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Apprenticeship Levy: Why is the levy being introduced?

20/06/2016 Sophie

It was revealed in the Chancellor’s Autumn Statement last year that from 5th April 2017, employers with a UK PAYE over £3 million would be charged a levy to improve the way apprenticeships are funded. This payment would also be ring-fenced in the form of an electronic voucher, which could then be used to purchase training from recognised providers.

Although the government says that employers in England who pay the levy will be able to get more out than they pay in, some businesses are wondering why a change is needed. However, the levy has been introduced on account of the government’s productivity agenda, which is pressing ahead with the introduction of more apprenticeships while also improving their standards.

The government’s apprenticeship agenda

Before coming to power, the current Conservative government made a pledge in its manifesto to increase the number of apprenticeships in the UK to three million by 2020. The levy is simply viewed as the ‘logical solution’ to make this aspiration a reality, which should also raise apprenticeship standards.

“Financing this commitment to a step change in the quality and standards of apprenticeship training would have been challenging enough by itself,” states the BPP. “However, it also comes coupled with a high-profile Conservative manifesto commitment to provide three million apprenticeships over the five-year term of government – which if achieved will be 30 per cent more than was achieved in the previous five years.”

British economist Alison Wolf also pointed out that increased funding would not be possible without the levy in an environment of static budgets. Therefore, employers must accept the fact that a larger contribution is required.

Increasing the standard of apprenticeships

In October 2015, Ofsted said that the government’s ambition to boost the number of apprenticeships is commendable. The report also said that it had the potential to position apprenticeships as a direct route to greater business productivity.

However, a recent spike in apprenticeship numbers did not focus enough on the priorities that benefit employers or the
economy. For this reason, the levy will be used to raise the profile of apprenticeships as well.

“Ofsted believe, rightly, that there are still far too few 16-18 year olds starting an apprenticeship, and that secondary schools are still not doing enough to promote apprenticeships to young people,” notes the BPP.

Crunching the levy’s numbers

The government believes that the rate of 0.5 per cent will deliver the increase in quality businesses have been asking
for while making sure it does not place an unreasonable burden on employers.

“This will put the funding of high-quality apprenticeship training on a sustainable footing,” says the BPP. “Unlike normal taxation, employers can get back the funds that are levied by investing in a sufficient amount of apprenticeship training.”

The levy is also being backed up by additional reforms to improve apprenticeship quantity and quality. Not only have apprenticeships been given equal legal treatment to degrees, businesses will no longer be required to pay National Insurance Contributions for apprentices aged under 25 from April 2016.