The Conservative Government has been very vocal in its support for apprenticeships. Over the next 5 years it has promised that a further 3 million will be created. At the same time, new style “trailblazer” qualifications are being introduced to increase apprenticeships’ rigour and their relevance to employers' needs.
However laudable these goals they create a tension, particularly at a time of budgetary restraint. Over the 5 years to July 2015, there were just over 2.4 million apprenticeship starts, but just over a million of these were undertaken by adults aged 24 or over, most of whom were already in work. Although the minimum duration of apprenticeships is now a year and a day, some of these historic apprenticeships were completed in as little as 3 months and the numbers were also affected by individuals progressing from one level of apprenticeship to another. In the era of trailblazers there will be fewer instances of multiple apprenticeships, making the 3 million target harder. Add to this the fact that the number of 16 to 24 year olds starting apprenticeships has stubbornly remained at about 280,000 for several years and you start to see the challenge.
So, as well as the carrot of higher quality trailblazers developed by employers, George Osborne announced in his July budget the creation of an apprenticeship levy - effectively, an additional payroll tax – that is expected to start in 2017. The implications for larger employers are significant and, at Damar, we are already starting to help employers consider the implications and plan how the return on this mandatory investment can be maximised.
The Comprehensive Spending Review in November should have more detail but at the moment we expect that:
i.the levy will be set at no more than 0.5% of an organisation’s UK payroll and will be charged monthly from April 2017.
ii.all employers (including those in the public sector) with 250+ employees will be in scope.
iii.contributing employers will have a virtual account out of which they can withdraw funds (in the form of an electronic voucher) to pay for apprenticeship training and assessment.
iv.employers may be able to withdraw more than they pay in.
v.the money in the virtual account will be time limited – use it or lose it.
0.5% of payroll is the maximum that we expect as this would generate a bit more money than the Government currently invests in apprenticeships each year. The likely range is 0.3% to 0.5%. Even though 0.5% may not sound a great deal, the impact on profits, particularly for organisations that are "people heavy", could be significant. Take a business that, say, has an operating margin of 10% but has payroll costs amounting to 60% of turnover. Here, 0.5% of apprenticeship levy equates to 3% of operating profits. For a business working on tighter margins or with higher staff costs, the potential impact will be greater.
So, the first challenge we are expecting from finance directors to training and HR colleagues is to ensure that their organisation’s levy "pot" is spent in a way that delivers a measurable return that is greater than the cost. We are already working with employers on apprenticeship programmes that deliver much higher returns than this and are currently planning strategies with new employers who will be impacted by the levy. For employers who plan well in advance, achieving an appropriate return on this investment is achievable.
One key thing to bear in mind however is that there isn't much time. If the levy starts being taken from April 2017 and the vouchers are time limited, then employers who don't have an apprenticeships strategy in place well before April 2017 will be playing catch-up and may end up either spending the money badly or not at all. Our experience is that the best apprenticeship programmes start relatively small. If an employer wants to run a pilot, draw some conclusions and then be in a position to start scaling up from April 2017, then they should be starting the process in the next few months.
Our team at Damar has a wealth of experience in helping employers design and deliver apprenticeship programmes that range from a single apprentice to several hundred. If you would like to have a chat about the implications of the levy and how best to use it please don't hesitate to get in touch.
You can reach our managing director, Jonathan Bourne, on 07768 056712 or by email at email@example.com.