Labelling the Apprenticeship Levy as a “tax” is misleading: it’s a skills investment plan

According to Einstein the definition of insanity is “doing the same thing over and over again, but expecting different results”.

So when applied to the world of training – where we have an intransigent productivity problem with the UK at 21% lower than the G7, and systemic skills shortages especially in higher level professional skills – it is clear we need to do something fundamentally different. 

The new apprenticeship reforms offer just that – an employer rather than provider-led system, a new focus on higher-level, professional skills rather than technician and lower-level skills,  and rather than a voluntary approach, a new levy mechanism to drive up employer commitment and investment in skills.

Yet, against this flagship new initiative the Institute for Fiscal Studies published a new report labelling the new Apprenticeship Levy a “stealth tax” which “represents poor value for money”. 

And many of the business lobby groups seized upon this as another opportunity to pour cold water over a new Government initiative before it has even started.  Just as turkeys don’t vote for Christmas, very few businesses vote for increased taxation. 

But labelling the Apprenticeship Levy as a ‘tax’ is misleading – as it is better understood as a skills investment plan. 

From April, organisations with a payroll of £3m+ will pay a 0.5% Levy into a digital account. Employers can then use it in full to fund any apprenticeship programme, and will also earn a 10% top-up from Government. 

A top-up that represents far better value than most investment plans in the market. In addition, those employers who are investing more than their levy pot, will then be able to get 90% of further programmes funded by the Government.

But to reap these rewards employers need to engage rather than sit on the sidelines.  Too many employers are still unaware of how ‘apprenticeships’ have fundamentally changed, and simply close down their options too early.

Apprenticeships are not just about taking on new staff, they can be used to upskill or retrain current employees. 

In uncertain market conditions and with the age of austerity still hitting the public sector, many employers not surprisingly shy away from the prospect of taking on new staff, and so rule out apprenticeships. 

They are simply unaware that the new apprenticeships can be used for existing staff. 

Many employers also claim that there’s no apprenticeship standard that works for them – they don’t need technical skills or lower level skills. 

Again, they are simply not aware of the new apprenticeships covering cross-cutting and higher-level skills such as management, accountancy, and digital – key skills that nearly all employers could benefit from improvements.   

Both attracting and developing talent is crucial to long-term business success, but in many organisations training for managers is overlooked.

The Levy tackles a blind spot in that 71% of firms admit that they fail to offer management training to first-time managers.

This is a huge mistake given that according to Investors in People an estimated £84bn is lost in the UK each year as a result of bad management. 

The apprenticeship agenda offers a great opportunity for both FE Colleges and private training providers, as the new trailblazer standards in management and leadership provide pathways from level 3 team leader apprenticeships through to a Chartered Manager degree apprenticeship. 

Also in development is a Master’s level degree apprenticeship for senior leaders to ensure those at the top of organisations are equipped for leading change and high performance cultures.

As Josh Hardie, CBI deputy director-general rightly points out: “the UK must carve out a new economic future and this is an area where we must take action to support our competitiveness and prosperity.”  

The levy addresses this by stimulating investment in higher level skills including the next generation of managers.

The benefits of apprenticeships and degree apprenticeships are not just for large firms. 

By setting the Apprenticeship Levy at 0.5% of an employer’s wage bill, with a £15,000 allowance to offset the cost, smaller companies (with payrolls under £3m) will pay nothing. Instead, the Government will fund 90% of the costs of their apprenticeship programmes – and for micro-businesses the apprenticeships will be fully funded.

So if employers start to really explore how they can use their Apprenticeship Levy funds then the £2.6bn raised by the Treasury could be fully reinvested back into their own skills programmes to grow their businesses. 

This would soon put pay to claims that apprenticeships are “poor value for money” and just an unused stealth tax that the Government ends up investing elsewhere. 

Petra Wilton, Director of Strategy, CMI