The Apprenticeship Levy: Do good intentions make for bad policy?

Apprentices - should companies foot the bill? Credit - Iraine, freeimages.com

There are few employers who would say that alternative routes into the workplace are a bad thing. Why, then, are there reports of the UK business community lobbying the government to abandon George Osborne’s ‘Apprenticeship Levy’? Janette Lucas, Employment lawyer at Squire Patton Boggs, explains.

For many employers, these are tough times. The nature and extent of various recent legislative changes mean that HR teams and finance directors are fighting a battle to stay ahead of the game. First, auto-enrolment.  Then, the National Living Wage. Now, the Apprenticeship Levy.

Janette Lucas
Janette Lucas, partner at Squire Patton Boggs.

All of this legislation has a laudable aim – ensuring people are better protected against poverty later in life, helping to reduce in work poverty and improve the standard of living for those in work, or creating better and broader training and employment opportunities for young people. Many are beginning to question, though, should it really be employers footing the bill?

The Apprenticeship Levy was announced by the former chancellor, George Osborne, with a view to creating three million new apprentices by the end of 2020 and raising £3 billion by the end of the next parliament. To achieve this, businesses having a payroll of £3 million or more will have a 3% levy applied to it. This money will be given back to the employer via a government website, but can only be used to fund the costs of setting up one or more apprenticeships. It will not be available, for example, to pay an apprentice’s salary, nor can it be used for day to day running costs of the business.

All of the clients we have spoken to support the idea of increasing the number of apprenticeships. In fact, many HR directors are very excited about having an opportunity to broaden their approach to recruitment. However, many have also voiced concerns about affordability, the quality of training available and the practicality of the scheme.

It is true to say that some businesses view this levy as nothing more than a payroll tax, and will be cutting costs elsewhere in order to meet the demands of the levy. Quite simply, the bottom line is the bottom line. This levy will cost some employers millions of pounds. There is little reassurance at the moment that this investment will be any more effective than their current graduate scheme or that every employer will be able to make full and effective use of all the money they have to pay out.

There is also a concern about the quality of the training available to their apprentices under the new scheme and whether it will be to the standard that employers would expect given how much it is costing them. In order for the schemes to work as well as existing ‘on the job’ training, the government will need to ensure that trainers and examiners are robustly assessed. It is yet to become clear what this assessment process will look like or whether employers will be allowed to influence the assessment criteria.

There are practical concerns, too. Many of the employers we have spoken to had questions about the impact of a fluctuating payroll; how funds would be allocated between devolved countries (Scotland, Wales and Ireland); how groups of companies might be able to share their levy funds. While some of their questions have answers, the lack of clear advice and readily accessible information is a source of increasing frustration.

But is it all bad news?

In our view, no. For example, the scheme potentially creates a huge opportunity for employers to focus on areas of their business where the quality or quantity of key talent has been most lacking. It also offers the chance to look again at your diversity and inclusion agenda and ensure this is being given sufficient profile within your talent planning. It also creates an opportunity for businesses to attract, retain and develop in different and potentially innovative ways.

And whilst many employers are starting by refreshing their approach to graduate recruitment, the absence of an upper age limit in the levy’s definition of an apprentice means employers can use this money at all levels of their business, right across their work force. Even if the scheme would benefit from further refinement, there are still ways in which, even if that doesn’t happen, you can make it work for you.

We are yet to see if the lobbying of the government over this issue will lead to changes in the current policy. However, employers should plan ahead based on what we know now but also keep up to date on any further developments.

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