A Levy Price to Pay? The Apprenticeship Levy One Year On

Everyone shares the ambition of creating high quality apprenticeships which are essential if industry is going to access the skills it will need in the future, especially in a post Brexit world where fewer skilled workers will come to the UK.

But whilst the Apprenticeship Levy had laudable aims what should have been a win-win situation has turned into a lose-lose including for those sectors such as manufacturing and engineering who have been true champions of high quality apprenticeships for decades.

Our report published today A Levy Price to Pay? makes the case for unravelling and addressing the alarming drop in starts and then looking at positive solutions which are on the table to make the Levy work for employers and learners in the long term.

Recap: How the Apprenticeship Levy came into fruition

The Apprenticeship Levy came into force in April 2017, having been first announced a mere two years earlier at the 2015 Summer Budget. But taking a tax stick approach (taxing employers 0.5% of their pay bill) to apprenticeships wasn’t what the Government had initially planned. As shown below, what was first mooted was in fact a tax carrot approach (giving employers a tax incentive e.g. reduction in NICs).

Consultations came and went and those of us in the skills policy world from 2012 saw numerous models mooted; using the PAYE system, reforming (but keeping) the status quo, the PAYE model, the Apprenticeship Credit Model and the digital voucher model (not to be confused with what we have now).

Fast-forward to today and employers are facing the Apprenticeship Levy. A tax of 0.5% of their pay bill with a £15,000 allowance. Simple? The tax, bit is. The other stuff (to follow) not so much.

Learning lessons on the Levy

Broken promises? Manufacturers kept up their end of the bargain but has Government?

Before the Apprenticeship Levy started hitting the headlines, there was a time when manufacturers could see the benefits of the Levy (if we discount the third of manufacturers who from the start saw no benefits to the Levy).

• 29% of manufacturers thought the Levy could give them greater purchasing power to buy the training provision they need
• 26% of manufacturers said the Levy could lead to increase in responsiveness from providers to deliver relevant training
• 29% of manufacturers said the Levy could lead to their business increasing the number of apprentices

And why wouldn’t they when the Government promised them a system that would: allow employers to get back more than they put it, would give employers control, would be fair and would be simple.

In reality, however, this hasn’t happened:

Manufacturers can’t afford to stop training, but the Levy has not created more apprenticeships and in some cases plans have been scaled back.

When the Levy breaks: the challenges

Only 7% of manufacturers say they have faced no challenges with the Apprenticeship Levy. The majority have faced challenges each step of the way…

So do manufacturers want to scrap or save the Levy?

For now, the verdict from manufacturers is to save not scrap the Apprenticeship Levy. But they want to see improvements made. Whilst they have battled through the Levy this has not been easy and has led to frustration, confusion and questions around whether the reforms have been worth it. If employers are facing the same challenges as before the Levy was introduced it invites the question – what was the point? The Government can turn it around and add value to the system and manufacturers are clear where improvements need to be made.

To the rescue: how we can save the Levy and get it back on track

It is time to get the Levy back on track and Government must act urgently to make this happen. As a sector that has been committed to training apprentices for decades, the Levy has caused great frustrations. Manufacturers are willing to throw Government a lifeline and turn things back around but they aren’t willing to take a wait and see approach.

If the Government, alongside manufacturers, wants the Levy to create more quality apprenticeships, it must take forward the recommendations we set out in our report and on previous blogs.