Two thirds of employers are either opposed to or in

the dark over Apprenticeship Levy

17 Jun 2016

CIPD warns Apprenticeship Levy is a ‘blunt instrument’ to tackle workplace skills as only 1 in 4 employers currently plan to use levy funding to invest in apprenticeships

New research reveals that, although the Government’s Apprenticeship Levy is likely to boost the overall number of apprenticeships, it risks undermining overall apprenticeship quality and wider investment in workforce training and development.

The research from the CIPD, the professional body for HR and people development, is based on two large employer surveys and in-depth interviews with HR leaders and other senior managers. It highlights the high level of ignorance of the policy and opposition towards it less than nine months before its introduction in April 2017. It also finds that almost 3 in 10 (28%) of employers do not expect to use levy funding to develop or enhance apprenticeship programmes, and almost 4 in 10 (39%) don’t know where they stand on it.

In addition, the report suggests that levy funding is unlikely to benefit the majority of smaller businesses that need funding and support for training the most. A worrying number of organisations also have yet to fully understand the impact and financial implications the levy will have on their organisation.

Key findings:

• While a third (35%) of employers support the principle of the levy, over a quarter (27%) oppose it and 38% say they don’t know where they stand. Opposition to the levy increases among employers that expect to pay the levy and have calculated the approximate cost, with 47% of such employers opposed to the principle behind the levy and 39% in support.
• Over a quarter (26%) of employers do not know whether they are expected to pay the levy when it comes in, and only a third of those who expect to pay it (31%) have calculated how much it will cost them each year.
• Overall, less than 1 in 10 employers (9%) expect to use levy funding to develop a new apprenticeship programme, while almost one in five (18%) say they will use levy funding to enhance their existing apprenticeship programme.
• Just 8% of SMEs report they will utilise levy funding to develop a new apprenticeship programme while 7% plan to use levy funding to enhance an existing programme.

Peter Cheese, Chief Executive of the CIPD, said: 'We share the Government’s ambition to increase the number and quality of apprenticeships in the UK. However, our research suggests while the levy will boost apprenticeship numbers among some employers, the majority of organisations, particularly SMEs, are unlikely to use levy funding to improve apprenticeship provision. Our research also finds that the levy could have damaging, unintended consequences. For example, taking investment away from other equally valuable forms of training and development and causing organisations to effectively re-badge existing training schemes as apprenticeships simply in order to reclaim levy funding. Many large employers, particularly in low margin sectors and the public sector, will have to make significant cuts to their training budgets as a result of the levy, or will simply write it off as a tax.'

'These findings highlight that the levy is a blunt instrument providing employers with a ‘one size fits all approach’ to training, forcing many larger employers to make a net contribution to a scheme that our research shows will suit only relatively few. We therefore believe a much broader, more flexible Training Levy should be developed to ensure that the system is genuinely employer-owned and meets the skills requirements of organisations. This would enable employers to draw down levy funding, with appropriate criteria, for a wider range of training activities, as well as for apprenticeships.'

To this point, the research found:

• Nearly two-fifths of employers (36%) who have calculated the cost of the levy say it will force them to reduce investment in other areas of workforce development, and almost a third (29%) will look to offset extra costs by adapting training programmes for existing staff so they can be accredited as apprenticeships.
• Over one in five employers (21%) who have calculated the cost of the levy say they will increase the overall proportion of Level 2 apprenticeships, equivalent to five passes at GCSE, while decreasing the overall proportion of Level 3 and above apprenticeships, equivalent to a minimum of two passes at A-Level. This is compared to just one in ten employers (11%) who say they will do the opposite.

Peter Cheese continues: 'The evidence in our report suggests that the levy could undermine apprenticeship quality by encouraging some employers to invest in intermediate level apprenticeships at the expense of advanced and higher level programmes, as a way of maximising the amount of funding that they can reclaim. This risks further devaluing the apprenticeship brand and preventing young people from regarding apprenticeships as a meaningful alternative to university.

'Another fundamental weakness of the levy, in its current form, is that the vast majority of small businesses do not expect to use levy funding to invest in apprenticeships. This is why we are calling for some levy funding to be given to Local Enterprise Partnership and Business Growth Hubs so that they can help smaller businesses to use Levy funding to invest in apprenticeships programmes and other forms of training and development, which may be more suitable for them.'

In its overhaul of the Apprenticeship Levy, the CIPD calls on Government to:

• reframe the Apprenticeship Levy as a broader Training Levy to increase flexibility and ensure the system is genuinely employer-owned and demand-led
• delay the introduction of the levy to have a more meaningful consultation with employers over its design and address concerns to ensure it delivers on its policy objectives
• weight levy funding to favour Level 3 and above Apprenticeships, in order to encourage employers to increase their investment in advanced and higher level apprenticeships relative to those at intermediate level
• allocate a proportion of apprenticeship levy funding to Local Enterprise Partnerships/Business Growth Hubs to enable them to encourage and support smaller non-levy paying employers to use levy funding to invest in apprenticeships.
• encourage Local Enterprise Partnerships and Business Growth Hubs to support and develop the creation of more advanced and higher level apprenticeships

Peter Cheese adds: 'If the Government is serious about improving the quality of apprenticeships as well as the quantity, it needs to completely overhaul the Apprenticeship Levy, even if it means postponing the planned introduction. These issues could have been foreseen if there had been proper consultation with businesses at all before the introduction of the levy which, as currently framed, is in significant danger of failing on the objectives of improving investment in skills either among large organisations that will pay the levy or among small non-levy paying organisations.'