The Apprenticeship Levy: The modern day attempt at Alchemy? | EEF

The Apprenticeship Levy: The modern day attempt at Alchemy?

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For hundreds of years scientists and chemists tried to turn base metals into gold – the legendary process of alchemy. Many years were fruitlessly wasted on an impossible task, before, inevitably, it was clear that this was utterly unachievable. Turing common, low grade, cheap metal into 24 carat gold is, as should have been obvious, impossible.

Fast-forward a few hundred years and we have the announcement of a new apprenticeship levy, which will attempt to create more gold-standard apprenticeships and ensure that firms that train apprentices get out more than they put in. But what will these gold-standards be made from?

Arguably then the apprenticeship levy is just a modern day attempt of alchemy.

In the manufacturing industry, apprenticeships are ‘gold’ - made up of higher level skills, higher pay, better career prospects…. Need I say more? They are exactly the 3 million ‘quality’ apprenticeships that the government is so keen to meet.

But how realistic is this?

Under the co-investment model that was mooted under the coalition government and trialled by the Trailblazers – possibly. This is because high quality (and therefore often more expensive) apprenticeships attracted a generous glug of public funding to prime a much bigger glug of employer funding.

However, the Summer Budget brought with it an alternation to this funding model  - which now appears more likely to be a seismic shift. The Chancellor announced a new apprenticeship levy.

As always we wait for the ‘devil in the detail’ before making any sweeping assumptions on the impact. We knew it would apply to ‘large’ firms (although there was no definition) and that it would collected via HMRC. But it soon became apparent that the levy amount would be a proportion of a company’s total payroll bill and before we knew it the rate of 0.5% was being thrown around.

Now add a consultation into the mix

The consultation document, which closed today and EEF responded to following extensive consultation with its members, offered no additional detail on the key numbers. The rate and reach were not being considered, (it seems that they will just be announced without discussion), and instead freedom and flexibility of funding was being replaced with ceilings, restrictions and caps.

A policy made of gold? I think not.

What the government has continued to push at businesses, who are likely to be in scope of the levy, is that they will be ‘able to get back more than put in’.

Now on the surface this sounds good. However add in the ceilings, restrictions and caps both on individual apprenticeships and employers – it all becomes a bit diluted.

Now for the maths (note the importance of STEM skills here).

Company A – Let’s call them O’Keefe Engineering Ltd for now. O’Keefe Engineering Ltd has a total headcount of 680 (and therefore likely to be in scope of the new levy).

Assuming that the levy is 0.5% of total payroll, then the annual levy contribution would be £100,000 per year (Ouch!).

O’Keefe Engineering Ltd currently takes on 9 apprentices a year – the number the business needs. If the maximum draw down from the levy for engineering apprenticeship is £5,000 per year then O’Keefe Engineering Ltd can draw down a maximum of £45,000 (9 x £45,000)

This puts the company at a disadvantage of £55,000 (levy contribution less drawdown).

Now, O’Keefe Engineering Ltd could just take the hit. If they do, they won’t be contributing to the Government’s plans to increase apprenticeship numbers.

They could however take on an additional 11 apprentices, which would mean they ‘break-even’ on their levy contribution.

So problem solved – we’ve turned copper into gold?!... No not quite.

The average salary, including on-costs, for an apprentice at O’Keefe Engineering Ltd is £15,000. So 11 x £15,000 is a hefty £165,000 added to their salary bill that then increases their total payroll and increases their levy contribution.

A big drop of money, and a big drop of other costs is then required

As well as the additional salary costs there are other factors that companies would need to consider.

  1. Where are all these quality apprentices going to come from? Already manufacturers report that they cannot find the right candidates with the right qualifications and skills to fill their apprenticeship programme.
  2. Will I need to recruit another training manager? A significant increase in the apprenticeship intake will mean manufacturers will need to recruit more mentors and training managers to ensure their apprentices receive high-quality training. This comes at a cost. If the company doesn’t do this, it could have a damaging effect on the quality of on-the-job training.
  3. Is there the capacity in-house or at local FE colleges and providers to expand capacity? Employers are not confident that if there were to significant increase their apprentice intake that local providers and FE colleges would have the capacity to deliver the training. Already, manufacturers have concern across access to quality, local provision.

It’s hard to see then how the government can turn their copper-based apprenticeship levy proposal into gold. Yes the levy could potentially increase quantity but quality I have my doubts. It seems the apprenticeship levy is nothing more than a modern day attempt at alchemy. Any backers out there?





Head of Education & Skills Policy

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