City and Guilds says 95% of obligated employers were unable to spend their allowance in year one. The number of starts has been falling since it came into force. Year-on-year figures show 132,000 starts between August and October 2018, compared to 155,600 in the same period two years earlier.

The BMF is not alone in airing concern at long-term viability. The CBI has told us the budget will be overspent by £½ billion this year and £1½ billion in 2021-2022. Ministers will have to choose between allocating more funds, curtailing some apprenticeships or reducing public funding for certain apprentices.

Three possible remedies are:

- more flexibility to spend Levy contributions on other training, but increasing the rate from 0.5% 
- maintain the status quo with extra taxpayers’ funding to cover the overspend
- narrowing the scope of the Levy to focus on learners aged 16-25 years, or on Levels 2 to 5.

The first needs proper discussion between Whitehall and business. There are two scenarios:

- either employers have asked the Department to raise the rate so the extra money can be used for wider types of training or
- DfE ministers are struggling to stay within spending limits and want employers and trade associations to lobby HM Treasury for more money in the current Spending Round.

The BMF does not want ill-judged changes to meet arbitrary targets to spare ministers from criticism over policy and budgetary failure. No-one seems to be collecting data on the number of completions, the rate of drop-outs and reasons that learners do not persevere.

Your views

The BMF invites views about changes you think could help you. Ideas we are canvassing are:

- holding a firm line that the Levy pays for apprentices only - not other types of training - and making the current system work before tinkering
- extending the length of time available to spend contributions from 2 years (as now) to 3 or more.

If it is decided to allow Levy funds to be spent on other training, these could include:

- training for older employees for whom an apprenticeship may not be suitable
- helping the unemployed back into work and retraining including ex-offenders.

The BMF can help you

BMF Apprenticeships Plus is an apprentice management and employment service and offers two services to members:

- an Apprenticeship Training Agency (ATA) which acts as the apprentices’ formal employer - taking full administrative responsibility - and placing them with a host member.
- a Levy management service that will source and contract the training provider and negotiate the cost of apprenticeship training and manage and monitor payment from the member’s levy account. Also, if required, it can help companies to recruit suitable apprentices.

Conclusion

Ministers cannot be deaf to specific issues raised by trade associations like the BMF. It is bad enough that the Department for Education has had to try to put things right so soon after the policy began.

The Apprenticeship Levy is not working properly. Unless it is overhauled, construction firms will find it harder to invest in the quantity and quality of new learners - especially in the SME manual trades who are the customers of merchants.

Government changes this summer allows Boris Johnson’s ministers the latitude to take a fresh look and make changes to the policy and how it operates. It makes no sense for BMF members to pay this Levy without taking on apprentices or to have unspent money confiscated by the HMRC.


If you would like to share your views on the Levy with the BMF please email Brett Amphlett at brett.amphlett@bmf.org.uk.


This article first appeared in the Autumn 2019 edition of One Voice magazine