Bridging the Skills Gap: Apprenticeship Levy

“Without radical reform, swathes of people face a future where they have skills mismatched for jobs, risking them being in low paid, insecure work, and reliant on benefits, at a huge cost to people’s lives and the local and national economy” – Cllr Sir Richard Leese, Leader of Manchester City Council.

A radical change is occurring to improve the skills of the UK’s workforce. Since April 2017, the government’s Apprenticeship Levy requires private and public firms that pay more than £3 million in wages to contribute 0.5% of their annual payroll into a fund that will support both new and existing apprenticeships. The scheme was introduced to diminish the ongoing skills gap and give employers more control over training to suit their requirements. The government hopes it will have created 3 million apprenticeships by 2020.

The levy has certainly received mixed results. Proponents argue it will put apprenticeships back in the same esteem as university degrees. A recent survey by the Chartered Management Institute showed that 63% of businesses agreed that the apprenticeship levy is necessary to raise employer investment in skills. However, despite this and the initial championing of the scheme, evidence shows it has been vastly underused in its early stages.

The Department for Education (DfE) reported a 35% fall in apprenticeship starts in November 2017 compared to November 2016, when the levy had been in place for 8 months. Figures from the Chartered Institute of Personnel and Development (CIPD) also showed that 22% of employers do not know what they’re paying for, 40% think it will not make any difference to the training they already offer and 19% are writing it off as a tax and not using it for training. Only 33% are developing new apprenticeship programmes. Moreover, the CIPD further reported that only 20% of employers who pay the levy show support for it and 53% want the levy to be replaced with a broader training tariff.

The levy particularly aims to help smaller businesses, with firms whose payroll is under £3 million a year not required to pay; 90% of these companies’ apprenticeship costs will be paid by the government up to the funding band maximum whilst the companies will pay 10% towards costs for those aged 19 and over. For even smaller companies (those with fewer than 50 employees) the government pays all costs for new apprentices aged 16-18 and for those aged 19-24 who are leaving care or have a Local Authority and Healthcare plan. There are 15 bands of funding available ranging from £1,500 to £27,000. However, many small firms are struggling with the bureaucracy which make it difficult to access funds.

Employers have an allowance of £15,000 to offset against their levy payment, intended to work in a similar way to personal tax allowance. The levy is paid in same way as PAYE and the funding can only be spent on apprenticeship training and assessment with approved providers. Employers have two years to draw from the levy fund once registered and it can be used for either new or existing staff. Additional funding is available for firms to support apprentices to meet minimum Maths and English requirements, according to research by the Local Government Association (LGA), 9 million people lack numeracy and literacy skills. The government has also set up a Register of Apprenticeship Training Providers to assist employers in finding and comparing training providers to deliver the new apprenticeship standards.

Although the skills shortage is felt in many different jobs with a range of skill levels, it is most severe in the STEM sector. A shortage of construction workers is the lowest it has been since records began. This is leading to knock-on effects in other areas such as housing. Research by the Federation of Master Builders shows that an engineering skills shortage is particularly bad in small and medium-sized businesses, which puts the government’s plan to build hundreds of thousands of houses at risk.

The quality of apprenticeship server providers has also been questioned. In January 2018, Ofsted reported that the proportion of apprenticeship students being taught by inadequate providers had increased to 20% in 2017. Meanwhile, 40% of apprenticeship providers they assessed required improvement and 11% were inadequate.

A further debate is regarding whether the problem is in fact a labour shortage rather than a skills shortage. The potential ‘Brexit brain drain’ and subsequent smaller pool of labour means there is an even greater need for better skills in the workforce. A survey by Totaljobs found that almost two-thirds of 1,355 businesses believe Brexit will cause their business to suffer from a lack of workers with suitable skills. Another survey by Capital City College Group found that 52% of 1,100 British businesses would consider taking on one or more apprentices to compensate for the impact of Brexit. In early 2018, the Office for National Statistics published that annual net migration from September 2016-17 was down by 29,000. However, at the same time, non-EU migration increased to 205,000.

The discussion extends further to how the skills shortage can be tackled more locally. The LGA has argued that, within five years, the national government should hand more power and funding to councils across England and Wales to allow them to deliver a “one-stop” local service for skills, employment, apprenticeship, careers advice and business support provision.