Sector Response to the Budget. SME contribution cut to 5% as part of £695m package to support apprenticeships

In his budget on 29th Oct, the Chancellor announced, “The Era of Austerity is finally coming to an End”. Earlier in the day the Prime Minister had said  “Austerity is over”, so hopes were raised early that he had a bit of spare cash to distribute. You can read the full Budget 2018 document here.

Technical education, £695 million to support apprenticeships: Further changes have been made to the apprenticeship levy to support employers. As part of this, smaller firms taking on apprentices will have the amount they contribute for training halved from 10% to 5%. The government will pay the remaining 95%. From April, large businesses will be able to invest up to 25% of their apprenticeship levy to support apprentices in their supply chain. 

Further to this, there will be an additional £38 million so that the first post-16 providers to deliver T Levels from 2020 can invest in high quality equipment.

£1.7 billion to increase existing work allowances in Universal Credit: Increases to work allowances will mean working parents and people with disabilities claiming Universal Credit will be £630 better off each year. People will also receive extra help as they move from their existing benefits to Universal Credit and there will be targeted support for people repaying debts. This transition package is spread across five years and includes an increase of £1,000 per annum in the work allowance for anyone on Univeral Credit.

£400 million extra for schools this year: The Chancellor allocated an extra £400 million of capital funding for schools. This one-off payment will be made directly to schools, averaging £10,000 per primary school and £50,000 per secondary school.  This funding can be spent on equipment such as computers, whiteboards or building upgrades and comes in addition to the core schools budget.

On top of this boost for schools, the Chancellor announced funding for new mental health services, including children and young people’s crisis teams in every part of the country, as part of our initiative to promote and support mental health.

In social care funding, there will be £84 million over the next five years which will go to specifically expanding children’s social care programmes to 20 further councils with rising numbers of children in care.

The Chancellor has also allocated £1.7 million for educational programmes in schools to mark the 75^th anniversary of the liberation of the Bergen-Belsen concentration camp, ensuring that the next generation learns and understands the history of the holocaust.

Employment is at a near record high and the OBR forecasts it is set to keep growing: The economy has grown every year since 2010, and is projected to continue growing in each year of the forecast. The unemployment rate is at its lowest for over 40 years, there are over 3.3 million more people in work since 2010 and the OBR forecasts 800,000 more jobs by 2022.

National Living Wage will increase to £8.21: From April 2019 the National Living Wage will increase from £7.83 an hour to £8.21. This will benefit around 2.4 million workers, and is a £690 annual pay rise for a full-time worker.

More money for Scotland, Wales and Northern Ireland: Scotland, Wales and Northern Ireland will all get more money to spend in devolved areas, including education, health and housing.

The Annual Investment Allowance: From 1 January 2019 to 31 December 2020 the government will increase the Annual Investment Allowance five-fold from £200,000 to £1 million to help businesses to invest and grow. 

The biggest announcement for the sector was the welcome news that SME’s will have a 50% decrease in their employer contribution for Apprentices, this is a decrease from 10% to a 5% employer contribution for Apprentices.

The Chancellor explained this is equivalent to a £695 Million support package for Apprenticeships which is great news, but when you take into account he also gave £420 Million to fix potholes and a one-off £400 Million cash infusion fund for schools (equivalent to £10,000 per Primary School and £20,000 per Secondary school to buy ‘those little extras’)… in the big scheme of things, you would have hoped he could have gone a bit further and let those in FE have a few little extras.

The decrease by 50% to a 5% SME employer contribution for Apprenticeships is still an incredibly welcome move, but there was no announcement for an increase in funding or pay across the sector. 

So how has the sector responded to the Chancellors Budget? 

Mark Dawe, Chief Executive of the Association of Employment and Learning Providers (AELP) commented:

 “This is a major and positive shift which AELP has been pushing hard for since before the levy was introduced and it should enable providers to work with smaller businesses to start getting back to offering apprenticeships to young people and local communities. We are grateful to Anne Milton and Robert Halfon for their significant efforts in making this happen.”

Tom Bewick, Chief Executive of the Federation of Awarding Bodies (FAB) said:

“Given the huge fall in the number of employers offering apprenticeships since 2016, the chancellor’s announcement to halve the amount small firms will have to pay towards the cost of apprentice training in future will be broadly welcomed. It amounts to an upfront payment of just £375 for an apprentice on an average funding band. However, it was disappointing that the Treasury has not really engaged with the recommendations of the recent Education Select Committee report which called for a financial uplift for taking on younger apprentices and those in disadvantaged areas. As for the FE college sector in England, the Budget provides very little.” 

David Hughes, Chief Executive of the Association of Colleges (AoC) comments:

“It is deeply disappointing that a budget which purported to focus on skills, economic growth and jobs did not mention the word ‘colleges’ once.

“The Office of Budget Responsibility reports small improvements in economic growth over previous forecasts, but productivity is low, and the Treasury’s plans do not address the big challenges of falling investment, front-loaded spending and major skills shortages. We can only hope that DfE and Treasury address these in the 2019 spending review.

“Our recent survey showed that SMEs believe the biggest risk to their future success comes from not being able to hire a skilled workforce – with them finding it increasingly difficult over the last five years. Half of the SMEs surveyed believe colleges to be best placed to support them in recruiting and training the workforce they need to be successful. And yet the chancellor completely ignored their calls. 

“DfE appears to be focusing its attention on next year’s Spending Review and college leaders, staff and students will have to hope that they can persuade Treasury of the investment sorely needed. There is some hope with the Post-18 education and funding review, the focus on T Levels and their current work on college sustainability all helping to inform the DfE submissions. It’s useful, for instance, to see the Treasury budget red book talk of a post-18 landscape with “all students having a genuine choice between technical, vocational and academic routes which are accessible to all”. 

“That red book promise will feel hollow in the meantime and particularly after years in which college pay has fallen behind inflation. Treasury forecasters now expect pay to grow by an average of 3.5% a year across the economy, well-ahead of inflation. In colleges that level of increase is simply unaffordable without a grant from DfE which matches the Teacher Pay Grant to schools over the next two years. Offering that grant to colleges would be well within the cash available to DfE but would require Treasury permission which clearly has not been forthcoming. 

“Adding insult to injury, the Treasury announced £400 million in capital grants to the 24,000 schools in England but once again no capital funds for the 266 colleges (which would have cost just £13 million if paid on the same basis as the £50,000 grants to colleges).

“This month’s #LoveOurColleges campaign showed the cross-party and widespread support for more and better investment in people and in colleges. It is a real shame that the Chancellor still does not appear to be listening.”

Dr Fiona Aldridge Interim Director of Policy and Research at Learning and Work Institute said:

“Greater investment in Further Education will need to wait until next year’s Spending Review – we all need to make sure the Government’s declared ‘end of austerity’ applies to FE and learning.  

“Increased expectations for earnings growth means the apprenticeship levy is now expected to raise £11.4bn by early 2021 – a significant increase of £700 million, though still £200m short of initial estimates and dependent on earnings hitting those forecasts. We now need to ensure that employers are encouraged and supported to spend this well, on high quality opportunities to develop skills and build careers.

“The halving of the co-investment rate for SMEs is intended to engage more employers in apprenticeships – though there is some risk that it will also encourage others to delay their recruitment until the changes come into effect in April 2019. The bigger prize for engaging employers is ensuring that the Levy is sufficiently flexible to meet the needs of businesses and our economy and simple to access – that’s what the review of the Levy must address.

“We welcome both the above inflation increase to the apprentice minimum wage and the £1,000 increase to Work Allowances in Universal Credit. The Government has listened, though we’ll need to study the fine print and implementation of UC must continue to improve so people get support when they need it.”

Kirstie Donnelly MBE Managing Director City & Guilds Group: 

“At the City & Guilds Group, we welcome the move to decrease the contribution that small businesses have to pay to access apprenticeships to 5%, as this should begin to tackle the 61% drop in apprenticeship starts we have seen amongst smaller businesses since the introduction of the levy. However, there are still further blockers in place for SMEs, including the complexity of accessing the system, and these must also be addressed in the coming months if we are to see significant change.

“We also welcome the Chancellor’s previous announcement that employers will be able to share up to 25% of their apprenticeship levy funds with businesses in their supply chain. It’s also promising to see that the Government has announced a consultation around the wider use of the levy as it demonstrates a clear commitment to listen to business leaders’ concerns. We’re hopeful that, as long as employers are genuinely listened to, this update can support greater alignment between the skills development needs of businesses and their Levy commitments.

“Our recent research People Power found that there is employer support for the levy in principle, with many pinpointing recent apprenticeships reform as the most effective piece of current Government policy designed to tackle the UK’s widening skills gaps. However, we cannot ignore the significant decrease in the uptake of apprenticeships themselves, with a 25% drop seen since the introduction of the levy.

“Finally, we want to see Government listen to employer calls for greater flexibility in how the levy is spent to ensure a far greater number are able to use these funds as they are intended. It would be a travesty if the money intended to create the world-class skills system was returned to Treasury at a time when it is so desperately needed by UK businesses to mitigate the impact of Brexit.”

Rachael Saunders, Education Director at Business in the Community, said:

“Cutting the cost of the apprenticeship levy for small businesses will enable them to recruit more young people from within their local community. This means that individuals will benefit by gaining the skills they need for the future, whilst employers are able to develop talent in-house. Additionally, this will allow young people to succeed in their careers as well as maintaining links with their local area, enabling communities across the UK to thrive.

“However, reducing the cost for small businesses is not a magic bullet for closing the skills gap. We welcome the additional steps announced today raising the transfer cap – there is still more to do to increase flexibility in the use of the levy in order to grow the number of apprenticeships we need to ensure that the UK has the skilled workforce necessary to compete in a rapidly changing global economy. Without this, we will struggle to make most of the opportunities this presents and risk leaving parts of the country behind.

“The skills agenda cannot only be about apprenticeships and T levels. Businesses also have a role to play in ensuring that all young people have the skills they need to succeed in work. Our recent research shows many young people feel they did not learn the skills they needed for work at school, meaning that they may be unprepared for the jobs market of the future. Businesses across the UK should partner with schools in their area to understand what skills are needed locally.  By working together to run activities and using a shared language on skills, they can will help young people gain the skills to thrive in their working lives.”

Jill Whittaker, Managing Director of HIT Training, comments:

“We are delighted that the Chancellor has chosen to reduce the cost of apprenticeship training for non-levy payers, with the government now committing to a contribution of 95% and employers paying the remaining 5%. This means, for example, that the cost to an employer of training a commis chef or chef de partie reduces from £900 to £450, and for a team leader from £450 to £225.

“In the current economic climate any additional costs to businesses are tough, but the value that an organisation can get from well-trained employees delivers in so many ways – reduced staff turnover, increased productivity, less waste and improved job efficiency. We hope that today’s news will mean that SMEs – many of which stopped taking on apprentices when the Apprenticeship Levy was introduced – will come back to apprenticeships as an effective and beneficial way to train their staff and improve their businesses.”

Alan Woods, CEO of VTCT comments:

“Small and medium sized businesses are a major source of employment for apprentices and trainees across the UK, especially in the hairdressing, beauty, and barbering sectors.

“The Government’s commitment to reduce non-levy paying SMEs contribution to apprenticeships training from 10% to 5%, as part of a £695m package to support apprenticeships, is a practical and positive step and will have a massive impact on hundreds of businesses across the UK as they look to take on more apprentices.

“Additionally, the Chancellor’s pledge to cut business rates for small business by a third for two years from April 2019 will enable greater flexibility to expand their workforces, and train up more apprentices.

“The challenge remains for the Government to engage properly with all employers on the parameters of the Levy, and ensure that businesses, learners and institutions are not left confused by the details.”

Ben Rowland Co-Founder of Arch Apprentices, comments:

“Arch Apprentices are delighted by the government’s proposal to announce a £695m initiative to help small firms hire apprentices, with their proposed contribution now reduced from 10% to 5%. We have been strong advocates of the apprenticeship reforms that the Government has introduced, and truly believed that they will have a big impact on resolving the growing skills gaps in the UK.

“It’s brilliant that the government are taking steps to reinforce apprenticeships as the way to boost skills and productivity and we hope employers will increasingly recognise them as an opportunity to accelerate their business performance and bring new life to their teams. Apprenticeships have been proven to create enthusiastic, loyal employees who report greater levels of satisfaction and are more likely to stay at the company long after their apprenticeship has finished.

“The UK is facing major issues surrounding productivity and a lack of skilled workers. We see the government’s belief in apprenticeship as the real solution to these problems. Through these changes, we will train a workforce fit for any future.”

Fernando Hernandez, MD for Europe, XYZprinting, said:

“Potholes over pupils – As noted by Labour’s shadow foreign secretary, it was deeply disappointing to see potholes allocated greater funds than pupils in yesterday’s announcements. While we shouldn’t deny the importance of road safety, there’ll certainly be a bumpy road ahead for UK schools as long as the Chancellor dismisses underfunding.

“Hammond referred to the £400m one of payment as being enough for schools to “buy the little extras they need”. However, this woefully underplays the real needs of pupils. 75 per cent of teachers are uncomfortable delivering the computing curriculum as it stands.

“This can only be resolved by increasing training. However, with the cost of removing a teacher from the classroom at £600 a day, this will be unaffordable under the new budget. Especially when we consider the additional cost of introducing technological equipment, such as computers, 3D printers and laser cutters, which facilitate the development of skills transferrable from the classroom to the workplace.

“In light of this, it was almost comedic that Hammond promoted investing in skills as the solution to the productivity challenge. True, he set aside £150m for fellowships to attract talent, but we should be focusing on growing talent from a young age as a sustainable solution. If not, we will be unable to “lead the world” and avoid “[hiding] from change” as Hammond hopes for.”

Peter Finegold, Head of Education Policy at the Institution of Mechanical Engineers, said: 

“The fourth industrial revolution will blur the boundary between academic knowledge and technical skills. The engineering and technology sectors support the Government’s continuing policies to raise the status of technical training and qualification.

“On this basis, the Institution of Mechanical Engineers welcomes the Chancellor’s commitment to make up to £450 million available so that apprenticeship levy paying employers can transfer up to 25% of their levy fund to companies in their supply chain. We also endorse the provision of Government funding to halve contributions smaller companies pay towards apprenticeship training from 10% to 5%.

“Engineering has a long tradition of high quality apprenticeships. We hope these two measures announced in the Budget will contribute to continued progress to produce a generation of highly trained and adaptable technical experts.”

Steve Nash, CEO, Institute of the Motor Industry comments on the changes to apprenticeships announced in yesterday’s Autumn Budget:

“Whilst Philip Hammond’s announcement yesterday that he is giving an extra £695m to kick-start the new Apprenticeship programme was laudable – I wonder if he’s somewhat undermined the impact of the changes for small businesses by delaying their implementation. 

“The reduction – from 10% to 5% – in the contribution small businesses have to make to the cost of apprenticeships will not come into effect until next April.  Any small business already trying to balance their books and cashflow could well be tempted to delay apprenticeship starts on that basis.  It’s a shame that, unlike other changes announced yesterday, this isn’t implemented with immediate effect.

“It is, however, good news to see that some of the constraints of the Apprenticeship Levy are being freed up.  In particular, it’s a great sign that large businesses will be able to invest up to 25% of their apprenticeship levy to support apprentices in their supply chain.

“The motor retail sector has been one of the strongest advocates of apprenticeships for many years.  But with many of employers in the sector falling into the SME category, it’s vital that everything is done to encourage take up of apprenticeships by these businesses.  Let’s hope yesterday’s announcement doesn’t mean a backward step in the short term.”

Dr Dave Walters, Exeter University Honorary Fellow and Research Director of Thinking Matters, said:

“The Chancellor’s Budget announcement that mental health services are to receive a £2bn cash injection by 2023/24 in a bid to create a parity between physical and mental health treatment is to be welcomed.

“While the enormous growth in demand for mental health support among our young people has complex causes, there is growing evidence that the education system’s overwhelming focus on exams – high-stakes testing – is a contributory cause. Pupils and teachers are exhibiting levels of mental health issues never before imagined. The exam factory model comes at an enormous cost at a human level.

“Thinking Schools put the children first and prioritise their all-round development and growth. And by doing this, the outcomes take care of themselves. In Thinking Schools, the emphasis is on cognitive, or thinking, skills. This has to be a whole- school approach, where children are taught how to think, monitor their thinking and self-regulate their learning habits

“The Government has taken a backward step in emphasising the importance of fact learning, based on worries that the UK was falling behind in international education league tables, such as Pisa. But that move was made based on a narrow interpretation and that successful nations were moving in the opposite direction, putting the UK at risk of falling further behind.”

Rebecca Garrod-Waters, CEO of Ufi Trust, comments:

“For those working to advance the standard of further education and vocational learning in the UK, it was a disappointing budget. A cut in the levy for smaller companies was unarguably a positive move that will greatly ease the burden on UK companies running apprenticeship scheme. But addressing structural issues in apprenticeships isn’t enough to bring up the UK’s standard of further education in line with other developed nations.

“A greater focus on developing vocational skills, the adoption of cutting edge-education technology, and an overhaul of an out-of-date college sector is needed if the UK hopes to give its workforce the skills that will be desperately needed in a post-Brexit Britain. Moreover, the government needs to have greater consideration of the economic challenges posed by the 4^th Industrial Revolution. Without policy changes that take into account the implications of working in a modern globalised economy, a generation of workers will be left without the skills they need to thrive in a constantly changing workplace.”

Seetha Kumar, ScreenSkills CEO, said:

“We are pleased that the Chancellor is continuing to listen to industry and is willing to make adjustments to the apprenticeship levy. Reducing the percentage that smaller screen employers have to pay towards training will save them each between £450 and £600 per apprentice.

“However, it does nothing to help the larger employers who between them pay around £20 million a year and struggle to make use of it. More flexibility needs to be introduced to enable employers, large and small, to recruit apprentices to help fill the skills shortages in this booming industry and to diversify the workforce.”

Mike Robinson, Chief Executive of the British Safety Council, said:

“A workplace plays a key role in an individual’s mental wellbeing. This is where we spend most of our waking hours and where we interact with colleagues who get to know us well. It is also where the first conversations about our wellbeing should take place and where early and proactive interventions should be carried out.

“Mental health education should be available to every employee, regardless of the size of the company they work for. The confidence to talk about their mental health can improve an individual’s wellbeing and save a person’s life. A line manager has a crucial role to play in helping people to open about their condition, supporting and advising them on where to seek further help. However, once line managers have been trained to provide mental health support, the employer should help them to maintain this ability.

“The new Government investment in NHS mental health services is very welcome. It will allow people with mental ill-health issues to return to and stay in work, boosting employment and productivity in Britain. However, it is worth remembering that there is still no support for SMEs to put training and support in place to help those who experience mental ill-health before they reach a crisis point.”

​Joscelyne Shaw, Executive Director of Mates in Mind said:

“We welcome the Government’s ongoing investment in supporting mental health. However, mental health is not just about addressing mental ill-health. There is a clear need to build better awareness and understanding of this.

“Increasingly, employers are accepting that there is the moral, as well as the business case for investing in more tailored provisions to improve overall wellbeing of their people, including promoting better mental health.”

Former teacher and Liberal Democrat Education spokesperson Layla Moran MP, said: 

“Giving tiny amounts to schools and saying it will help them cover ‘little extras’ is an insult. Teachers and parents trying to cope with years of rising costs and funding cuts to schools deserve better, and Liberal Democrats demand better.

“The Chancellor has disgracefully ducked the difficult issue of long-term school funding, meaning schools will have to continue to cut staff, axe extra-curricular activities and ask parents for money to pay for the basics like books and pens.”

Brian Berry, Chief Executive of the FMB, said:

“It is important that the Chancellor has recognised the importance of investing in our high streets. He has announced a £675 million Future High Streets Fund to allow councils to rejuvenate town centres. It is estimated that as many as 300,000 to 400,000 new homes alone could be created by making use of empty spaces above shops on our high streets. This is space just waiting to be turned into residential accommodation. There is a pressing need to re-invent many of our town centres in light of changing patterns of retail and leisure. The Government should be applauded for its ambition to safeguard the life of our high streets.”

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