The Apprenticeship Levy marked its first birthday in May this year. However there seems little to celebrate in what has become regarded by many as simply a further tax on companies trying to survive during challenging times.

Whilst the original notion of investing in developing world class skills is commendable, the reality has turned out rather differently. From May 2017 companies with wage bills of over £3m have to pay 0.5% of their payroll into the Apprenticeship Levy. They can then access this fund to pay for apprenticeship training for staff.

Smaller companies don’t have to pay into the levy but do have to contribute 10% of the cost of an apprentice, with the government making up the other 90%.

So, what have been the issues?

Since the levy was introduced the number of apprentices has reduced dramatically, with a 59% fall off in the first quarter. The numbers have subsequently risen but still remain well below the level of pre-levy starts. In the first year only 10% of the government’s ring-fenced apprenticeships budget of £2.01 billion was in fact used.

So why has the levy failed to take off in the way that was intended? There seem to be a number of reasons for this.

Too much bureaucracy

The previous system was far simpler, with companies relying on training providers to deal with funding. Now organisations are expected to navigate a complex system of payments. This adds to the direct cost to employers, with many larger organisations needing to employ extra staff simply to administer the system.

Too inflexible

Some sectors have found that the cap on funding for particular apprenticeships doesn’t cover the full costs of the training. For example, in manufacturing some employers have reported putting in £4 of their own money for every £1 of levy funds in order to cover the real cost.

Off-the-job training requirement

This has been a major stumbling block. Apprentices need to spend 20% of their working week undertaking off-the-job training– that’s a day a week for full-time employees. Defenders of the levy have blamed employers for not planning ahead.  

The reality is that companies are using the funding to retain existing staff rather than focusing on bringing in new skills.

However, in sectors like domiciliary care, where staff are only paid for the hours they deliver, there is a double cost. Along with the cost of backfill, staff have to be paid additional hours to attend training. There have been calls for this blanket requirement to be removed, particularly in industries with tight margins and no scope to absorb extra costs.

Too slow to launch new qualifications

When the levy launched only a small number of qualification standards were ready. Now, 306 standards have been approved for delivery, but a year on 250 are still in development. This means that companies in some sectors are paying the levy but are unable to use the money to pay for the relevant training.

Sectors with complex apprenticeships, such as engineering, have been hardest hit as training bodies have concentrated on easier to deliver standards.

Companies can’t pull down the funding it’s lost after 24 months, leading to calls for the time limits to be revisited as a matter of urgency.

Young people are missing out

The original intention behind apprenticeships was to equip young people with the skills for the future.  However, only 15% of apprentices in the UK are under 19. In fact, the levy may be leading to fewer young people being trained as previously higher funding was available for under 19s.

Bosses may be choosing to invest in more experienced or mature staff who require less supervision. The reality is that companies are using the funding to retain existing staff rather than focusing on bringing in new skills.

Although well intentioned, the launch of the levy has clearly not run smoothly, and certain aspects require a radical rethink.

There have been calls for the government to fully fund younger apprentices to try to counteract this decline.

Lack of quality provision

There has been growth in the number of employers offering their own apprenticeships, leading to worries that this will impact on quality and demean the value of an apprenticeship. Some organisations are simply rebadging their existing training as apprenticeships in order to access the levy funding.

A high profile example has been Deloitte’s decision to place half of its graduates onto an apprenticeship scheme in order to utilise levy funding.

With the announcement that up to £18k of funding can be used for an MBA this must raise the question as to whether this is really what the funding was originally intended for?

What does the post-Brexit future hold?

Those who support the levy have responded to critics, referring to ‘teething problems’ and defending the need to invest in world class skills.

Although well intentioned, the launch of the levy has clearly not run smoothly, and certain aspects require a radical rethink. With Brexit fast approaching the timing of this is key in order to support employers to effectively address the UK’s current skills shortage.