The Apprenticeship Levy – Spending Review Update

Last month we set out our thoughts on what the proposed Apprenticeship Levy might look like and the background to the levy here. In his spending review on 25th November, George Osborne gave us more detail and the Government has also now published its response to the consultation on the levy carried out earlier this year.


The headlines:


  • From 2017, most apprenticeship funding will come from an employer levy set at 0.5% of UK payroll.
  • All employers will receive an allowance of up to £15,000 to set against their annual contribution. This means that the first £3m of an organisation’s annual payroll is excluded from the levy.
  • Deductions will be taken monthly through Pay As You Earn and will start in April 2017.
  • Employers will be able to draw down the levy in the form of digital vouchers to be used to fund the external costs of apprenticeship training.
  • Each employer’s levy “pot” will be time limited. We don’t yet know how long employers will have to spend the money but two years is likely.
  • Employers who use all of their levy pot will be able to get their accounts topped up for free, probably by up to an extra 10%.
  • In calculating UK payroll, groups of companies under common ownership will be treated as one.
  • All UK employers - public and private sector - are in scope but, at present, only employers in England will be able to access the money.  


Employers with annual payrolls under £3m will be able to access grant funding for apprenticeships at a rate of roughly £2 of grant funding for every £1 invested by the employer. There will be additional incentives for very small businesses, the recruitment of under 19s and on successful apprenticeship completion.


A new Institute for Apprenticeships is to be established, led by employers, which will regulate the quality of apprenticeships.


The Government is developing a new Digital Apprenticeship Service that will manage the funding system and help employers advertise apprenticeship vacancies and find suitable providers.


So, what is the likely impact and, in particular, how can employers turn a cost into an investment that generates a return?


Bear in mind that, for employers that don’t use the money well, the impact on profitability could be significant. Take a hypothetical medium sized business that has sales of £20m and makes a pre-tax profit of £1.5m. It is a knowledge-based business (in professional services say) and staff costs are high at 70% of turnover (£14m). Its levy contribution will be £70,000 (0.5%) less the £15,000 allowance - £55,000 in all. That might not sound huge but it will dent profits by 3.7% unless the levy can be spent in such a way that it generates a return.


Given possible outcomes such as this, it is vital that employers start planning now to ensure that their levy “spend” generates a positive return. Here are a few tips:


  1. Time is of the essence. If you want to run a pilot and evaluate its success then you need to get the ball rolling straight away.
  2. Don’t think of the levy as a “pot” that needs spending. Rather, think of it as an investment. As with any investment, you need a business case… So, what are your organisation’s biggest areas of pain or missed opportunity and can apprenticeships be used to address these?
  3. Speak to a few different apprenticeship providers and some of their customers. An apprenticeship programme will get under the skin of your business – you need to work with people you trust and who understand your needs.
  4. Consider what resources you will need to allocate internally to managing your programme.
  5. Get your senior leadership team and prospective apprentice line managers on-side early. Your provider should be happy to come and speak to them.
  6. Work out what your monthly contributions will be and then calculate the rough number of apprenticeships… how does this fit with your potential business need?
  7. Don’t forget that apprenticeships can also be used in some cases to upskill existing staff.
  8. With your training provider, “map” the job roles in your organisation (particularly at entry level) against the apprenticeships that currently exist or are in development.


At Damar we are already working with employers on apprenticeship programmes that deliver much higher returns than the levy will cost and are currently planning strategies with new employers who will be impacted by the levy. So, 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


Damar Training, 25th November 2015.


Please note. This represents Damar’s interpretation of  the position. The changes are both complex and evolving and so, inevitably, there will be differences between what is set out in this article and what ultimately happens.

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