• International Workplace
  • 17 April 2018

Businesses paying out for apprenticeship levy they don’t use

More than £1.28bn of the funding that has been paid into the Apprenticeship Levy is still sitting in National Apprenticeship Service accounts, new data analysis commissioned by The Open University has found.

Introduced a year ago, businesses with an annual pay bill of £3m or above are subject to the levy (0.5% of the annual pay bill) and, in return, are able to claim a £15,000 allowance, which is offset against the levy to invest in apprenticeship training. Those companies with a smaller annual pay bill are also entitled to receive funding despite not paying the levy themselves. This acts as a carrot and stick method to encourage businesses to use some of the money they are paying in, rather than just regard it as a tax. The online apprenticeship service distributes the funds raised by the levy for companies to use on apprenticeship training and assessment.

Analysis of data from the Education and Skills Funding Agency – acquired through a Freedom of Information Act request – reveals that one year on from the introduction of the apprenticeship levy, organisations have paid in more than £1.39bn but only withdrawn £108m.

This slow start could cost organisations in England dearly, as any funding that remains in their National Apprenticeship Service accounts after 24 months will expire.

The new report by The Open University, The Apprenticeship Levy: One Year On, urges employers to get moving and warns that if they continue to use the funding at the same low rate, they risk losing as much as £139m a month from April 2019, which could be put towards attracting and retaining staff, building skills, and increasing efficiency, it argues.

The report suggests that it can take up to nine months to get an apprenticeship programme up and running. Furthermore, according to market research commissioned for the report, three in ten (30%) business leaders who have accessed the funding said that the process was more time consuming than they expected, so employers need to ensure they do not underestimate the time required.

David Willett, Corporate Director at The Open University, said:

“With such a huge amount being paid into the apprenticeship levy, it’s essential that employers in England get return on investment by embracing apprenticeships.

“As an industry, we appreciate there have been some teething issues, but we’re here to help business leaders work through it and develop programmes that best fit their needs, allowing them to fill skills gaps and future-proof their organisations against the changing world around them.”

Even though the majority (92%) of levy-paying organisations agree with the apprenticeship levy in principle, more than two in five (43%) would like to see some changes, as there are a number of other barriers that are deterring employers from taking up apprenticeships.

Employers are concerned about the resource required to develop an apprenticeship strategy (15%) and to research providers and programmes (16%). One in ten (11%) even said that management of the apprenticeship process requires resource equivalent to a full-time job; a cost they simply cannot afford.

However, the most significant barrier preventing organisations from taking up apprenticeships is the availability and flexibility of programmes. One in four (24%) business leaders agreed that apprenticeship standards – which define programme content – need to be approved more quickly by the Institute for Apprenticeships, as the current delays limit the training options available to them.

Willett added:

“While it’s encouraging that the majority of business leaders agree with the levy in principle, it’s clear that adjustments are needed to make the levy work harder for employers.

“The lack of flexibility needs to be urgently addressed to ensure that organisations get value for money, and we think that modular apprenticeships, which allow organisations to develop tailor-made programmes that fit their specific needs, could be an attractive solution for both employers and the UK government.”

International Workplace’s blog on the Apprenticeship Levy – One year on is available to read here.