What do the changes to the Apprenticeship Levy really mean?

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Recent changes to the Apprenticeship Levy signal a commitment from the Government to continue investing in on-the-job training, but what exactly has changed and how will it affect businesses?

Learning while you are earning is a popular career path for many young people, and there are currently over 900,000 people on an apprenticeship in the UK, according to Government figures.

But is this way in to work set to become even better subscribed, following Chancellor Philip Hammond’s recently announced shake-up to the Apprenticeship Levy?

Apprenticeship reform

A look back at the recent history of apprenticeships shows how they’ve operated up to now.

In 2015, the Government announced a commitment to create 3 million new apprenticeships by 2020. In March 2015, degree apprenticeships were launched, followed by the establishment of The Institute for Apprenticeships in May 2016, with an aim of ensuring high-quality apprenticeship standards and to advise the government on funding for each standard.

The funding system for apprenticeships was revised in April 2017, and the apprenticeship levy was introduced.

This required all UK employers with a pay bill of over £3 million per year to invest 0.5% of its value (minus an apprenticeship levy allowance of £15,000 per financial year) into their apprenticeship service account.

Government then applies a 10% top-up to the funds available, and employers can put this money towards apprenticeship training within the company. The Government funds 90% of the apprenticeship for those companies with a pay bill under £3 million and certain smaller employers qualify for full funding.

The Chancellor’s reforms

So far, the Government says the apprenticeship levy has made good progress – with 119,500 starts reported in the first three quarters of 2017/18, more than ten-times higher than the same period in the previous year.

However, Chancellor Philip Hammond believes there is room for improvement. On 1st October 2018 he announced a package of measures that he says will “support business to boost skills, growth and prosperity in the new economy”.

This included a £95 million increase to the Apprenticeship Levy, with the stated aim of “providing flexibility for businesses so they can take full advantage of the benefits of employing apprentices, and to help as many people as possible find the right training to equip them for the new economy”.

In real terms, this breaks down to an extra £90 million of Government funding to enable employers to invest a quarter of their apprenticeship funds on people working for businesses in their supply chain – up from 10% previously – boosting the number able to benefit from high-quality apprenticeship training.

The other £5 million is for the Institute for Apprenticeships (IFA) to introduce new standards and updating existing ones so that more courses can be offered – meaning more choice for those considering their training options.

Response from business

The response to the Chancellor’s changes has been mixed. Director General at the Institute of Directors, Stephen Martin, said its members “have long called for change to the levy system”, adding that “The introduction of greater flexibility over the use of funds will be celebrated, as will the promise of further engagement.” 

However, because this new opportunity for businesses to disburse even more funding into their supply chain only applies to those large enough to be levy payers in the first place, others believe that the effect will not be as far-reaching as it might appear.

This new opportunity for businesses to disburse even more funding into their supply chain only applies to those large enough to be levy payers in the first place.

While we at Intequal welcome any ways that employers can better engage and support their supply chain, we need to be aware of how these supply chains operate.

Restrictions remain

Because this pot of funding can only be spent on a full apprenticeship for someone in the supply chain, the restrictions on how that 25% can be spent probably don’t change the situation much.

If Government could flex it so that it could be put towards different portions or elements of an apprenticeship, that would better benefit the supply chain.

For example, could it be used to address some of the barriers for adoption within their supply-chains?

As it is, we have heard that many companies have not taken advantage of spending their 10% excess, partly because of what they are allowed to spend it on. More flexibility would make a big difference.

New standards and assessment

And we shouldn’t forget that the reforms are not just about the levy. Government has said it will discontinue the old so-called ‘apprenticeship frameworks’ so that all new apprenticeships will move on to the higher-quality ‘standards’ by the start of the 2020/21 academic year.

Where appropriate, the IFA has already started to set out what some sectors can expect their related standards to look like, as well as some of the language in the standards and end point assessment plans.

This introduction of standards rather than frameworks, and new end point assessments is a positive but seismic shift in how apprenticeships are governed and structured.

If a more flexible model can be developed, we believe this will be a benefit to business while maintaining the higher quality outcomes desired.

However, many of these standards were developed three years ago at a time when the policy was still developing, so we need to consider if some tweaks may need to be made to bring them up to date.

Equally, as these new standards and assessment processes are bedding in, more flexibility may be required to ensure assessment reflects how different employers of all sizes actually manage and develop apprentices within their specific company structures.

If a more flexible model can be developed, we believe this will be a benefit to business while maintaining the higher quality outcomes desired.

Benefits all round

For employers, apprenticeships help to close the skills gap and deliver a skilled workforce, with 87% of employers satisfied with their apprentices’ training and 75% noting an improved product or service as a result of the training.

Of course, it’s not just businesses that benefit from apprenticeships. The IFA says apprenticeships are an important driver for social mobility, with the lifetime benefits standing at between £48,000 and £74,000 for Level 2 and between £77,000 and £117,000 for Level 3 apprenticeships, and significantly greater financial returns over a working life (up to £150,000 more) on average for someone completing a Level 4+ apprenticeship.

Encouraging take-up

The Chancellor’s reforms notwithstanding, many businesses still need to be encouraged to take on apprentices.

Apprenticeships are clearly not the only way to improve a workforce but they give businesses an incredible opportunity to widen their available talent pool and open up career routes for significant groups of people.

Apprenticeships...give businesses an incredible opportunity to widen their available talent pool and open up career routes for significant groups of people.

If employers incrementally build apprentices’ knowledge, skills and behaviours based on milestones they want them to achieve, they will see very high completion rates. And higher numbers of apprentices will be retained in their business. What other recruitment and talent acquisition route lets you determine the skills and knowledge of your employees in that way?

While apprenticeships are not the answer to all talent acquisition problems, they can be especially useful for hard-to-fill roles such as in digital, where companies need to look at new approaches for recruitment.

And the cycle doesn’t have to stop there. After completing their apprenticeships, people may progress into more senior positions. This is an ideal opportunity to fill their roles with more apprentices and that’s got be a good thing.”

About Dominic Gill

Dominic Gill, MD of Intequal

Managing Director at Intequal, an Apprenticeship Provider delivering Microsoft Digital programmes

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31st Oct 2018 05:31

Nice

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31st Oct 2018 12:20

A really interesting article. I'm happy to read that the Levy will continue and not suddenly be withdrawn or drastically changed. I do agree that it would be much more helpful if the levy could be used more flexibly. There are a number of industry specific professional development opportunities that the Levy doesn't extend to, such as income generation, SEN teaching related roles which we would certainly take up.

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