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29 April 2016 | By Carolyn Fairbairn Insight

A radical rethink for apprenticeship levy

Insight: Carolyn Fairbairn, director general, CBI

Skills are the number one business priority but three crucial questions need answering before the apprenticeship levy is launched

Over the past five months as I’ve talked to firms of every size and sector across the UK there’s been a consistent message from them all: skills are the number one business priority. From a Bristol-based leather manufacturer to a financial information company in Leeds, getting the right people and skills for our businesses and economy to prosper is vital.

Our economy is changing and so are the skills needed. Certain sectors already struggle to recruit and within the next decade close to half of all UK jobs will require a form of higher skills.

Business is committed to taking action to address this. And apprenticeships are one of the routes to gain these skills, alongside further or higher education.

There is no more passionate champion of apprenticeships than the business community, which is why there is deep frustration around the apprenticeship levy, due to be introduced in April 2017. Although designed to increase numbers and skill levels, currently it risks having the opposite effect.

Unintended consequences

To recap, the apprenticeship levy will affect all firms with a payroll of over £3m, adding 0.5 per cent to payroll costs, and netting a total of £3bn.

The levy was not business’ preferred mechanism but now the policy is in the design phase, business is determined to make it work. That’s why the CBI has called for a radical rethink.

Because unless the government changes its course, the levy risks being just a “once-in-an-administration” shake up, when the real prize is a “once-in-a-generation” reform to change things for the better.

Three crucial questions need to be answered in order to get this right.

The first centres on the desired outcome. Business shares the government’s ambition for increasing the number of apprenticeships. But what’s being counted in the target is three million started apprenticeships, not qualified apprentices. This could have unintended consequences.

A successful apprenticeship builds a career and changes a life. The focus should be quality before quantity, with success criteria measuring how an apprenticeship helps an individual progress and closes UK skills gaps. 

Secondly, how can the levy best achieve this outcome? There are two major design flaws to be addressed if the levy is to raise apprenticeship standards and numbers. As it stands the levy “penalises people doing the right thing”, as one managing director put it.

The levy misunderstands training only as apprenticeships, which will force firms to change existing training – graduate or management programmes for example – in order to comply. And it restricts eligible spend for the levy to “off-the-job”, external training, when the very thing that makes apprenticeships great is learning on the job, from someone who knows the ropes.

The CBI is calling for greater flexibility on training spend and an “allowable expenses” regime for the levy so valuable staff time and capital investment is recoverable.

With business funding the system there must be a genuine business voice to match and this is also why the CBI is pushing for a stronger role for the Institute of Apprenticeships, the new employer-led body in the levy system.

A realistic timescale

The final issue is about timing. This is a fundamental shift in the skills system and businesses need a realistic lead-in time to prepare.

But they are still in the dark on much of the detail. How much funding will be available to spend on each apprentice? Who can levy funds be spent on? How will the system work in Wales, Scotland and Northern Ireland? What standards will be needed and can they be written quickly enough? How will the system change once it’s up and running?

There’s welcome consultation taking place in the coming months on some of these issues – but businesses won’t have certainty until the end of this year, when the levy's introduction will be mere months away.

And the big question – is the government itself actually ready?

As it’s still busy designing and testing, the best we can hope for by April 2017 is a minimum viable system with various elements being “piloted” after launch.

The system will also rely on a new “digital apprenticeship service” – a colossal and challenging IT project to be built and tested in a year.

And when companies train in different ways – some pool funds, others spend in their supply chain – current plans to only allow spending within a company in the first year will have real consequences for training practices. The system must support the delivery of apprenticeship training which businesses need, in full and from the start.

Government needs to work with business to resolve these issues before the levy launches. And this means taking time to get it right.

Business stands ready to help, advise and design a system that is fit for purpose. We need to seize this opportunity and create change which will last several generations, not just a single administration.

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