• International Workplace
  • 23 January 2018

The apprenticeship levy: employers would prefer a broader training levy

The UK government’s apprenticeships reform and the introduction of the apprenticeship levy has brought new implications for how employers interact with the apprenticeship system. A report from the CIPD indicates that employers would, in fact, prefer a broader training levy.

Starting in April 2017, all UK employers in the public and private sector with a pay bill of over £3m have had to contribute to the apprenticeship levy (0.5% of their annual pay bill). The levy was designed to counteract the long-term decline in employer investment in training in the UK.

Employers receive an allowance of £15,000 to offset against the payment of the levy. All employers are able to access funding for apprenticeships, including those not required to pay the levy. They can access funding through a new digital apprenticeship service account, and use this money to pay for training and assessment for apprentices.

The CIPD has carried out investigations into the impact of the levy on organisations in England so far. Its report, Assessing the early impact of the apprenticeship levy – employers’ perspective, explores employer views and attitudes, and their reaction to the levy in terms of their investment in apprenticeships, as well as the likely effect on their wider learning and development strategies.

The report finds that there is still considerable confusion and uncertainty amongst employers about the apprenticeship levy. This means that, while it is still too early to assess the long-term impact of the levy on both apprenticeships and overall employer investment in workforce training and development, the research provides some indications of the likely direction of travel.

Here we summarise the report’s findings.

Impact on overall number of apprenticeships

The employer survey suggests that the levy will help meet the Government’s objective of driving up the overall number of apprenticeships, with the majority (73%) of organisations expecting to use the levy money to either expand or develop apprenticeship programmes. However, almost a quarter of employers do not expect to use the levy to expand or develop an apprenticeship programme.

It is also unclear what the reforms will mean for non-levy-payers (who form the bulk of UK businesses). Non-levy-paying organisations have to co-fund off-the-job training (that is, contribute 10%). This could be one factor driving the collapse of 59% in overall apprentice starts compared with this time last year.

Impact on quality of apprenticeships

The report comments that the government has consistently stressed that it wants to drive up the quality of apprenticeships with the ultimate aim of achieving a parity of esteem between higher education and apprenticeship pathways. The survey results suggest that for those that pay it, the levy will have limited impact on the numbers of organisations offering higher-level apprenticeships, with equal proportions reporting that they would increase the quantity of level 2 apprenticeships and decrease the quantity of level 3 and vice versa (17% and 18% respectively), and a third reporting that there would be no change.

In quality terms there are concerns that a large number of the new employer-led apprenticeship standards are narrow and overlapping, restricting the extent to which apprentices gain transferable skills. Further concerns have been raised around the removal of the requirement for apprenticeships to include specified vocational qualifications, which may weaken the ability of apprentices to signal their learning to other employers.

Impact on access to apprenticeships for different groups

In other countries, apprenticeships are primarily a route into the labour market for young people; in the UK, on the other hand, apprenticeships are open to all ages, with the majority of apprenticeship starts going to those aged 19 or older. The IFS has expressed concerns that recent changes to the funding regime will further incentivise employers to take on older apprentices.

This research supports these concerns and indicates that the funding reforms and apprenticeship levy are likely to shift the pattern of provision even more towards existing employees and older apprenticeships, albeit marginally.

Alongside access for young people in general, there are also particular issues for young people from disadvantaged backgrounds and those from black, Asian and minority ethnic (BAME) backgrounds.

Impact on overall training levels and other forms of workforce training and development

The apprenticeship levy was designed to help counteract the long-term decline in employer investment in training. Although it is far too early to assess its impact, the survey indicates that the levy will only go some of the way towards achieving the government’s ambition of driving up overall training levels. In all, 45% of levy-paying organisations believe the levy will have the effect of increasing the overall amount of training they offer, but a larger proportion of employers report it will make little or no difference or actually means it reduces overall training investment (a combined figure of 49%).

A number of reports have identified the risk that the levy will drive employers to rebadge existing training programmes as apprenticeships. While there could still be some value from this, for instance providing employees with portable/transferable skills rather than company-specific, if it occurs widely it would not increase the overall volume of training and lead to significant deadweight.

This research suggests that the levy is likely to have a negative impact on other forms of training in a substantial minority of organisations; over a quarter of employers reported that the levy would mean that they reduce investment in other forms of training.

The survey evidence suggests that while support for the principles of an apprenticeship levy has increased since CIPD last surveyed employers a year ago, most employers would prefer a broader training levy.

The report recommends the following actions:

  • An awareness-raising campaign.
  • Boosting SME engagement.
  • Focus on completions rather than start.
  • The Institute for Apprenticeships and Technical Education (IfATE) must urgently review all standard.
  • Reinstate the requirement for apprenticeship standards to include a qualification, membership of professional body, or a licence to practise.
  • Strong and sustainable institutions.
  • Develop an apprenticeship access fund.
  • The IfATE should publish regular data on access to apprenticeships.
  • School and college career strategy should include measures for addressing equality of access to apprenticeships.
  • The Government should consider broadening the apprenticeship levy into a wider training levy.
  • Underspend of levy monies should be ringfenced.

The report is available to download here.