Calls for reform of Apprenticeship Levy in National Apprentice Week

Numerous big names in British business and academia are highlighting new opportunities in their organisations for apprentices during the UK’s National Apprentice Week, as calls continue for government reform of the Apprenticeship Levy.

The current Apprenticeship Levy functions by requiring large firms, which spend at least £3m on their annual payroll, to dedicate 0.5% of this amount to training arrangements for apprentices, which is topped up by an extra 10% from government. Smaller companies also receive assistance from government in training apprentices.

Funds that are not used by levy-paying employers within 24 months expire and are handed back to the government.

Among those calling for extensive reforms of the levy to improve access to the funds is the Recruitment & Employment Confederation, which outlined a three-point approach to remodelling the system: access to levy funds for training for temporary workers; targeted funding across levels 2-6 to better address labour and skills shortages; and flexing the levy to fund high-quality, modular, practical courses.

Outlining the key issues for reform, REC campaigns adviser Usman Ali pointed out that the current system only allows people to take advantage of apprenticeships who have been with the same employer for at least one year – “the time it takes to complete an apprenticeship”.

He went on to say: “This means that most temporary workers working via a recruitment agency cannot benefit from the Apprenticeship Levy, despite their wages being levied to fund this. Of the 1 million temporary workers on assignment in the UK on any given day, around 960,000 are ineligible for Apprenticeship Levy funding. Only 2% of temporary assignments last 12 months or more, ruling out an apprenticeship for most temps. This is a massive failure, especially in a labour market with many vacancies and insufficient skilled people.”

Describing the concern around where funding is currently targeted, Ali said: “According to an FOI we sent to the Department for Education (DfE) last year, £853m of levy funding was used on levels 4-7 apprenticeships (equivalent to undergraduate and master’s degrees). This is more than double the amount spent on Level 2 apprenticeships (£410m). 

“If we want to boost productivity and economic growth and make sure that it pays to be in work, we need people at every skill level,” Ali said. “That will create a more sustainable talent pipeline, moving some people into work and enabling others to upskill. The inability to use Levy funding is a significant issue in sectors with acute shortages at entry levels in the skills system and high demand for temporary workers, including health and social care, hospitality, logistics and manufacturing. Businesses want to invest in their people, but they don't have additional resources for training because of the burden of the levy. This limits training opportunities and exacerbates skills shortages further.”

Marks & Spencer CEO Stuart Machin weighed in on levy reform in a LinkedIn post, saying: “The government fund, which is meant to support investment in skills, is so difficult to access that millions of pounds (which could be used to create more and better apprenticeships) is going unspent. We currently pay £5.6m into the fund but are only able to make use of 34% of it. What a waste!

“There are also some silly rules dictating specifically what kind of skills programmes the money can be spent on – which means some of our brilliant programmes like Marks & Start don’t qualify.

“So, once again, I am calling on Jeremy Hunt and the government to reform the National Apprenticeship Levy to make it more flexible and simpler for employers like us to access the money and provide vital opportunities and career development for our colleagues.”

Others calling for Apprenticeship Levy reform include the British Retail Consortium, the CIPD, Co-op, Currys, the Federation of Wholesale Distribution and the National Federation of Builders.

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