Apprenticeship levy comes into force

New Regulations requiring companies with a wage bill of more than £3 million to pay an apprenticeship levy come into force today.

The levy is set at 0.5% of an employer’s total wage bill, and in return each employer receives an annual allowance of £15,000 to spend on approved apprenticeship training programmes.

The Government has set a target of three million new apprenticeship starts by 2020, and it is hoping that the levy will raise £3 billion per year to fund them.

Organisations can access the digital apprenticeship service, an online system where they can manage their training spend and recruit apprentices through training providers.

The levy itself is paid through PAYE on a monthly basis, and the allowance is applied each month. Any unused funds can be carried forward.

The introduction of the apprenticeship levy has attracted criticism from employers, many of whom claim they should determine how their own training budgets are allocated.

Industry bodies have argued that the focus on recruiting three million new apprentices by the end of this Parliament could lead to more emphasis on quantity than quality of training.

Elizabeth Crowley, skills adviser at the CIPD, said: “While the levy has certainly helped to put improved training and development on the radar for many businesses, there is still a way to go before the majority of apprenticeships in the UK really do provide a meaningful, high-quality vocational pathway into employment that is a genuine alternative to university.

“Our research suggests that the apprenticeship levy in its current form may undermine efforts to improve the quality of apprenticeships and risks diverting spending from other valuable forms of training.”

She added that there were concerns that some organisations may “re-badge” existing training schemes as apprenticeships to reclaim levy funding, while others could invest in intermediate level apprenticeships – at the expense of advanced and higher level programmes – to maximise funding.

“Over time we hope that the levy is widened out to include other forms of skills development and training, helping to counteract the long-term decline in employer investment, and increase in the quality of skills development and apprenticeships programmes,” said Crowley.

“This should be supported by building more strategic partnerships between education and training providers and employers at a local level, focused on ensuring learners develop the skills that employers need both now and as skills requirements change.”

Last week, the Sub-Committee on Education, Skills and the Economy claimed that the apprenticeship levy and its targets were “blunt instruments”, which could risk there being too much focus on raising participation rather than filling skills gaps.

“Ministers must recognise that apprenticeships are a means to an end and not an end in themselves,” said committee chair Neil Carmichael.

Annette Allmark, director of strategic policy at People 1st, said: “While the levy has kicked in, the funds will only expire 24 months after they first enter a business’ apprenticeship service account, so there is still time to put plans in place.

“However, it is critical that businesses take steps now to develop an effective strategy that ensures apprenticeships reflect the needs of their business.”

Only employers in England will be able to access the funds raised by the levy. Separate arrangements for funding apprenticeships will apply in Scotland, Wales and Northern Ireland.

On 3 April the new Institute for Apprenticeships opened its doors. Independent from Government, it aims to ensure that all apprenticeships are top quality and deliver the skills that employers need. It is chaired by Anthony Jenkins, former chief executive of Barclays.