Government floats plan to cut size threshold for new apprenticeship levy

23 November 2015

Thousands more construction companies could end up paying two apprenticeship levies if the government follows through on suggestions it will cut the definition of “larger” employers that pay into the new all-industry levy from those with 250 staff to as few as 50 employees.

But it is thought that the rate at which the new levy is paid would be tiered, so that smaller firms crossing the threshold would pay less than larger competitors.

The possible shift in policy was aired at a meeting held last week at the Confederation of British Industry (CBI), attended by a number of construction sector organisations, including the NFB, FMB and BuildUK.

It is understood that CBI’s apprenticeship team had been in close contact with counterparts at BIS, and were sharing the insights they had gained on Whitehall’s plans.

However, the view from the CBI was that the 50 employee threshold being floated in government circles was something of a “scare tactic” and could well be revised upwards to 100 staff.

More detail on how BIS intends to implement the new apprenticeship funding regime – designed to increase the number of apprentices over the five-year term of the current parliament to 30 million, a 30% increase – are expected in next week’s Comprehensive Spending Review.

But the industry believes that the CSR announcement is unlikely to include full details of how the new levy will operate in the construction and engineering sectors, where the CITB and the Engineering Construction Industry Training Board are in place.

According to the CITB’s most recent annual review, around 70,000 “in scope” employers currently pay into the CITB levy scheme, raising around £160m a year.

The CITB collects 0.5% of the payroll bill for employees and 1.5% of payments made under labour-only agreements.

In response to the government’s consultation on how its new all-industry levy could work alongside CITB, 15 trade associations in the the industry issued a joint statement supporting a plan that would see “larger” companies in effect pay both levies in a hybrid system.

The joint response suggested that 250-plus construction employers would pay 0.5% of their payroll bill for direct employees to the government scheme, while 1.5% for labour only subcontractors would continue to be routed to the CITB. 

Meanwhile, in-scope employers below the 250 threshold would continue to route all of their payments to the CITB.

In this way, the CITB could expect to receive most of the funds it currently does, albeit with some funding top-sliced to the new government scheme.

According to the consultation response from trade association BuildUK, just 212 industry employers cross the threshold of being “larger” employers and would end up paying into both schemes. 

But if the government plans to dramatically lower the threshold to 50 or 100 staff are substantiated – and if the industry plan for a twin-track system is adopted – then thousands more companies could find themselves caught up in two administrative systems.

On the other hand, if the levies are paid on the same basis – directing 1.5% of labour-only subcontractors’ wages to the CITB – then the sums flowing to the CITB coffers would be roughly the same.

Sarah McMonagle, head of external affairs at the Federation of Master Builders, commented: “Employers think that the CITB does need reform, but most think that it is still important and useful, and it does things that wouldn’t otherwise be done, for instance it runs subsidised workshops on how to access public sector contracts.

“We think the government wants to be able to say that the new levy applies to all sectors, without exceptions, so it’s likely that some construction employers will pay the new levy, although we’re waiting to see what the threshold is.”

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