Promising to boost apprenticeship numbers by 2020, the apprenticeship levy has come under fire, with many calling for a complete reform of the system – but, as HomeServe director Helen Booth asks, should we not be using what we have in a more effective way?
The apprenticeship levy, which came into effect in April 2017, represented a major shake-up of the apprenticeship system, heralding three million new apprenticeships in England by 2020.
It’s important the government is more transparent about where unspent levy funds are being used and that they find ways to make it easier to navigate”
Four years on, apprenticeship numbers are dropping, youth unemployment is at an all-time high and we’re facing a critical skills shortage across an array of sectors.
Of course, we can’t ignore the pandemic, which has significantly impacted apprenticeships in the UK, but commentary around the system was turning against the levy long before the onset of the Covid crisis.
It all contributes to a perfect storm that, without action, threatens to derail the country’s post-pandemic recovery. We should be investing in the future skills this country needs right now. And we need government to shape a workable funding system for training and apprenticeships that can deliver not only the numbers, but the genuine impact we need.
What you need to know about the levy
The levy currently only applies to employers with an annual wage bill of over £3m, which equates to about 2% of employers in the UK. These businesses are required to pay 0.5% of their total pay bill each month, to fund apprenticeship training within their organisation.
The aim was to put apprenticeship training in the hands of employers and, as a way of encouraging organisations to utilise these funds, the government set an expiration date on them. If levy funds aren’t used within 24 months, they are passed back to the Treasury.
Despite this, it is reported that more than £1bn of apprenticeship levy funding has been left unused over the past four years. It’s a worrying trend that has been worsened by the pandemic, but if we think about what that amount of money could achieve to support unemployed people back into work, it makes it all the more necessary to find ways to do better.
On the flip side, figures from gov.uk show a slightly more positive outlook. In its first year, they reported the levy helped directly support almost 50% of all apprenticeships and after two years it had supported 313,000 people through an apprenticeship. That’s a strong number, but the impact isn’t anywhere close to the government’s ambitious targets.
With the levy in place there is without question more money available specifically for apprenticeship training. However, because many employers are not investing this back into training or simply not considering how they can use the funds, many see the system as redundant.
Opportunities for SMEs
Although unspent levy funds is an issue that needs addressing, it does open up opportunities for SMEs across many sectors. There is opportunity and we need more organisations to realise the impact they could make by using it and doing that effectively to bring about positive change.
When asked about the amount of unspent levy funds last year, skills minister Gillian Keegan said: “Without expired funds there would be no money to pay for employer cash incentives”.
She explained that unused levy funds were helping to pay for the ongoing costs of the apprenticeship system as a whole, and although they may not go directly to small employers, they do ensure there is funding and support available for SMEs who rely on it.
Securing more money, reducing red tape and providing more opportunities to connect unemployed people with new opportunities is the driving force for our charity, the HomeServe Foundation, and we know just how important the government incentives are for achieving this.
Currently these incentives are at an all-time high, with employers now able to claim up to £4,000 for each apprentice they hire (depending on an apprentices age) until 30 September this year, but we believe in order to encourage more SMEs to take on apprentices, and help the economy recover, these incentives have to be extended beyond September.
We need government to shape a workable funding system for training and apprenticeships that can deliver not only the numbers, but the genuine impact we need”
However, there are also better ways for big employers to create momentum and support unemployed people back into work. That’s using – or redistributing – their unspent levy to other markets and providers.
In 2019, the government announced employers could transfer 25% of their annual unspent levy funds to as many employers as they choose, and this could be used to fund the cost of training an apprentice. Many big employers have done so and it is a pillar of the corporate social responsibility (CSR) or environmental, social and governance (ESG) objectives – and the results have been incredible.
Put simply, we need more big employers to do it too.
For many SMEs where finances are more challenging – or a barrier to them hiring an apprentice – this money could go a long way towards helping them recover from the impacts of the pandemic. And for the larger employer it is a fantastic opportunity to “do their bit” to support our recovery, strengthen their networks, create opportunities or build stronger relationships with their supply chains.
When this happens, the results can be fantastic, and we’ve seen this first-hand.
A real-life success story
Recently we worked with Checkatrade – the UKs most searched for website for finding tradespeople – to donate its unused apprenticeship levy funding to a small plumbing and heating firm in Oxfordshire.
Matt Taylor, the founder of 64 Degrees Heating, was honest about the fact that he’d been put off hiring an apprentice because of the limited government support, additional insurance costs and higher bills.
These concerns aren’t unique – they are at the heart of the challenges we’re currently facing with apprenticeships in many sectors.
Having done an apprenticeship himself and with business growing, Matt decided to take the plunge and hired his now apprentice James, and supported by Checkatrade funding, we were able to make it feasible for his business to make the commitment.
Matt said: “I applied for funding for my contribution to the apprenticeship training, which was successful. Checkatrade, working with the HomeServe Foundation, paid for the whole of James’s training and Hardeep Sidhu at the HomeServe Foundation was with me at every stage.”
What needs to be done
Many are currently calling for a complete levy reform, with some even branding the system as a failure.
Whatever your view, we can’t afford to sit back and accept things as they are. Instead, we need change so we can open up apprenticeship opportunities to more employers, and apprentices, to rebuild Britain and help unemployed people back into work.
It’s important to be realistic about the tangible changes we can make now to improve the current levy system.
Firstly, we need to help firms, both small and large, to better understand how the levy works, so it’s important the government is more transparent about where unspent levy funds are being used and that they find ways to make it easier to navigate.
The ability to transfer levy continues to be a positive step forward but, secondly, we need more flexibility in how the apprenticeship levy can be used. Increasing the amount employers are able to transfer and making to process easier would help to take this even further.
We need change so we can open up apprenticeship opportunities to more employers, and apprentices, to rebuild Britain”
And on a wider level, we need to continue to create more engagement and awareness among small businesses, and back that up with locally-led practical support and advice so they better understand the support available to them, including levy-transfer.
Connecting small firms with large employers would help open more opportunities for funding to be utilised where it is needed most.
Apprenticeships are such an important route to employment and through this kind of practical, on the job training we are not only increasing our talent pool but also helping to tackle the skills shortage now and in the future, and also encouraging young unemployed people to find new careers, because they’re the ones who have been hit hardest by the pandemic.
Making the levy work harder for everyone is central to this.