The apprenticeship levy: a solution for UK skills shortages

While employers continue to have reservations about the way apprenticeships are funded, a new piece of research by City and Guilds and accounting firm Grant Thornton suggests that they are starting to get to grips with apprenticeships.

14 March 2018

By Kirstie Donnelly MBE, Managing Director - City & Guilds Group

There’s no beating about the bush; to say that apprenticeships have had a rough ride over the past twelve months is nothing short of an understatement. But there is no doubt that they remain key to the economic – and societal – success of the UK.

We’ve seen a wealth of media coverage over recent months that highlights the year-on-year dip in apprenticeship starts since the introduction of the new levy system in April 2017. We’ve also heard reports of widespread confusion about this new system amongst employers, with many calling the new levy nothing more than a tax.

But there are signs that this decidedly negative tide appears to be turning. While employers continue to have reservations about the way apprenticeships are funded, a new piece of research by City and Guilds and accounting firm Grant Thornton suggests that they are starting to get to grips with apprenticeships.

Generation Apprentice interviewed 500 employers, 1,000 young people and 1,000 parents to better understand attitudes towards apprenticeships on both sides of the fence. 
We found that for 79% of employers the new levy has encouraged them to recruit more than they would have otherwise. 50% also say that they intend to recruit more apprentices in the next five years than they do now. Young people, too, recognise that apprenticeships are an important route into work.

These are reassuring signs. Used to their fullest, apprenticeships could go a long way in helping British businesses close future skills gaps. While the impact of Brexit is still uncertain, there is the likelihood that the UK’s potential talent pool will be reduced as we leave the EU. It is vital that employers are using every tool in their arsenal to ensure they have the skills they need to thrive – both now and in the future.

And the cost of getting apprenticeships wrong wouldn’t just be felt in our economy, but at the very heart of society too; 86% of the employers that we spoke to in Generation Apprentice feel that apprenticeships help to boost social mobility in their business.

As the gate-keepers who unlock new talent, skills and professional development in businesses, it is crucial that HR professionals are not only on board with the apprenticeship levy, but understand how to make the best use of it. So, what do you need to know if you are to maximise the potential of apprenticeships in your organisation?

To make the most of the new apprenticeship levy, the most important thing that HR professionals can do is to stop thinking about it in absolute terms. I’d even go as far as to say that the name of the levy itself is misleading – and that HR managers should instead think of it as a ‘skills levy’ that can be applied across their business.

The word ‘apprenticeship’ often calls to mind out-of-date perceptions of entry level jobs in blue collar industries. And whilst there are roles like this available, which are critically important to businesses, the economy and indeed young people taking their first steps into employment, there are an enormous range of other apprenticeship roles available. The levy is designed to help employers upskill and reskill across their workforce as they need to. This could be in the traditional sense of hiring a new entrant; but the funding can also be used to train established employees up to masters and MBA level.

This isn’t the only area of confusion. Making up 93% of businesses in the UK, SMEs are the backbone of Britain’s economy – so it is critical that HR professionals looking after recruitment and training in smaller businesses understand how to use the new levy to their advantage.

Research suggests that many SMEs are not aware that despite not having to pay into the levy, they are able to benefit from apprenticeships – by only having to fund 10% of the cost of the training of an apprentice, with the remainder being paid for by the Government. Others who were used to apprenticeships being entirely paid for by Government are being put off by now having to make a contribution. While a small investment is now required where it was not previously, this is a relatively small cost to pay for SMEs - who urgently need to invest in staff and skills if they are to remain competitive in the years to come.

These changes to the system will take time to bed in. It’s right that employers take the time to understand them fully and the impact they could have on their businesses. 

But the clock is ticking. Employers need to start taking action - as those required to pay into the levy will be able to access funds via digital accounts which must be used within two years. After this, any money which hasn’t been paid will automatically go to the Treasury. 
 
To support this, it will be important for policymakers to guarantee stability. The Government needs to continue to work with employers - and the skills and education sector - to tackle remaining confusion and better understand how apprenticeships can be used to achieve business goals.

By doing both of these things we will take one step closer towards an apprenticeship system that could radically reform not only technical and professional education, but the entire UK skills map, for the better. 

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