Credit: Northern Ireland Executive

Is the apprenticeship levy good for business?

George Osborne's £11.6bn raid on larger employers has divided opinion.

by Adam Gale
Last Updated: 06 May 2016

The chancellor pulled off an impressive piece of political theatre yesterday, bracing the country for heavy spending cuts only to present a far milder autumn statement than everyone expected, not least those on the opposition benches. But not everyone emerged unscathed. Ever an easy political target, business got an £11.6bn black eye from George Osborne’s apprenticeship levy.

Firms will pay a levy equivalent to 0.5% of their total payroll from April 2017 to fund apprenticeship training, though a £15,000 allowance means those with staff costs of less than £3m won’t pay a penny. The idea is to raise £11.6bn over this Parliament, funding three million apprenticeships.

Is it a bad thing? The downside is obvious. Whatever it’s called, this is effectively a new payroll tax on business. The government may spin it to say that 98% of businesses are too small to be affected, but those businesses that are affected employ around two thirds of the private sector workforce, so that doesn’t really fly.

It also comes at a bad time, with soaring business rates and the introduction of the national living wage next April (really a significantly higher over 25s minimum wage) forming one of Tesco boss Dave Lewis’ ‘lethal cocktails’.

But there are some upsides. As Osborne predictably put it, businesses could ‘get more out than they put in’ if they embrace the scheme. Apprentices are cheap (their minimum wage is around half the 21+ standard) and their off-the-job training is paid for by the state (though ultimately out of the levy of course). At the end of the one to four year programme, firms could get a well-trained employee, who’s likely to stick around.

From a wider economic perspective, Britain’s productivity would also benefit from a better trained workforce, especially if that improvement doesn’t come with the huge costs of subsidising additional university education. But both the micro and the macro benefits depend on apprenticeships being fit for purpose –and not everyone agrees that they are.

Nearly half of the 492,000 apprenticeships started in 2014-15 were at level 2 (the academic equivalent of GCSEs), which doesn’t exactly bode well for their impact on British productivity.

Beyond that, about 40% of the apprentices are over 25 as well, which raises the prospect that firms are just dressing workplace training up as apprenticeships. A levy funding that would clearly be ridiculous. Even if that isn’t the case, extra cash doesn’t always translate to results. As Nick Elwell-Sutton, employment partner at Clyde and Co, put it, ‘simply boosting the cost of the scheme will not ensure apprentices receive high quality training’.

Businesses may be effectively paying for a new generation of apprentices, and whether they should have to or not, perhaps they should make use of the opportunity. But they surely won’t unless apprenticeships themselves are something they will genuinely get a use out of. If that isn’t the case, nobody wins.     


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