Association of Employment and Learning Providers

Press release – Embargoed until Tuesday 25 February 2020, 00.01hrs

 

Increasing the levy’s scope not the solution to solving apprenticeship funding difficulties, new analysis finds

Analysis by leading education consultancy Public First for Association of Employment and Learning Providers (AELP) has found that even trebling the number of businesses within the scope of the apprenticeship levy would not nearly raise enough money to solve the current funding problems facing SMEs who want to recruit more apprentices.

The consultancy’s findings strengthen the case that while the government was probably right to decide on a minimum £3m annual payroll threshold for the levy’s scope originally, the chancellor should now be using his forthcoming budget to announce a separate apprenticeship funding system for non-levy paying employers.

The need for urgent action has been underlined by the government’s new immigration system proposals which reinforce the necessity to replace the recruitment of EU migrants in key sectors with more home-grown apprentices.

The Public First analysis shows that a dramatic reduction of the payroll threshold to £1m would only bring in extra revenue of £400m even though nearly 60,000 more employers would be paying the levy. This needs to be set against the National Audit Office forecast that the total levy pot of £2.8bn will shortly be consumed in its entirety by current levy payers (and then be overspent) and that non-levy paying SMEs were accounting for over £1bn of the annual apprenticeship budget before the levy’s introduction. In other words, an additional £400m would not solve the funding problem at all.

Using ONS data and OBR levy revenue figures, Public First has estimated the apprenticeship levy that will be paid by employers and the number of employers paying it if the annual payroll threshold (currently £3m) is reduced to certain levels as follows:

Threshold

Estimated Levy Paid

Estimated Companies in Scope (nearest thousand)

£3,000,000

£2.8 bn

23,000

£2,000,000

£2.9 bn

40,000

£1,000,000

£3.2 bn

81,000

£500,000

£3.5 bn

156,000

 

AELP recognises that substantially reducing the threshold would not be welcomed by thousands of SMEs facing a new ‘tax’, at a time when smaller businesses are already dealing with an uncertain economic outlook and other cost pressures. At the same time, increasing the levy rate of 0.5% on existing levy payers to raise more money for the programme budget would be a political hot potato which the government probably wouldn’t want to go near.

Instead the chancellor should bring back a standalone £1.5bn annual budget to fund the huge demand for apprenticeships from non-levy SME employers. This would preserve the principle of employer choice for businesses of all sizes in deciding what type and level of apprenticeship they wanted for their employees.

AELP chief executive Mark Dawe said:

“We’ve been told that the March budget will be a budget for skills and the immigration controls announcement has stressed the need for more SMEs to be able to recruit apprentices across the country. The levy works extremely well for levy payers but this latest analysis shows why a separate funding solution is required for smaller employers so that key sectors can meet their staffing challenges.”

Anthony Impey MBE, Apprenticeships and Skills Policy Chair at Federation of Small Businesses (FSB), said:

“FSB’s own research has found 9 out of 10 apprenticeships offered by small companies are filled by 16 to 24 year-olds. Small businesses that engage with the apprenticeship system love it because they see a huge return on their investment and so at a critical time for the country’s economic future, now is the time for the government to show serious support with greater investment in the skills development of more home grown talent.”

John Cope, Deputy Director of Public First, said:

“The apprenticeship levy has become financially unsustainable, meaning reform is inevitable. Smaller firms don't currently pay the levy, but asking them to do so has been floated by policymakers. Public First analysis found lowering the threshold would quickly lead to a dramatic increase in the number of levy payers but for a relatively small gain in tax revenue. Lowering the levy threshold alone is unlikely to address the financial pressure on the system. The government therefore will need to consider other ways to get cash into the system, or impose restrictions on what the levy can be spent on.”

Labour shadow FE and skills minister Emma Hardy MP will be hosting a debate in a Commons committee room on Tuesday, 25 February, in partnership with AELP and FE Week to discuss the apprenticeship funding issue for SMEs. Anthony Impey will join Ms Hardy and Mark Dawe on the platform.

 

ENDS

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