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Money & Wages: Apprenticeship Levy 101

02/05/2016 Sophie

Last year, when George Osborne unveiled the details of his 2015 Autumn Statement, a new apprenticeship on employers was announced. Although it will only apply to larger companies in the creative and cultural sector, the levy aims to ensure that all parties benefiting from an apprenticeship, which includes the apprentice but also the employer and the state, play a role in covering the cost of training.

The Apprenticeship Levy is also somewhat essential in order for the government to achieve its target of 3 million apprenticeships by 2020. But what are the finer details of the Apprenticeship Levy? And what effect will it have on you?

What is the Apprentice Levy?

Generally speaking, only large employers will have to pay the levy. Companies will receive an allowance of £15,000 to offset against their levy payment. This also means the levy will only be paid on pay bills over £3 million.

These employers will pay 0.5 per cent of their pay bill into a central fund, receiving electronic vouchers in return that can be used to access funding for training. Despite the fact training will be “bought” from a college or recognised provider, no money will change hands, as the voucher system takes care of payment.

However, it remains to be seen how in-house training will be regulated. Question marks have also been raised over the limitations of training for arts organisations. Another issue is unspent levy money, which will be distributed more widely across smaller businesses and other industries.

How is the Apprentice Levy different from the current system?

At this moment in time, employers pay for their apprentices’ wages, while funding agencies pay for training. Even so, some apprenticeships are only part-funded by the Government, meaning employers pay 50 per cent of training costs for those over 19 years old. Further Education colleges and independent providers have traditionally provided training, albeit often through ‘day release’.

With the levy, large organisations paying 0.5 per cent of their payroll would need to recruit multiple apprenticeships to recoup any money yet still find tens of thousands of pounds from somewhere to cover wages as well. If they can’t recruit enough apprenticeships to cover the levy payment, it could let smaller creative businesses access the fund or else the levy might be distributed to other employers.

Then again, if small businesses can purchase training using the unspent vouchers of larger organisations, they will still need to cover the cost of wages too. This could mean big creative companies will end up paying through the levy, won’t be able to take on enough apprentices, and the money will be redirected to other sectors. Therefore, the levy could become an inadvertent tax on companies that don’t take on apprentices or can’t take enough to reclaim training funds.

What effect will the Apprentice Levy have?

Findings from the Creative Employment Programme suggest apprentices add significant benefit to creative businesses when it comes to productivity and diversification, with 5,000 placed in nearly 900 companies over the past few years. However, big creative companies may now have to cover wage costs and the training levy yet only claim back what’s been paid if apprentices are recruited in proportion and vouchers are used to buy training.

“It’s not hard to see the issues emerging for creative businesses,” says Pauline Tambling CBE. “Even with a will to create apprenticeships, major companies may not be able to recruit apprentices at a consistent level year-on-year.

“At the very least it would be helpful if any unspent levy funding from arts organisations and creative businesses could be ring-fenced to
benefit other creative companies. Otherwise arts organisations will be subsidising apprenticeship training in established apprenticeship areas like hairdressing, construction and plumbing where employers are able to drive take-up.”