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Apprenticeship Levy

In the Budget earlier this year the Government announced that it wanted to create an additional three million apprenticeships. Apprenticeships are a practical alternative to tertiary education. A survey of 1000 small and medium business owners carried out by Rated People in April found that 71 % of those responding said they would prefer to hire an apprentice with on-the-job experience to an entry level graduate. Government figures shows that 90 % of apprentices stay in employment after finishing their apprenticeship.

Businesses can currently apply for a grant of £1500 to help cover the cost of an apprentice. The costs of training are significant and employers have asked for more help.

The Chancellor George Osborne’s solution is controversial. In July he announced that the Government was to encourage three million new apprenticeships. These will be funded in part by a new apprenticeship levy of 0.5% on company payrolls will raise £3 billion a year. Only businesses with a wage bill of more than £3 million will pay the levy, which the government said would exempt 98% of employers. Employers will receive an allowance of £15,000 to offset against their levy payment.

The new charge will be imposed from April 2017 and paid through Pay As You Earn. The Government considers that the levy will mean that businesses and the public sector invest in the skills and training they need.

Employers in England, who pay the levy and provide apprenticeship training, will receive a top-up to their digital accounts. All employers who do not pay the levy will be able to access government support for apprenticeships.

The Government will establish a new independent employer-led body to set apprenticeship standards and ensure quality and advise on the level of levy funding each apprenticeship should receive. Programmes which have high costs and are of high quality, will be entitled to receive more funding.

The proposed levy has not found favour with business which is already shouldering very significant costs.

The Institute of Directors said it would be a big cost for many companies, including medium-sized firms. The head of the CBI Carolyn Fairbairn said firms might cut back on workers to save on costs. There may well be an impact on sectors like retail.

Companies already face extra costs from the new National Living Wage and automatic pension’s enrolment. From April, workers aged over 25 will receive a minimum of £7.20 an hour under the compulsory living wage.

A survey recently carried out by the CBI suggests that less than half of all businesses plan on increasing their workforce next year because of the new high costs. The organisation warned that the slowdown could hit economic growth, and revealed that half of service sector firms said they would raise prices because of the impact – with one in four saying they would employ fewer staff.

Employers across the UK agree that there is a chronic skills shortage and apprenticeships can be a good way to take good raw talent and grow their own skilled workforce. While investment is needed the levy may be too blunt an instrument and have a number of negative spin-offs.

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