The apprenticeship levy and how to spend it

26 June 2017 | By Ann Bentley

The new apprenticeship levy is uncharted territory for many. RLB’s Ann Bentley looks at how companies can recoup their investment.

The apprenticeship levy introduced in April will raise almost £3bn of funds annually, to be used to fund the training elements of apprenticeships. The government has a target of three million apprenticeships started by 2020.

With construction employing almost 10% of the UK workforce and forecast to face acute labour shortages over the next five years, this must be good news. If we do this right 300,000  construction apprenticeships could be created by 2020. This would make an enormous impact on the ageing, post-Brexit profile of construction employment – given that the current annual level of construction apprenticeship starts is just 21,000 a year.

But the levy is a blunt instrument. Only businesses with an annual payroll of greater than £3m will pay the levy and it can only be spent on the training elements of an apprenticeship. Also, just because the funding is available it doesn’t make the industry inherently more attractive to new entrants.

The make-up of the sector is skewed, with the majority of people employed in small companies. Of the 264,000 businesses in the sector, less than 1% will actually pay the levy, although this 1% employs around 30% of the workforce. At the same time the CITB and ECITB training levies will continue and some 900 firms will be subject to both levies.

“In the long run the advantages gained through having a well-trained workforce will outweigh the cost of the levy, and both productivity and standards of living will rise.”

The principles of the levy are straightforward. UK businesses will be forced to fund the training needs of their own industry sector. In the long run the advantages, both to individual companies and the economy as a whole, gained through having a well-trained workforce, will outweigh the cost of the levy, and both productivity and standards of living will rise.

The levy will be paid directly to HMRC via PAYE contributions and the companies that are paying in will be able to draw directly on the funds that they have contributed. Companies which are not paying the levy will also be able to draw down funds to pay for apprenticeship training via the training providers.

The term apprenticeship encompasses everything from trade skills to master’s degrees, and the eligible funding ranges from £2,000 to £27,000 per apprentice, depending on the duration, intensity of training and level. The thing that all the apprenticeships have in common is that the apprentice must be employed (paid at least the legal minimum apprentice wage) and the paid-for training element must be provided by an approved supplier.

This is where the apprenticeship levy could unwind a little. At one end of the spectrum some of the large companies have allocated funds from their existing training budgets to pay the levy and set targets for their HR teams to “recoup” the investment. At the other end, small companies report that they cannot afford to take on apprentices as they still have to pay their wages, supervise them and provide the on-the-job elements of the training.

According to a recent survey, 40% of small business owners had not heard of the levy and were not aware that they could draw on the funds. A report published in April from a committee of MPs was more scathing – saying it was doomed to fail.

However, the apprenticeship levy is already changing the face of training and we should grasp it as an opportunity to change our industry for the better.

The concept of a training levy is well understood by contractors, but for consultants such as RLB it is uncharted territory. We began planning for the introduction of the levy well over a year ago, and enhanced our training budget this year to give us the wherewithal to develop a meaningful programme. We have taken a dual approach to ensure we get the best possible value from our levy contribution.

First, we looked at degree apprenticeships. Historically many of our trainees were school-leavers who studied under day release programmes, but the majority now join us as year-out students or graduates. The levy means that we now have a greater choice of part-time degree courses to subscribe to and a greater pool of young people wanting to train in this way, so this year we will be taking on a mixed cohort of graduates and degree course apprentices.

Second, we have teamed up with the Chartered Management Institute and with its guidance have morphed our existing in-house management development scheme into a level 5 apprenticeship. This has involved a detailed mapping exercise, the inclusion of more externally taught units, a verification process, and some initial training of existing managers in coaching and mentoring. We are also considering off-the-shelf level 7 apprenticeships (masters’ degrees) for specific individuals.

With this approach we are confident that we will recoup the maximum 110% of levy contributions made, but more important, we will enhance the skill-set of our people and the effectiveness of our business.

Ann Bentley is global chair of Rider Levett Bucknall

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