The apprenticeship levy, or the ‘L-word’, as it has come to be known in our office in recent months, invites more questions than answers. We’ve attempted to answer as many as possible so far, but we need the forthcoming Budget to fill in the gaps.
The question of whether the levy is a tax or talent generator was discussed at EEF’s annual conference. For it not to be seen as a tax, it must deliver on EEF’s six red lines.
1. The levy must allow manufacturers to draw down sufficient funding to cover the true cost of training
Employers will pay into the levy, regardless of whether they then decide to recruit apprentices or not. For those that chose to recruit apprentices, they will then be able to draw down funds from the levy in the form of a voucher. The value of the voucher which they can draw down is still to be decided. In fact it won’t be decided until 1) The new Institute for Apprenticeships (IfA) has been formed and 2) The IfA then make recommendations to the government on the cost of new apprenticeship standards.
Manufacturers want to offer high quality training. But quality training comes at a price. Anecdotally EEF members report that the cost to them (the employer) for an engineering apprentice is in the region of £80-90k. Around two-thirds of manufacturers currently use a combination of private and public funding. But a third fund it entirely themselves. What’s more 38% of manufacturers say that monetary cost is now a major barrier to recruiting more apprentices.
2. We need to make voucher transferability work
This is a tricky one. We want employers to be able to, in the words of the government, ‘get back what they put in,’ but at 0.5% of paybill and apprentice recruitment driven by business demand, this for the majority is highly unlikely. So, manufacturers are probably going to have vouchers that they haven’t used up. Therefore they may want to use these vouchers in their supply chain to ensure their supply chains have the highly skilled workers they need now and in the future. Therefore some mechanism may need to be in place to allow this to happen. Of course, state aid rules and a number of other rules and regulations have the potential to make this difficult. So government needs to consult (quickly but efficiently) with business on how this can work and how it can support growth of high quality apprenticeships where this is demand.
3. Basic English and maths must be funded by the state
Basic English and maths (Level 2/GCSE) is a necessity whether you are undertaking an apprenticeship, entering into permanent employment or other forms of training. Three-quarters of manufacturers prioritise attainment in English, maths and the sciences when recruiting apprentices.
Yet around 40% of pupils at Key Stage 4 don’t achieve this. Therefore apprenticeships often contain English and maths elements to ensure those learners have the basic level of numeracy and literacy required for them to be successful in their future jobs.This part of the training is currently paid for by the state. But what about in the new levy world? There has been nothing from government to date to explicitly say that they will continue to fund it. So will employers end up paying for the past underperformance of the education system? We hope not.
4. Maintenance and administration must not be funded from the levy pot
This question was directly asked to our panel at EEF’s Conference, and I don’t think we got a clear answer. In fact it seemed to suggest that some of the ‘leftover’ funds (that also needs to fund the devolved administrations and the ‘top-ups’) might be used on the administration of the levy. This cannot happen. Every pound paid by employers into the levy pot must be spent on apprenticeship training. Only then can government have any chance of creating 3 million apprenticeships, or which a decent number are higher level.
5. The levy and digital system must be frictionless and easy to use
At our Conference, questions on the levy were thrown at HMT and BIS. But the round of applause in the room came when a delegate, and Chairman of a small manufacturing company, asked why the government has made the new levy system look so complicated. We don’t yet know the ins and outs, but what we do know looks pretty messy. Even my very simplistic infographic makes it look complex.
Almost one in five manufacturers of employers say a reduction of bureaucracy would encourage them to take on more apprenticeships. Therefore the new levy and digital system needs to be frictionless and easy to use for employers of all sizes.
6. Manufacturers need certainty and predictability of funding over time
75% of manufacturers say their apprenticeships last up to four years. So they need predictability and certainty of funding (and indeed the wider system) for at the very least these four years. EEF pushed for the lifetime of vouchers to be 4 years, reflective of an engineering apprenticeship. The consultation seemed to suggest 2 years and the rumour mill suggests just 1 year. This is not long enough.
Similarly, the levy rate needs to be stable. Businesses will not be able to cope with a fluctuating rate. Uncertainty and instability can massively affect investment decisions, and this includes training and recruitment. Therefore the government must avoid tinkering with the levy rate, allowances and when confirmed, funding tariffs.
So there you have it. Our six red lines. We want answers. Our members want answers. So the Budget needs to give us some answers. Else the government is at risk of leaving it too little, too late.