21 September 2015

Concerns around government's compulsory training levy

"Nobody understands the skills employers need better than the employers themselves, so they must be placed in the driving seat"  Rt Hon Sajid Javid MP Secretary of State for Business, Innovation and Skills.

The Conservative Government's election manifesto committed to 3 million apprenticeship starts during its 5 year term. This commitment would be funded through a compulsory levy, charged on large companies' payrolls. A consultation process has opened, running to October 2nd.  The consultation covers levy implementation only, not scope or the rate of the levy - announcements on these aspects will be made "later in the year".

The BPIF has a close interest in training development, both in designing modern apprenticeships through the Trailblazer initiative, and in delivery.  As a member owned association, we have a particular interest in ensuring that apprenticeships fit our industry's requirements. This article will briefly cover the Government's stated rationale, and some concerns about how the levy will work in practice.

UK productivity is widely reported to lag most developed countries.  GDP per hour worked is 17% lower than the G7 average, and 30% below that of Germany and the USA. Skills investment is responsible for 20% of productivity growth, however since 1995, key measures indicate that the actual amount of training being experienced by employees has declined dramatically.

The government aims to address and reverse the trends in training provision by putting employers at the heart of training, through a levy and voucher based redemption system. Employers will use electronic vouchers to claim funding for training - this element will apply to both large companies and SMEs. The training levy will be calculated based on a company's PAYE submission, and is likely to be applied at a flat rate on all companies meeting a "large company" definition.

The BPIF welcomes employer led approaches to training provision - the Trailblazer programme is good, with close employer involvement in apprenticeship standard design. We are however concerned with the levy proposals, especially as there are a number of areas requiring much greater clarity.

For instance, the levy will be charged on large companies. This simple statement hides a number of complexities: the likelihood is that company size will be determined by the number of employees - however whether this is full time, full time equivalents, or some other measure is not clear. We also do not know whether there will be some "taper" calculation - if not, a company's additional employee taking them over the (undefined) threshold could become rather expensive, in triggering an automatic levy on the entire payroll. In an age of outsourcing and increased flexibility of working, the treatment of "off-payroll" is not defined, and needs to be.

Apprentice funding for smaller companies has also not been clarified - the voucher system will apply to small companies, but they will not pay a compulsory levy. Reference is made to Government support for cash contributions, "important in driving employer involvement".

Further issues and concerns surround the period that a company will be able to access its contributions - we are suggesting that this should be a reasonably long period, selecting the 3 year option rather than 1 or 2 years offered in the consultation. Companies will be able to "get out more than they put in" - prima facie an encouraging option, but this will in practice be determined by the balance of companies paying-in versus those drawing-down through apprentice provision, another unknown.

With over 50 countries having implemented apprenticeship levies around the world, it's tempting to conclude that this must be a successful approach. However, the UK is one of the most open and competitive advanced economies on the planet, and we would not accept wide adoption elsewhere as evidence of efficacy without much greater clarity on how the system will work. As a leading provider of apprentice training, and a member-owned representative organisation, we need to be convinced that the new approach will encourage high quality employer-led apprentice training, whilst minimising bureaucracy and administrative costs for both employers and front line training delivery organisations.

We will take a close interest in how the new system is implemented, and whether, in practice, it achieves these aims.