Personnel Today
  • Home
    • All PT content
  • Email sign-up
  • Topics
    • HR Practice
    • Employee relations
    • Learning & training
    • Pay & benefits
    • Wellbeing
    • Recruitment & retention
    • HR strategy
    • HR Tech
    • The HR profession
    • Global
    • All HR topics
  • Legal
    • Case law
    • Commentary
    • Flexible working
    • Legal timetable
    • Maternity & paternity
    • Shared parental leave
    • Redundancy
    • TUPE
    • Disciplinary and grievances
    • Employer’s guides
  • AWARDS
    • Personnel Today Awards
    • The RAD Awards
  • Jobs
    • Find a job
    • Jobs by email
    • Careers advice
    • Post a job
  • Brightmine
    • Learn more
    • Products
    • Free trial
    • Request a quote
  • Webinars
  • Advertise
  • OHW+

Personnel Today

Register
Log in
Personnel Today
  • Home
    • All PT content
  • Email sign-up
  • Topics
    • HR Practice
    • Employee relations
    • Learning & training
    • Pay & benefits
    • Wellbeing
    • Recruitment & retention
    • HR strategy
    • HR Tech
    • The HR profession
    • Global
    • All HR topics
  • Legal
    • Case law
    • Commentary
    • Flexible working
    • Legal timetable
    • Maternity & paternity
    • Shared parental leave
    • Redundancy
    • TUPE
    • Disciplinary and grievances
    • Employer’s guides
  • AWARDS
    • Personnel Today Awards
    • The RAD Awards
  • Jobs
    • Find a job
    • Jobs by email
    • Careers advice
    • Post a job
  • Brightmine
    • Learn more
    • Products
    • Free trial
    • Request a quote
  • Webinars
  • Advertise
  • OHW+

ApprenticeshipsEarly careersSMETraining strategies

Will the apprenticeship levy mean smaller businesses lose out?

by Jo Faragher 10 Mar 2017
by Jo Faragher 10 Mar 2017 Ruth Davidson MSP talks to an apprentice in Edinburgh. Separate arrangements for funding apprenticeships apply in Scotland
Deadline News/REX/Shutterstock
Ruth Davidson MSP talks to an apprentice in Edinburgh. Separate arrangements for funding apprenticeships apply in Scotland
Deadline News/REX/Shutterstock

It is the Government’s flagship policy to fix the UK’s skills problem, a well-intentioned “tax” on employers to raise £3 billion and create 3 million new apprenticeship starts.

But the apprenticeship levy, due to take effect on 6 April, could end up being “fairer” to some employers than others or risk failing to achieve its goals, if the Government does not clarify a number of issues.

Apprenticeship levy resources

How will an employer be able to access funding from the apprenticeship levy?

Apprenticeship levy: Why degree apprenticeships should be on your list

How will the apprenticeship levy affect employers?

When the levy was first announced in 2015, the (then) Chancellor George Osborne said businesses would “get back more than they put in”, but that smaller, non-levy paying businesses could also benefit from funding by a system of “co-investment” where the employer pays 10% and the Government covers the other 90% of the cost of training.

Unlike levy-payers, however, smaller companies arguably face a more complex route to gaining this investment, including having to negotiate contracts with training providers to secure the limited amount of funding on offer.

Furthermore, confusion around their entitlements has led many smaller businesses to think “if they don’t pay it, then it’s nothing to do with them”, according to Gemma Tumelty of HR consultancy The HR Dept.

She says: “Many small businesses are so busy doing their job, what they’re good at, that they don’t look into what’s available to them and whether they can access additional funding. The Government has not confirmed exactly how much will be made available to non levy-payers, so many of them feel they’re unlikely to get anything.”

Mark Dawe, chief executive of the Association of Employment and Learning Providers (AELP), agrees that smaller businesses could end up losing out in the longer term.

He predicts that most of the funding raised by the levy – which will only be paid by those with a wage bill of more than £3 million but is designed to offer wider access to training for all employers – will be swallowed up by larger companies fighting to get a return on their investment.

The levy will raise less money and stimulate training less in the areas that need it most – the regions hit hardest by de-industrialisation, which suffer from low levels of qualification, low productivity and low pay” – IPPR

Dawe explains that many levy payers will take advantage of the wide range of occupations covered by apprenticeships, for example management training, to expand the types of apprenticeship they offer and therefore reaping back what they’ve put in.

Others will consider shifting the emphasis of their entry-level recruitment away from graduates to school leavers, or effectively “re-badge” existing training as apprenticeship schemes to qualify for a share of the levy “pot”.

Layers of confusion

Kate Arnott, of accountancy firm MHA MacIntyre Hudson, says that the levy is “adding further layers of confusion and many businesses will struggle to take out as much as they put in”.

For levy-paying employers, the way the new funding model will work is relatively straightforward. Each levy-paying employer receives a £15,000 allowance to offset against payments. After calculating 0.5% of the annual salary bill, £15,000 is taken out and the apprenticeship training budget is what is left in their Digital Apprenticeship Service account, which they can access online.

Until 2018 at least, non-levy payers will not have access to the Digital Apprenticeship Service, and will have to apply for levy funding through a training provider. Every individual apprenticeship framework and standard is allocated a funding band, and the upper limit of the funding band will cap the maximum price that Government will “co-invest” towards.

“It’s ambiguous and complicated; larger employers do have an advantage not having to negotiate all this with a training provider,” Arnott adds.

Thinktank the Institute for Public Policy Research (IPPR) believes this could also create regional disparity in how people access training. It says that the levy will stimulate training most in London and the South East, as these regions have 38% of the UK’s large businesses (who will pay the levy), but only 27% of the population.

“The levy will raise less money, and stimulate training less, in the areas that need it most – the regions hit hardest by de-industrialisation, which suffer from low levels of qualification, low productivity and low pay,” it claims.

Drain on funds

Furthermore, under these “co-investment” rules, levy-paying organisations that use up all the funds in their account can also apply for the Government to subsidise training.

According to the Government’s funding guidelines: “If you pay the levy, you may find that over the course of an apprenticeship the funds in your account aren’t enough to cover the full cost of the apprenticeship training and assessment you’d like to buy.

It’s ambiguous and complicated; larger employers do have an advantage not having to negotiate all this with a training provider” – Kate Arnott, MHA MacIntyre Hudson

“This may be the case for employers who only pay a small amount of levy or have a variable pay bill and pay the levy in some months but not others.

“Where the monthly cost of apprenticeship training cannot be fully met by funds from your digital account (because there are insufficient funds), you must co-invest 10% of the outstanding balance for that month. The Government will pay the remaining 90% up to the funding band maximum.”

Dawe worries that employers “topping up” their training by accessing co-investment could be an additional drain on available levy funds.

“I think in years one and two there will be spare levy that’s not used,” he explains. “We’re hearing that in some sectors employers will overspend by 10%, which means that they get a further 90% in matched funding from the Government.”

Ring-fence funding

Dawe estimates that smaller businesses currently access around £1 billion of apprenticeship training funding from the Government, and AELP is campaigning for the Department for Education to ring-fence this amount of funding so it is kept available to non-levy payers.

But these figures contradict a recent study by the Institute of Fiscal Studies, which in January suggested Government spending on apprenticeships could be much lower after the levy is introduced, only reaching £640 million for all apprenticeships between 2016 and 2019/20.

Sign up to our weekly round-up of HR news and guidance

Receive the Personnel Today Direct e-newsletter every Wednesday

OptOut
This field is for validation purposes and should be left unchanged.

Dawe is concerned that if the Government does not guarantee this funding, it may not achieve its broad goals of opening up access to apprenticeships and creating greater social mobility. “Smaller businesses tend to be the biggest deliverers of ‘first steps’ apprenticeships [Levels 1 and 2], and we could see access to these affected too,” he adds.

Whether these predictions come true or not, the confusion around entitlements and obligations – just weeks before the levy regulations come into force – could mean access to skills may not end up being as equitable as the Government would have liked.

Jo Faragher

Jo Faragher has been an employment and business journalist for 20 years. She regularly contributes to Personnel Today and writes features for a number of national business and membership magazines. Jo is also the author of 'Good Work, Great Technology', published in 2022 by Clink Street Publishing, charting the relationship between effective workplace technology and productive and happy employees. She won the Willis Towers Watson HR journalist of the year award in 2015 and has been highly commended twice.

previous post
Top 10 HR questions February 2017: Gender pay gap reporting and the apprenticeship levy
next post
Gender pay gap reporting timeline: key dates for HR

You may also like

UK and EU agree to collaborate on ‘youth...

19 May 2025

Investing in skills when budgets are tight

12 May 2025

Teacher apprenticeship route to be tied to school...

9 May 2025

Young people are less work-ready, say employers

7 May 2025

High-level apprenticeship spend doubles in five years

16 Apr 2025

Number of SMEs hiring staff in decline

10 Apr 2025

Post-pandemic starters seek more pay for on-site working

10 Apr 2025

‘Clean power army’ to create thousands of jobs

7 Apr 2025

How to build a commercially-minded workforce

3 Apr 2025

HR and businesses respond to Spring Statement

26 Mar 2025

  • 2025 Employee Communications Report PROMOTED | HR and leadership...Read more
  • The Majority of Employees Have Their Eyes on Their Next Move PROMOTED | A staggering 65%...Read more
  • Prioritising performance management: Strategies for success (webinar) WEBINAR | In today’s fast-paced...Read more
  • Self-Leadership: The Key to Successful Organisations PROMOTED | Eletive is helping businesses...Read more
  • Retaining Female Talent: Four Ways to Reduce Workplace Drop Out PROMOTED | International Women’s Day...Read more

Personnel Today Jobs
 

Search Jobs

PERSONNEL TODAY

About us
Contact us
Browse all HR topics
Email newsletters
Content feeds
Cookies policy
Privacy policy
Terms and conditions

JOBS

Personnel Today Jobs
Post a job
Why advertise with us?

EVENTS & PRODUCTS

The Personnel Today Awards
The RAD Awards
Employee Benefits
Forum for Expatriate Management
OHW+
Whatmedia

ADVERTISING & PR

Advertising opportunities
Features list 2025

  • Facebook
  • Twitter
  • Instagram
  • Linkedin


© 2011 - 2025 DVV Media International Ltd

Personnel Today
  • Home
    • All PT content
  • Email sign-up
  • Topics
    • HR Practice
    • Employee relations
    • Learning & training
    • Pay & benefits
    • Wellbeing
    • Recruitment & retention
    • HR strategy
    • HR Tech
    • The HR profession
    • Global
    • All HR topics
  • Legal
    • Case law
    • Commentary
    • Flexible working
    • Legal timetable
    • Maternity & paternity
    • Shared parental leave
    • Redundancy
    • TUPE
    • Disciplinary and grievances
    • Employer’s guides
  • AWARDS
    • Personnel Today Awards
    • The RAD Awards
  • Jobs
    • Find a job
    • Jobs by email
    • Careers advice
    • Post a job
  • Brightmine
    • Learn more
    • Products
    • Free trial
    • Request a quote
  • Webinars
  • Advertise
  • OHW+