Q&A briefing: how will the new apprenticeship levy affect the industry

26 November 2015

The chancellor's announcement on the new apprenticeship levy - set at 0.5% of payroll turnover above a threshold of £3m - raises questions for the CITB and the industry. Construction Manager looks at what's happening. 

It was thought that only about 200 companies might pay the new levy, but this new formula brings more construction businesses “into scope”?

Yes. When the industry was working on the basis of companies with 250 staff paying the new apprenticeship levy – following the EU definition of a “large” business – BuildUK calculated that 212 construction businesses would be caught up. But with this changed definition announced this week in the Autumn Statement, the CITB now calculates that around 700 contractors in the sector will be affected.

So that’s 700 businesses that will end up paying two levies?

Yes, if the plan proposed by a coalition of 15 trade association bodies in construction is implemented. The existing CITB levy is charged at a flat rate across all companies in the sector with a payroll of over £80,000, and is set at 0.5% of the payroll bill for PAYE staff, and 1.5% for labour-only subcontractors.

So the idea that took shape during the August-September consultation period was that large companies would pay their 0.5% of PAYE levy to the new fund, and their 1.5% labour-only levy component would go to CITB as normal. Meanwhile, all smaller companies in the sector would simply pay both components to the CITB as normal. 

So the new scheme means that around 500 extra companies would have to deal with two schemes – if, that is, the government backs the proposals endorsed by the 15 industry associations. It would of course also reduce the amount of funding flowing to the CITB, compared to the previous scenario.  

Well, that seems fairly straightforward...

Not so fast. The proposal assumed that “large” construction businesses would make the same net contribution under the new system as they do currently. But the CITB points out that the way the government has structured the new levy scheme in fact creates multiple different rates of levy – and many of the 700 construction businesses affected by the new rules could in fact pay less than they do now.

The reason is that they will pay 0.5% on any PAYE costs over £3m, not over £80,000. So a business with a payroll turnover of £4m would only pay 0.5% on £1m, or £5,000. At the moment, their PAYE contribution would be £19,600.

The CITB says that around 350 construction businesses caught up in the new levy have a payroll bill of £3m-£6m – and could therefore see their net contributions fall. For larger companies, the proportional difference is smaller. For instance, CITB says that seven businesses currently paying its levy have payroll turnover above £125m, and will end up paying pretty much the same as currently.

Hmm – so that makes it a bit more complicated.

Yes. The CITB's director of policy Steve Radley says that it will now have to think of a new method of offsetting the government levy against the CITB levy, and therefore recouping the 'lost' money from larger businesses.

Also, the CITB and industry thought that they more or less had consensus on the 'hybrid' system when 212 companies were involved, but Radley says that it will now be opening up discussions with the wider group. The government will be looking for evidence that the wider industry still supports the CITB. 

There is a fair degree of urgency to all this. The government wants the new levy system up and running by 2017, and while the CITB's existing authority to raise money from the industry runs until 2018, Radley points out that no employers are going to be happy with paying two levies for a year. So that means the CITB and BIS will have to work out a new formula for any new CITB levy order to apply from 2017. 

What else was in the Autumn Statement about the new levy? 

There was confirmation that the government would set up an employer-led body to oversee the new levy, a move which has been widely welcomed: as employers are now making a greater financial contribution to apprenticeship training, they will have a greater say on policy, standards and qualifications. 

And the CITB's Radley also pointed out that there was a recognition in the statement that apprenticeships might be more costly or last longer in some sectors than others. 

But that's as far as the detail went. "Apprenticeship costs are higher in construction, but if you pay in a flat fee, does everyone get the same vouchers back?" asks Paul Bogle, head of policy at the National Federation of Builders. "The new pan-industry body needs to look and see where the costs are and how costs should be allocated."   

But it's theoretically possible that the new apprenticeship levy could offer a better "deal" to construction employers than the CITB levy, putting the cat among the pigeons. 

Surely there are more than 700 companies in the sector with a payroll over £3m (approx 100 employees)? 

Yes, that's just the number of CITB levy-paying contractors. Apart that there will be many companies in the product manufacturing sector and the consultancy sector who were not in scope to the CITB, but will be paying the new apprenticeship levy. 

The Construction Products Association's chief executive Diana Montgomery was cautious, urging the government to make sure that the policy focuses on the quality of the training, not a numbers game. 

And at Aecom, chief executive for civil infrastructure Richard Robinson felt that the new levy possibly wasn't the answer to the industry's training crisis, fearing it could be "punitive to some of the companies that are taking the lead in training and developing the future workforce."

He added: "My concern for the construction industry is that it may cause some employers to curb the number of apprentices they hire at the very time they should be ramping up apprenticeship schemes to enable delivery of the UK's vital infrastructure programmes." 

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