Despite initial dissent among industry experts, the UK’s new Apprenticeship Levy is poised to boost the national job market.
The new Apprenticeship Levy (AL), which requires UK employers with over £3 million on their annual pay bills to invest in apprenticeships, has been met with criticism from industry experts: human resources trade group CIPD has called the tax “irresponsible;” CBI, which represents nearly 200,000 businesses in the UK, says under the AL, “valuable forms of training risk being cut back, with quantity put ahead of quality;” and the Financial Times reports that many lobbying groups are calling for the levy to be reformed and pushed back to 2018 or later.
Despite the naysayers, the AL could be just what the country’s sluggish job market needs. The UK skills gap (especially in STEM areas) has now worsened for the fifth year in a row, and our productivity levels are a full 20% lower than the average for other developed countries – 33% below those of leading nations like Germany, France and the US, reports the Guardian. Although organisations may be resistant to footing the bill for new apprenticeship development, the reality is that there’s never been a more urgent need to develop these valuable skillsets.
Ultimately, only 2% of businesses will be required to pay the levy, and leaders of these organisations – rather than bemoan the financial obligation – should consider the levy’s unique potential to bolster long-term business operations.
Beginning in April 2017, the AL will tax businesses 0.5% of their monthly pay bill, should it exceed £3 million annually. However, organisations can recoup 100% of those funds in the form of apprenticeship training or assessment grants, along with a 10% “top-up” bonus from the government; in essence, for every £1 an organisation puts in, they will receive a £1.10 government grant. Another aspect of the levy, still in the proposal stages, is as follows: if a business isn’t subject to the tax, they will have 90% of their training expenses automatically covered.
These funds may only be put towards training or assessment purposes, of course (no wages, travel expenses, or the like), and a funding cap applies. Additionally, funds must be spent within 18 months of being taxed. Within these parameters, an organisation has the opportunity to turn the AL into a net gain through the careful implementation of apprentice training programs.
One mistaken assumption about the levy is that funds must be spent exclusively on 18-year-old school-leavers. In reality, employers can use the levy for training purposes among employees at every level of the organisation, giving them the valuable opportunity to fortify the weakest areas of their business. Do you need more technical or STEM skills? What areas can you target for the greatest possible benefit to your organisation on the whole?
Serving a Public Good
A second misconception about the AL is that the government has set up the levy because it will no longer be funding apprenticeships from a central pot. In reality, the funds have simply been reconfigured, to the benefit of the vast majority of the country’s organisations. Rather than having the public subsidize the program, it’s being paid for by the largest 2% of companies in the UK. For 98% of companies, the central pot very much still exists, but even taxed entities have the opportunity to recoup their losses through these grant-funded apprenticeship programs.
While some companies may be daunted by the prospect of coordinating a series of new apprenticeship trainings in the face of the country’s lethargic job market, the aim of the programme – to create three million new apprenticeships by 2020 – is critical for the UK economy. If leveraged appropriately by organisations, the AL stands to significantly stimulate local talent growth. Rather than protest the tax, large companies would be wise to embrace the potential benefits of the levy, both internally and for the UK at large.