George Osborne revealed during the Autumn Statement 2015 that he will enforce an apprenticeship levy by April 2017 as part of the Spending Review in order to create three million apprenticeships – all of which will be “high quality” as overseen by a body led by business secretary Sajid Javid.
The skills gap is an ongoing issue in the UK. A report on 16 November revealed that small London firms desire to boost R&D plans in order to scale the business, but lack the necessary innovation and skills required.
Attempts to turn around the problem have been made with the likes of exam board AQA introducing Tech-level qualifications, while City & Guilds has launched a £7.5m fund to bridge the gap.
With this in mind, George Osborne seized the chance to “raise the skills of the nation” by revealing his agenda for an apprenticeship levy with a view to create three million apprenticeships by 2020, to build on the two million milestone reached this year.
The rate will be equivalent to 0.5 per cent of an employer's payroll, but each will receive a £15,000 allowance against the levy. Additionally, a body will be created to ensure apprenticeships are “high quality.
“To make sure they are high quality apprenticeships, we’ll increase the funding per place - and my Right Honourable Friend the business secretary [Sajid Javid] will create a new business-led body to set standards,” Osborne said.
“As a result, we will be spending twice as much on apprenticeships by 2020 compared to when we came to office. To ensure large businesses share the cost of training the workforce, I announced at the Budget that we will introduce a new apprenticeship levy from April 2017.
“Today I am setting the rate at 0.5% of an employer’s paybill. Every employer will receive a £15,000 allowance to offset against the levy – which means over 98% of all employers - and all businesses with paybills of less than £3m - will pay no levy at all.
“Britain’s apprenticeship levy will raise £3bn a year. It will fund 3 million apprenticeships. With those paying it able to get out more than they put in. It’s a huge reform to raise the skills of the nation and address one of the enduring weaknesses of the British economy.”
Read more from the Autumn Statement 2015:
- 26 enterprise zones created or extended
- Free childcare entitlement to double from 2017
- Small firms to have digital tax accounts as part of £1.3bn HMRC reform
Osborne referred to apprenticeships are the cornerstone of the skills system in the Spending Review and revealed that spending on apprenticeships by 2019-2020 will be double that of 2010-2011.
Some £2.5bn will be spent on apprenticeships in England, while it's said Scotland, Wales and Northern Ireland will receive “their fair share”.
The aim of the levy is to put funding in the control of businesses and encourage them to increase investment and interest in apprentices.
Commenting on the danger of the levy, Lee Wade, CEO of British cloud and network provider Exponential-e, said: “The sliding scale of the apprenticeship levy could threaten the future of smaller business apprenticeships. Smaller organisations may look to cut off their schemes to avoid tax debt, stifling their capacity to find, nurture and develop skilled staff.”
Barclays has been one firm at the forefront of apprenticeship diversity and introduced a Bolder Apprentices scheme in September to allow those aged between 24 and 65 embark on a journey into the business as a trainee.
Read more on apprenticeships:
- The Apprentice: The most successful recruits to have worked with Alan Sugar
- Charlie Mullins: GCSE results highlight apprenticeship recognition, but the war continues
- Army of digital apprentices saluted as “key weapon in battle for faster business growth”
Commenting on the levy, Mike Thompson, head of apprenticeships at Barclays, said: “We at Barclays agree that something needs to be done to address the skills shortage in the UK. The government has suggested that based on current employer plans we will need to fill 13.5 million job vacancies in the next ten years, but only seven million young people will leave school and college in that time.
“We have to address this and find alternatives to the younger generation by providing opportunities to unlock the talent that is being heavily underutilised across all age brackets. At Barclays, we believe that age or social circumstance shouldn't be barriers or deciding factors in finding a viable route to employment. Reskilling can be achieved at any age.”
PwC's employment tax partner John Harding was on the cautious side, however, and noted that while it's great the government is introducing the scheme quickly and making a commitment, big businesses will be affected.
“Despite the benefits, the cost impact for large businesses can't be ignored. For many large businesses the 0.5 per cent payroll levy will be far higher than the costs of the number of apprenticeships they currently offer. Unless larger businesses can reap the benefits of apprenticeships in other parts of their supply chain, this will simply be a payroll tax for them,” he said.
“When taken together with the National Living Wage and increase in auto enrolment costs, these businesses face a significant increase in their employment costs over the next few years. Small businesses will be the main winners from the apprenticeship levy as, in practice, businesses with broadly less than 100 employees will largely be exempt from the cost of the levy.”