3 key things we agree on from the IFS report on the Apprenticeship Levy

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IFS publishes report on the Apprenticeship Levy

 

Last week the Institute for Fiscal Studies (IFS) published a chapter of its Green Budget report looking at reforms to apprenticeship funding in England…..aka…the Apprenticeship Levy. Having written many, many a blog on the Levy, today we look at 3 key things we agree on from the IFS report which we look forward from a response on from Government…..

 

1. The scope of the Levy is a lot wider than the Government’s headlines

 Connectedcompanies

The headline figure from Government has always been that the Levy is a tax on larger firms. In fact, the headline figure is that only 2% of employers are in scope of the Levy. What the IFS highlights is that while it may be 2%, at least 60% of employees work for an employer who will pay the Levy. (This has an impact on the IFS’ concerns around who takes the burden of this new tax).

For us, the rules around “connected companies” has always been the tricky issue that brings more of our members in scope.

So just to briefly recap: employers pay 0.5% of their pay bill with a £15,000 allowance/deduction. However, if you are a connected company/part of a group you only get one allowance, which can either be allocated to one company or split. This is what it looks like:

Connectedcompaniespic

A forthcoming EEF report on the Levy finds that the connected companies rule brings A LOT more companies in scope than expected. Some small companies initially ruling themselves out of the Levy because their pay bills are under £3m soon found themselves in scope because they were loosely connected to another company in the UK. This is a key area in our upcoming report…so watch this space!

 *you can also check out our Apprenticeship Levy myth-buster here

2. Employers do train their employees

trainingprogress

One of the reasons why the Government decided to introduce an Apprenticeship Levy was that employers no longer train. As the report highlights the government has derived figures from the Labour Force Survey (LFS) which shows a rapid decline in the number of employees attending off-the-job training in the past week. The stark figures show a fall of more than 80%, which as the report says, looks rather “dramatic”.

However, the report then rightly says it’s a “rather peculiar measure” which looks at the number of employees who have worked fewer hours than usual in the past week because they attended off-the-job training. Odd huh?

Dig in the detail a bit more and we find that the 80% figure that has been thrown around represents a fall from 0.5% in the mid 1990s to 0.1% in 2014. So yes 80% but this represents a fall of 0.4 % points.

As we know in manufacturing, much of the training occurs on-the-job. This is sometimes the only option given that employees will need to be working on new processes, machines and technologies. Such training may not be able to happen outside the workplace, in fact it’s sometimes impossible.

And to add further evidence, to the IFS report, our most recent skills survey revealed that 63% of manufacturers will be increasing training budgets in the next 3 years. Worryingly, many employers we speak to plan to absorb the cost of the Levy by reducing training budgets, so whether the Levy will result in “value added” training and not deadweight is something to watch out for.

3. Quality could be sacrificed for quantity

 LevyFAQ

This has always been our biggest concern. Manufacturers have a proven track record of offering high quality apprenticeships. We’re proud that they are the gold standard apprenticeship, with well above average pay, higher-level qualifications, progression and an average duration of four years. I’d argue these are some strong criteria for quality apprenticeships!

Anyway, enough apprenticeship showing off from us…let’s go back to this quality issue. Driving the reforms (as well as the apparent lack of training) is the Government’s target to increase the number of apprenticeship starts to 3million over the course of the Parliament. Over the last Parliament, there were around 2.2.million starts so we’re looking for an extra 800,000 starts.

We now need to think this through....

  • Employers that already train apprenticeships (over 70% of EEF members) for example will continue to do so.
  • Currently, 75% of manufacturers typically recruit 16-18 year olds, where they should (but don’t always) have 100% of the training costs covered.
  • The Levy leaves that somewhat unchanged as you can then draw down funds to the value of the cost of delivering that training (based on government’s own decisions).
  • Where the change is, is on those aged 25 and over, where currently public funding is “discretionary” i.e. there is no guarantee of public funding but a provider may partly fund the apprenticeship depending on their own business model.
  • So, we go from 0% of funds covered for mature apprentices to essentially 100% covered, because in the new Levy word, age has no baring.

Still with me? I hope so.

  • As an employer then, who might have headcount restrictions and not able to recruit new apprentices and looking to claw back my Levy liability, I could potentially look at the existing training in my business to determine whether it fits in neatly with an apprenticeship standard, and benefit from the Levy, which would have otherwise come out of my wider training budget.
  • Luckily, there are some restrictions in place – 12 month minimum duration, 20% off the job, must lead to a genuine job at the end and others. These core principles are something the new Institute for Apprenticeships will need to keep in mind when determining whether new standards should be designed and delivered.
  • Even so, this is not extremely prescriptive and some rebadging of training may be on the cards, which could impact quality and damage the apprenticeship brand.

We have seen a number of nods from the Government recently to suggest that they are seeking to incentivise more high quality apprenticeships but we still need to really drill down into those apprenticeship starts statistics to determine where the 3 million starts are coming from.

 

 

Some concluding thoughts….

The IFS report is rather damning on the Apprenticeship Levy. It’s a long line of reports that has been rather scathing on Apprenticeship policy more widely (the public accounts committee being a recent example also).

It’s no secret that EEF has shared its concerns over the Levy, but with only a couple of months to go fundamental changes to the Levy seem unlikely. What we want to see is a commitment to evolve the policy overtime and ensure that the Levy works for employers and delivers more high quality apprenticeships (more to come from our report). And of course, funding policy must not be taken in isolation. If employers dramatically expand their supply of apprenticeships….will there be the demand from learners….let’s discuss in another blog!

 

Author

Head of Education & Skills Policy

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