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Government faces calls to delay apprenticeship levy as funding proposals revealed

12 August 2016 by
Government faces calls to delay apprenticeship levy as funding proposals revealed

One of the hospitality industry's leading trade bodies has called on the government to delay the introduction of the apprenticeship levy, after proposals on how it would be funded were announced today.

Publishing its proposals for a new funding model for the apprenticeships, the government said that 98% of employers in England will be too small to pay the levy.

The levy applies to companies with an annual pay bill of £3m or more.

However, those companies with a pay bill lower than that will still have to pay 10% of the training costs.

The government is proposing to offer extra support - worth £2,000 per trainee - for employers and training providers that take on 16- to 18-year-old apprentices or young care leavers. Employers with fewer than 50 employees will also have 100% of training costs paid for by the government if they take on these apprentices.

But the Association of Licensed Multiple Retailers (ALMR) warned that the levy would place "severe burdens" on employers in the licensed hospitality sector at a time of economic uncertainty post-Brexit and could harm investment as a result.

The levy was first announced last year by then-Chancellor George Osborne, however this is the first time the government has published details of how it will work.

"The ALMR has liaised with the government to voice its concerns and business leaders in hospitality and retail have been united in telling Ministers as part of the Brexit dialogue to delay the levy. We urge them to rethink the introduction of a measure that will place added strain on employers at such an uncertain time."

Commenting as he published the proposals today, apprenticeships and skills minister Robert Halfon said: "We need to make sure people of all ages and backgrounds have a chance to get on in life. Apprenticeships give young people - especially those from disadvantaged backgrounds - a ladder of opportunity. That's why we continue to work tirelessly to deliver the skills our country needs. The apprenticeship levy is absolutely crucial to this.

"Our businesses can only grow and compete on the world stage if they have the right people, with the right skills. The apprenticeship levy will help create millions of opportunities for individuals and employers. This will give our young people the chance they deserve in life and to build a highly-skilled future workforce that the UK needs."

Jill Whittaker, managing director of training and apprenticeship provider HIT Training, said:

"After months of speculation around whether the Apprenticeship Levy would go ahead, we can now finally put this to bed. The Apprenticeship Levy will be implemented from April 2017.

"What this means is that the time to start planning is now. If you know you're a Levy paying business - that's most businesses with a UK payroll in excess of £3m - start by working out how much your monthly Levy payments will be and then look at how you can use these funds to make an apprenticeship scheme work for your business.

"The recent announcement from the government sets out how it will continue to support and fund apprenticeships, and what the investment from employers will be. Whilst there is a lot of detail in the new report, these are the key points operators need to be aware of:

• The Levy will be paid on payroll from April 2017, so the first Levy payment for employers will be in May. Employers will then be able to purchase training, with a registered training provider, through a new digital system.
• Levy employers will pay 0.5% of their payroll over £3m on a monthly basis. The government will also top up the funds by 10%.
• The Levy can be used to fund apprenticeships for new or existing employees of any age or position, as long as there is a need for training. If employers wish to spend more on apprenticeships than their Levy fund, then they will be asked to make 10% a contribution from May onwards.
• Each apprenticeship framework will have a maximum funding band and the government has set 15 different bands. Employers can then negotiate an appropriate price with their training provider - for many larger businesses, if the employer has a training department they may be able to make the Levy go further by offsetting some of their own training input.
• Non-Levy paying businesses with over 50 employees, or businesses that have used up their levy pot, will have to make a contribution of 10% towards the cost of apprenticeships. Smaller businesses will not have to make a contribution for apprentices up to the age of 23.
• For all employers which take on an apprentice between 16 and 18 years old, they will receive £1,000 bonus payment from the government.

"This is effectively a game changer in the way apprenticeships are administrated and will give employers more influence and flexibility when it comes to the qualifications they offer. Love it or loathe it, it is now a reality. Yes, it will be a big financial investment for many businesses, but used judiciously it will offer a great opportunity for employers to up-skill their whole team, from new starters right thought to senior management. Approved hospitality apprenticeship programmes are available from entry to higher levels, and will soon go right the way through to degree equivalent. More standards are being developed now, including a plan for a suite of apprenticeships specifically designed for licenced operators. If we work with the new system we can use it to address the much publicised skills shortage that affects the Hospitality Industry - this must be a good thing."

Meanwhile, the Federation of Small Businesses (FSB) has called on the government to increase incentives for small firms to take on apprentices.

Speaking ahead of today's announcement, the FSB said that small business is critical to achieving the government's target of reaching three million new apprentices by 2020 but will need more support to do so.

In its report, Make or Break: Getting apprenticeship reform right for small businesses, the FSB found that one in four of its 2,000 members employ an apprentice, with a further 24% considering taking one on in the future. But it warned that these figures are likely to fall if there was a change which required small businesses to contribute towards the cost of training an apprentice. It called on the government to improve its small business employer incentive.

Employers and training providers have until 5 September to answer a survey on the proposals. Final funding proposals will be confirmed in October 2016.

Examples of what a business will pay

Example 1: an employer who would pay the levy

An employer with an annual pay bill of £5,000,000: levy sum: 0.5% x £5,000,000 = £25,000

Subtracting levy allowance: £25,000 - £15,000 = £10,000 annual levy payment

Example 2: an employer who would not have to pay the levy

An employer with an annual pay bill of £2,000,000: levy sum: 0.5% x £2,000,000 = £10,000

Subtracting levy allowance: £10,000 - £15,000 = £0 annual levy payment

Source: Department for Education

Ufi Ibrahim, chief executive officer of the British Hospitality Association (BHA) said: "The BHA welcomes the government's announcement of further details on the apprenticeship levy and that SMEs, in particular, have greater clarity on the level of government support for apprenticeship training.

"The Brexit decision has made the recruitment and development of British workers a priority. The BHA will be building upon the work done in the last three years with The Big Hospitality Conversation to ensure that the Hospitality and Tourism industry is seen as a great path for young people to build a career."

For full details of all the proposals, click here.

Are you ready for the Apprenticeship Levy? >>

Government urged to increase incentives for small firms to take on apprentices >>

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