Transparency and understanding will help the Apprenticeship Levy debate and its potential reform

The Apprenticeship Levy is an area of live debate within the Skills sector, with fact and fiction often coming together to create polarised positions. In this short article, Mark Cameron explores the nuances of the Apprenticeship Levy and suggests that the debate would be helped through better shared understanding.

In his 2022 Spring Statement speech (delivered in the House of Parliament on 23 March 2022) the former Chancellor, Rt Hon Rishi Sunak MP, highlighted how we, in the UK, lag behind our international peers when it comes to Adult Technical Education, and committed to “considering” whether the current tax system, including the operation of the Apprenticeship Levy is doing enough to incentivise businesses to invest in the right kinds of training. This sparked a flurry of interest in reform and stimulated multiple articles and thought leadership papers on the subject; some accurate and some less so …

So why is this the case?

The Apprenticeship Levy, its operation and utility, and the benefit it delivers in skilling the workforce has become an interesting and sometimes emotive area of debate. There are numerous views matched by varying levels of understanding, and multiple perspectives that feed a similar number of realities. And all driven the absence of a simple and singularly clear narrative that can be understood by all.

At its heart, the system is simple. Employers with a wage bill of £3 Million or more pay a levy of 0.5% of that sum to the UK Treasury. That “ring-fenced” funding is then distributed to the devolved administrations for the sole use of delivering Apprenticeships, with underspent funding “returned” within a prescribed time limit. In England, the distribution is delivered through the Comprehensive Spending Review process, with agreement reached in the last cycle to increase the Apprenticeship Programme funding in England to a total of £2.7 Billion by 2025. That the explanation for what some are now calling the flow of “Real Funding”.

That funding is then distributed through the Department of Education Apprenticeship Programme, and is used to fully fund the training costs for some Apprenticeships (i.e., for Levy Paying Employers or via the Levy Transfer Scheme) or co-fund the costs of others (for Levy Payers who have used all their funds, or for non-levy payers who apply directly for funding – in both cases the funding covers 95% of the training costs). The Programme also supports some legacy schemes, as well as covering the operational costs within the Department for Education. As I started, simple …

But the complication comes when “Real Funding” is mixed with “Virtual Funding”, with the latter including the funding totals notionally allocated to the Digital Accounts of Levy Payers. This is because the total of this virtual money (which is of course uplifted by 10%) starts to become larger than the real funding allocated to the Department. If this virtual allocation goes unused in 2-years, it is removed from the accounts, and is often cited as “being returned to The Treasury”. This often becoming confused with real money underspends, a mistake we have made sometimes ourselves within The 5% Club! As you start to see, it’s now not quite so simple!

So, what is the reality? How should the system operate? Well, put starkly it appears to be operating as designed, because “the plan” is seemingly based on only 55% of the funding in Levy Payer accounts being used, which leaves an excess to fund the non-levy payer and legacy schemes, and fund the DfE Operational Costs. Hence why previous “real money” underspend has disappeared, and we are again heading again the risk of overspend (as was nearly the case back in 2018).

So, what next?

Communication, Communication and Communication

Put simply, I have one simple ask – can we please address the opaqueness and vagaries of the system described above; resolution should be driven by building a national consensus and a shared understanding through total transparency and open communication about what is happening – all set out to meet the needs of all audiences in the system, but especially the Employers.

Mystique and reliance on third parties using Freedom of Information requests to build a picture and aid understanding, can only perpetuate misunderstanding, myth and “Fake News”.  As such, I would reiterate The 5% Club’s previous calls for full transparency and the development and delivery of a supporting narrative that is understood by all, not just sector experts.

Once this shared understanding is achieved, we can start to work through the huge range of constructive suggestions that have been made, including the 17 recommendations we set out last year. Additionally, we have also very recently delivered a research collaboration with our Sponsor Patron, City and Guilds. The resulting “Levying Up” Report produced through contemporary research and building on a survey of 1000 HR Professionals in Levy Paying Employers. There are 6 very powerful recommendations in there to add to the debate, and which include:

• The introduction of a broader skills levy.
• Use any unspent levy funding to address labour market shortages.
• Push for more representation from SMEs.
• Cancel plans to reduce Level 2 Apprenticeships.
• Introduce modular learning options.
• Invest in information, advice, and guidance.

But before we move to a meaningful discussion on these and all the other suggestions, let’s ensure that everyone understands the system and how it operates; and where it is complex, let’s work together to deliver simplification.

After all, if you run before you’ve tied your laces, you might just trip and fall …

Mark Cameron OBE is CEO of The 5% Club, a skills charity and Employer movement whose purpose is to “inspire positive Employer action for increased, inclusive and accessible workplace learning opportunity for all”. With over 800 Employer Members, representing 1.6 Million workers and over 70,000 Apprentices – the relevance and importance of the movement continues to grow.