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The Apprenticeship Levy: an investment opportunity or a stealth tax?

I’m slightly amazed (and concerned) that so many companies have just woken up to the idea that they will be paying a tax on their payroll from April 2017, in the form of the Apprenticeship Levy.

Where have they been since George Osborne made announcements in both the Summer and Autumn 2015 Budget Statements? I assume they were waiting for a U-turn (not gonna happen), chose to ignore it (‘cos it might just go away) or used the Government’s snazzy calculator and realised it’s going to cost them a fair old whack.

apprenticeship levy

Now, I’m in a slightly privileged position as chair of the Recruitment Trailblazer Employer Panel, which means I’ve had access to much correspondence and debate around the implementation of the levy. I also happen to work for an employer which is particularly proactive on such matters. However, I can understand how, if you haven’t had that level of exposure to the levy, it may have passed you by. In any event, it’s happening and there’s undoubtedly going to be a huge and unwelcome financial impact on a lot of organisations, especially if they’ve not previously considered apprenticeship training as a way to enhance their workforce and lessen the burden of ever increasing skill gaps.

What’s the aim of the apprenticeship levy?

The first question to ask is: What does the levy aim to achieve? A spokesman for George Osborne said at the time:

“The government is committed to developing vocational skills, and to increasing the quantity and quality of apprenticeships… The levy will help to deliver new apprenticeships and it will support quality training by putting employers at the centre of the system. Employers who are committed to training will be able to get back more than they put in by training sufficient numbers of apprentices.”

In other words, the initiative intends to create three million apprenticeships, and will be funded by taxing all businesses with an annual payroll above £3 million.

Sounds like a good plan to me. So why has the Institute for Fiscal Studies (IFS) recently described it as a stealth tax which represents poor value for money?

Join Derek for a webinar on the Apprentice Levy on 29 March

Financial controversy

It’s predicted that revenue raised through the levy could reach £2.8bn by 2019-20, yet the IFS expects Government spending on apprenticeships in England to increase only by £640m in that time. This naturally raises questions regarding how the remainder of the revenue will be spent. Is the levy therefore being used as a revenue-raising tax rather than a way to develop skills and increase the number of apprenticeships? Controversial stuff!

Indeed, Seamus Nevin, head of employment and skills policy at the Institute of Directors, said: “Most businesses are in principle happy to pay a levy to fund apprenticeships. But a system that is designed in a way that incentivises sub-standard training and emphasises quantity over quality simply to increase numbers will not address the skills gap or boost productivity.”

I don’t doubt there are some pretty smart people out there who will pick holes, make excellent counter arguments, demonstrate enormous benefits and equally enormous detriments. As a training professional, though, I have one main concern: how many levy-paying organisations will opt for cheap, poor quality apprenticeship training? How many will focus, as Seamus Nevin warns, on quantity rather than quality, just to make sure they use up as much of their levy contribution as possible?

Employers are missing the point

I don’t mean to be a total sceptic, but I have heard such rumblings in the last few weeks. One large organisation recently asked me why the Recruitment Consultant Assessment Plan created by the Trailblazer panel was so detailed and complex. I explained that it represents 12 to 18 months of intense learning, and that the assessment must therefore be robust. Their response was that it would ‘probably mean taking up too much of the employers’ time’, and that their objective was to put the maximum number of learners through an apprenticeship programme in order to claw back their levy contribution! I gulped and walked away with teary eyes! Talk about missing the point.

So, what is my point? Given the fact that the levy is here, and here to stay (for the foreseeable future, at least), and that the financial impact will be significant for many companies, why don’t we just embrace the initiative and use the levy to purchase high quality, relevant, well delivered training?

At the very least, this might just bridge the skills gap, increase productivity and add additional tax revenues to the Treasury coffers by creating new employment opportunities. That way, everyone’s a winner.

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