The apprenticeship levy is dividing employers – and with only months to go before its introduction, is anyone genuinely ready?
British businesses don’t have a lot to look forward to these days, if you believe the doom-mongers. The economy is slowing, the national living wage is pushing payrolls up, consumer confidence is plummeting and the IMF is warning that the Brexit vote has damaged economic prospects and “thrown a spanner in the works” of global recovery from the last financial crisis.
And entering this maelstrom next April is the apprenticeship levy, under which employers with an annual payroll of more than £3m will pay 0.5 per cent of the amount above that level into a digital pot. In return, they can access this cash – plus a 10 per cent top-up from the government – to spend on apprenticeships each year. If they don’t use it within 18 months, they lose it to the Treasury.
The aim is simple: to encourage organisations to help meet the government’s target of creating three million apprenticeships in the five years to 2020. But almost nothing else about the scheme is straightforward: the detail of the mechanics involved (see box, page 40) arrived late, which could cause firms to delay or switch investment and has increased the levels of uncertainty and anxiety, while the effects of Brexit have led a range of employer groups to call for its implementation to be delayed.
The CBI, which is among those that would like to see deadlines extended, fears the scale of the costs involved will fundamentally reshape the training landscape in ways the government has simply not foreseen. “The scheme has two big flaws,” says Pippa Morgan, the business group’s head of education and skills. “It only values apprenticeships as training, and not other routes. And funds can only be drawn down for the off-the-job elements of an apprenticeship. This is valuable, but the on-the-job part where apprentices are mentored is where a lot of the value lies – and where a lot of the investment lies.”
This means employers will need to find money to cover the other costs of an apprenticeship away from their levy pots, which could mean cutting other budgets, such as training or graduate recruitment, or simply hiring fewer apprentices.
The CIPD is equally concerned. Research published in August, Where next for apprenticeships?, suggests there are a number of serious problems surrounding apprenticeship provision, with the levy just part of the picture.
“The focus on hitting the three million target threatens to further undermine quality, and, while the new Trailblazer frameworks have enabled some employers to develop bespoke apprenticeships that suit their skills needs, they are unlikely to be expanded beyond a relatively small proportion of typically larger organisations,” says Peter Cheese, CIPD chief executive. “The report also makes clear that if we are to have an apprenticeship levy at all then we will need to make it far more flexible, otherwise we risk undermining the quality of apprenticeships further.”
It certainly seems unlikely that the levy will encourage employers to start an apprenticeship scheme for the first time: earlier CIPD research suggests that less than 10 per cent of organisations that expect to use levy funding will deploy it for this purpose. In fact, almost a third (29 per cent) of companies that have calculated how much they will need to pay are planning to adapt existing training courses so they can become accredited apprenticeship programmes.
Charlie Mullins, managing director of Pimlico Plumbers and a long-standing advocate of apprenticeships, is not surprised. “It’s been done before, and if there’s a loophole I’m sure there will be some slippery characters who will try to crawl through it,” he says. “Hopefully the government has learned the lessons of past years and set the bar above the old ‘shelf-stacking apprentice’ scam.”
Mullins’ concern relates to a BBC investigation that found 1 in 10 apprenticeships created in the UK in 2011 (around 52,000) could be attributed to just one employer – the supermarket Morrisons. In the majority of cases, it had ‘rebadged’ its existing training and employees as apprenticeships rather than taking on new starters. Though this was perfectly legal, it led to parliamentary questions about the practice.
Angela Middleton, CEO of apprenticeship recruitment agency MiddletonMurray, agrees that rebadging is likely: “Big organisations will have a large amount of notional money in their levy pots and the only way they can benefit from it is if they allocate it against apprentice training, so a lot will be looking at mapping their existing training of internal staff and asking ‘can I take them through as an apprentice?’ That is certainly going on at large companies.” Though this might raise the overall skill level of the workforce, it could diminish opportunities for young people, as training existing employees is ‘safer’ than taking on a new school leaver, she says.
This raises one of the central questions regarding the levy: what level of apprenticeship will be offered? “If I
am a large employer there is very little financial incentive to get too excited about the quality of the apprenticeship. If you have to pay the money anyway, then anything you get back will be an improvement,” says David Allison, founder of GetMyFirstJob.
The CIPD research supports this argument, with only 10 per cent of employers reporting that they plan to increase the proportion of apprenticeships offered at level 3 and above, while around a fifth say they will decrease them in favour of level 2 apprenticeships, which are academically equivalent to GCSEs. There are few reasons to prioritise quality with a ‘use it or lose it’ levy, and there are precedents for these concerns: in 2015, the Sutton Trust reported that only 30,000 apprenticeships had at that point been created at level 3 or above.
This has the potential to cheapen the apprenticeships brand, says Paddy Smith, senior public affairs officer at the CIPD. “Apprenticeships won’t be taken seriously as a viable alternative to university if the issue of quality isn’t addressed,” he says. “Unless there is a change in thinking by policymakers, our research suggests there is a real risk the apprenticeship brand will be irreparably damaged.”
Allison is more upbeat. “If [the levy] goes right, employers will be more engaged in the apprenticeship agenda and they will maintain better standards, which is positive.” He is also pleased that funding is now driven by the supply side – employers – rather than training providers. This, he hopes, will lead to a move away from providers’ tendency to pitch apprentices as cheap labour for 12 months, and encourage employers to see them as a long-term investment.
This control of funding is crucial for construction industry contractor Seddon, which currently employs 57 apprentices. “Now that I will be paying them from the levy pot, I can negotiate more on price and on quality outcomes,” says head of training Tony Costello. “I can say what I want, when I want it and how I want to achieve it.” This ability to tailor training will raise the perception of apprenticeships within the industry, he argues, as well as improve quality by ensuring employers get the skills they want.
But Seddon still has some concerns. For a start, will SMEs – an important employer of apprentices within the sector, but mostly too small to be paying the levy – be able to negotiate this way too, or will it become necessary for Costello to administer this side of things for firms in his supply chain? And will colleges decide that, rather than work with employers, they will simply draw funding themselves by offering full-time educational courses?
This sort of uncertainty is why Costello thinks the number of new apprentices taken on in the sector will “nosedive” for a year or two while employers wait to see how things will work.
“There is confusion,” says Allison. “A lot of employers are nervous that it might not even happen, so you can see why people might not put the investment in now. Plus the money has an 18-month sunset clause [once the levy has been paid] so it is reasonable to wait and see how it goes.”
Even more reasonable, argues Morgan, would be extending the expiry date, at least for the first few years, and delaying the levy. But that could risk the all-important political target of creating three million starts. And while many in the sector want to remain positive about apprenticeships, it’s here that the thoughts of Professor Alison Wolf are particularly opportune.
One of the country’s foremost experts on vocational education, she told the Financial Times in 2015: “If we hadn’t been chasing targets and numbers for the last 10 years we could have had far more good apprenticeships (and fewer pointless so-called apprenticeships) than we have had. One hand of government knows this. The other hand is inflicting a ridiculous and unattainable target on us. The risk is that the target is all-destructive – pile them high, cheap and pointless.”
Employers, and apprentices, must hope things are different this time around.
For more insights on organisations’ apprenticeship strategies, don’t miss session C3 at the CIPD Annual Conference 2016: bit.ly/CIPDACE2016