A radical rethink for apprenticeship levy

Over recent months as I’ve talked to firms of every size and sector across Scotland there’s been a consistent message from them all: skills are the number one business priority. From a small tech company in Dundee to financial services firms in Edinburgh, getting the right people and skills is vital for our businesses and economy to prosper.

Our economy is changing and so are skills needs. Certain sectors already struggle to recruit and within the next decade close to half of all jobs will require a form of higher skills.

Business is committed to taking action to address this. And apprenticeships are one of the routes to gain these skills, alongside further or higher education. There is no more passionate champion of apprenticeships than the business community, which is why there is deep frustration around the apprenticeship levy, due to be introduced in April 2017. Although designed to increase numbers and skill levels, currently it risks having the opposite effect.

To recap, the apprenticeship levy will affect all firms across the whole of the UK with a payroll of over £3m, adding 0.5 per cent to payroll costs, and netting a total of £3bn.

The levy was not business’ preferred mechanism but now the policy is in the design phase, business is determined to make it work. That’s why the CBI has called for a radical rethink on the levy.

Because unless the UK government changes its course, the levy risks being just a “once-in-an-administration” shake up, when the real prize is a “once-in-a-generation” reform to change things for the better.

Three crucial questions need to be answered in order to get this right.

The first centres on the desired outcome. Business shares the UK and Scottish governments’ ambition to increase the number of apprenticeships. But what’s being counted in the target in England is three million started apprenticeships, not qualified apprentices. This could have unintended consequences.

Equally, how the levy will interact with skills policy and priorities in Scotland and government skills agencies like Skills Development Scotland is unclear.

A successful apprenticeship builds a career and changes a life. The focus should be quality before quantity, with success criteria measuring how an apprenticeship helps an individual progress and closes skills gaps.

Secondly, how can the levy best achieve this outcome? There are two major design flaws to be addressed if the levy is to raise apprenticeship standards and numbers. As it stands the levy “penalises people doing the right thing”, as one managing director put it.

The levy misunderstands training only as apprenticeships, which will force firms to change existing training – graduate or management programmes for example – in order to comply. In England it restricts eligible spend for the levy to “off-the-job”, external training, when the very thing that makes apprenticeships great is learning on the job, from someone who knows the ropes. In Scotland clarity is sought by business on how levy-payers will be able to recover some of the costs to start with.

With business funding the system there must be a genuine business voice to match and this is also why the CBI in Scotland is pushing for the next Scottish government to ring-fence the proportion of the levy funds they will receive and let business to take the lead on how that funding is spent.

The final issue is about timing. This is a fundamental shift in the skills system across the UK and businesses need a realistic lead-in time to prepare.

But they are still in the dark on much of the detail. How much funding will be available to spend on each apprentice in Scotland? Who can levy funds be spent on? How will the system work across the devolved nations? What standards will be needed and how will they ensure consistency across the UK? How will the system change once it’s up and running?

There’s welcome consultation taking place in the coming months on some of these issues in England and we hope to see consultation in Scotland as well – but businesses won’t have certainty until the end of this year, when the levy introduction will be mere months away.

And the big question – is the UK government itself actually ready?

As it’s still busy designing and testing, the best we can hope for by April 2017 is a minimum viable system in England with various elements being “piloted” after launch. And when companies train in different ways – some pool funds, others spend in their supply chain – current plans to only allow spending within a company in the first year will have real consequences for training practices.

The system must support the delivery of apprenticeship training which businesses need, in full, from the start and across the UK.

Government needs to work with business with operations in the devolved nations as well to resolve these issues before the levy launches. And this means taking time to get it right.

The CBI and wider business community stands ready to help, advise and design a system that is fit for purpose. We need to seize this opportunity and create change which will last several generations, not just a single administration.

Hugh Aitken, CBI Scotland director