Daniel Rossall-Valentine: How to reform and improve the Apprenticeship Levy

5 Jan

Daniel Rossall-Valentine is Head of Campaign for This is Engineering at the Royal Academy of Engineering, and Deputy Chairman of Sevenoaks Conservative Association. He writes in a personal capacity.

Apprenticeships can aid social mobility by providing young people from all backgrounds with an opportunity to “earn and learn”, building a career with a long term future.

I’ve been fortunate for the last three years to work with an organisation that has unparalleled access to business and educational leaders so have been in the front seat as the apprenticeship levy has been implemented. The scheme is far from a failure, but it does need urgent tweaks if it is to win the confidence of employers and fulfil its potential.

The Apprenticeship Levy was announced by George Osborne in his July 2015 budget. It came into effect in  2017. The former Chancellor set an ambitious target of starting three million apprenticeships by 2020.

The levy is payable by all employers with an annual pay bill of more than £3 million through PAYE at a rate of 0.5 per cent of their full pay bill. Each employer sets up an individual apprenticeship account that holds all levy payments and that an employer can use to pay for apprenticeship training.

Money paid into an apprenticeship account remains available to that employer for 24 months from the date of payment. Any amount that remains unclaimed after that period will expire and is then available to cover the cost of apprenticeship training at small and medium-sized enterprises (SMEs) who have not paid the Levy.

The Levy was, and is, a bold attempt to encourage employers to train and progress staff, and a brave effort to tackle some of the UK’s greatest cultural problems; our belief that education primarily takes place in classrooms, our excessive faith in “credentials” and our concomitant under-estimation of on-the-job experience and training.

However, despite its noble intent, the Levy remains a rather clunky system which was created following rushed implementation with insufficient problem analysis, design, testing or adaptation. Whitehall unfortunately defaulted to its long-standing preferences for finding “one best way” and for creating a single top-down template lacking in flexibility.

The Levy has received a good deal of criticism, little of which has so far been accepted by the Government. One exception relates to levy-sharing. Levy-paying firms could only share 10 per cent of their levy with other businesses but from April 2019 firms have been able to share up to 25 per cent with other businesses in their supply chain.

The design errors can be categorised under three headings:

Optimistic forecasting

  • The Government under-estimated the cost of higher-level apprenticeships, and thus the percentage of money that would be claimed back by levy-payers. This has left insufficient money in the digital fund for smaller organisations to claim.

Some aspects of the system are too rigid

  • The system stipulates that to qualify as an apprenticeship at least 20% of the time of the apprentice should be spent away from the workplace.

The claim-back system is too inflexible

  • Organisations are required to spend money set aside within two years or lose it. This often does not give organisations enough time to organise apprenticeship programmes, especially where the firms cannot identify good quality local training providers.

Some aspects of the system are too loose

  • Curiously, there is no mandatory requirement for qualifications within the new apprenticeship standard. Without qualifications being part of apprenticeships, it is hard to see how they can ultimately lead to high-skilled, high-paid jobs.
  • With little regulation of apprenticeship quality, it is too easy for levy paying employers to recoup their payments by rebadging existing training schemes as apprenticeships. Even more concerning, existing staff can simply be designated as apprentices without the creation of any additional job opportunities.

Many large organisations which run excellent training schemes, internships, traineeships and work placements have resigned themselves to simply paying the charge, because their schemes are not compliant with the rules of the levy.

Other organisations have failed to find suitable training schemes in their localities, and so would like to collaborate with other employers to create suitable training, but the Levy only allows them to use 25 per cent of the funds for joint ventures.

Several essential reforms are required urgently.

  • The three million apprenticeships target should be abandoned and new rolling targets set which focus on the number of apprenticeship completions rather than apprenticeship starts. Industry specific targets should also be set for industries which are central to the industrial strategy and national productivity.
  • Increase the funding for the scheme by extending the levy to all large firms operating in the UK. The levy is currently only charged on payroll taxes. This means that large companies that spend less than £3 million on direct staff in the UK escape the levy. If firm size were measured by UK sales rather than payroll cost, the free-rider problem would be removed and the funding significantly improved.
  • A more flexible approach to on-the-job training, moving away from the stipulation that 20 per cent of the training should take place off the job, This four days on site, one day off-site pattern works in some industries but not in others. For instance, this pattern is a common way for accountants to train, but works less well in retail, where learning may all take place on site. This inflexible pattern is also tough for small employers, who may need to reschedule training at short notice due to staff absence or other business needs. No single pattern of work-based learning will satisfy all job types. The new system should allow employers to design bespoke training patterns that fit business requirements and hours of operation.
  • A more robust definition of what an apprenticeship actually is. Lack of definition has resulted in massive definitional stretching with some academics with PhDs being labelled as apprentices, and the apprenticeship badge also being applied to regular management training and routine clerical work. We risk the term “apprenticeship” being rapidly diluted and degraded if definitions and standards are not attached to it.
  • Increase the element of the pot which can be used by firms to collaborate on training. Many parts of the UK have real shortages of training provision and so organisations should be able to use at least half of their levy pots to work with other players to create centres of excellence for training.

The apprenticeship levy has the potential to rapidly deliver the apprentices that the economy needs and produce a highly skilled, productive workforce. But it has become very clear that this has not yet happened, and the levy is not working to its potential. The Levy’s design faults are serious, but not insurmountable. The Government needs to listen to its critical friends and produce fast reform of this scheme to help Britain compete and to ensure that our young people get the training and jobs that they need and deserve.

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