Apprenticeship levy griping

Every Autumn statement or Budget announcement delivers a lot for newspapers to spin and economists to pore over. November’s effort introduced one new “levy” (read: tax) specifically to be used to meet the Government target of 3 million apprenticeship starts before the end of the parliament. The Apprenticeship Levy will, from April 2017 to 2020, raise £3bn by imposing a 0.5% payroll tax on companies whose annual wage bill is greater than £3m to be used exclusively to fund electronic vouchers which all companies can redeem with colleges and training providers to pay for apprenticeship training. An insight into how this may affect different industries can be found here.

The eternal cry from the business community is that the “skills gap” is a huge headwind on the strength of the economy. This 2013 document from the CBI says that,

One way to address the skills mismatch is to develop more partnership-based provision, with greater levels of business involvement in colleges and universities, as well as boosting apprenticeships

and that

It’s time to stop talking about Germany and start building a British skills system that works

So now the Chancellor has proposed a method of funding that provision. It’s by no means a comprehensive plan, there are no targets for the Levels of apprenticeships to come and many believe the entire concept of a 3 million starts target is barmy to begin with for the risk it proposes to the quality of the jobs on offer.

With this dearth of available skills from the work force you would imagine that the levy would be welcomed by the business community for the opportunity to take charge of a large pot of training funding. The Federation of Small Businesses (whose members won’t pay the levy) said, “We support the decision to use payroll as a measure to determine which businesses pay the levy, as opposed to headcount. It recognises that not all businesses will be able to afford to pay.” Larger firms (who will be paying the levy) reacted with much less warmth claiming that this, and other costs such as the forthcoming Living Wage, will hurt businesses. The CBI also weighed in, “The Apprenticeship Levy, set at 0.5%, is a significant extra payroll tax on business and by widening the net it will now catch more smaller firms.”In contrast, the IFS predicted the levy will only require contributions from 2% of firms.

To my mind, it’s hard to find much sympathy with those complaints for a number of reasons:

  1. These rises are against of backdrop of falling taxes, the Chancellor’s budget plans to lower what is already the G20s lowest corporate tax rate to 18% by 2020.
  2. The stories about the low amounts of tax paid by firms that corporation tax is meant to tempt into the country keep coming.
  3. The OBR prediction that firms will just lower wages to compensate so won’t actually feel the pinch of this new tax themselves anyway.
  4. And let’s not forget that if firms hire a 16-18 for their Apprenticeship vacancy the full training cost is met by the Government, from April 2016 they won’t have to pay NI for Apprentices under 25 and there is a lower minimum wage for this age group so there’s plenty of incentives on offer to use these routes when recruiting.

Whether or not the levy in the proposed format is the right tool in the tool kit to increase the number of high level apprenticeships on offer seems up for genuine debate. The distance the UK has to travel in this regard is stark

but business groups who bemoan that Higher Education (annual Government funding: £12.1bn) is seen as a more desirable route than Apprenticeships (annual Government funding: approx £1.4bn page 5 on the Parliamentary briefing linked above) but then also bemoan paying for an increase in spending on apprenticeships will find their protests ring a little hollow.



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