How organisations are managing the Apprenticeship Levy in 2017

Following the release of our UK Reward Management Survey Spring 2017, we wanted to share respondents’ initial reactions to the Apprenticeship Levy. The levy applies to employers in England who have an annual pay budget of over £3 million and seeks to create three million new apprentices by 2020. We asked respondents about the levy’s impact on their business and received a very mixed response.

Over 170 organisations took part across a range of industries and sectors, representing over half a million employees in total. Whilst 33 per cent of participants expect the number of apprenticeships to increase as a result of the new Apprenticeship Levy, 41 per cent do not expect there to be any change. 24 per cent are still uncertain about the effect the levy will have on the number of apprentices.

When asked about their reaction to the levy introduced in April 2017, 44 per cent of respondents were neutral. Only 28 per cent had a positive reaction, suggesting that the majority of organisations are still uncertain about the impact this will have on their business. 

4 key concerns about the Apprenticeship Levy

Participants were asked what general issues the levy raised. This open-ended question revealed their main concerns. These concerns can be grouped into four key areas:

  1. The levy is not sufficient to employ an apprentice – once a basic salary to attract appropriate candidates and the extra resources potentially needed to manage any expanded apprenticeship programmes are considered, the levy does not cover this additional activity for some respondents;
  2. The funding potentially does not cover extra training – additional learning and development requirements affect the HR requirements of the whole organisation which may lead to reducing or reprioritising learning and development budgets;
  3. Adequate training provider access and quality is not guaranteed – despite the levy being introduced in April 2017, some raised concerns that not all training providers were ready or sufficiently prepared; and
  4. Extra costs may be passed on to the customer – there was concern over customer backlash at increased costs.

These concerns led to 15 per cent of respondents reporting that they would treat the levy purely as a tax without modifying training provisions and taking the cost on the bottom line. 

Positive effects of the Apprenticeship Levy

When asked what organisations intended to do in response to the levy, many acknowledged plans to use the levy to widen the apprenticeships on offer and improve learning and development opportunities:

  • 70 per cent revealed that they will expand the range of jobs trained for via apprenticeships; 
  • Nearly half will provide apprenticeships at a higher level;
  • 44 per cent will use apprenticeships to train existing employees; and
  • 41 per cent will convert other forms of training into learning and development for apprenticeships. 

Viewing the levy as an opportunity to train on the job for a wider range of roles is the key to utilising it in growing organisations and ensuring that it can be used as part of a recruitment and retention strategy for top performing talent.

Sector analysis

The responses and concerns amongst organisations undoubtedly vary by sector. Whilst some organisations felt that the levy was an additional cost, others felt it was extra money complicating their existing apprenticeship funding. 

Construction represented the largest proportion of responses for what the Apprenticeship Levy will mean but they were the most polarised in their reactions. 27 per cent were positive in their initial reaction whilst 27 per cent were negative. 42 per cent were neutral whilst four per cent were unsure. 

This level of ambivalence was also seen in the second biggest respondent, the charities, institute and associations sector, where only five per cent were positive about the effect of the levy and 10 per cent were negative. Nearly a third did not know, whilst 57 per cent remained neutral. Their concerns focused on the levy not being sufficient to employ an apprentice which was understandable, given the financial constraints often placed on HR budgets of not-for-profit organisations.

It is interesting to see such variation in the opinions of those organisations, particularly in the construction sector, where apprenticeships are commonplace. Some organisations even noted that their Annual General Meeting was in May where it would be discussed in more detail. This suggests that the mechanics of the levy are still being discussed even though it is already in force. 

Period of adjustment

The Apprenticeship Levy is in its first few months of operation and there will inevitably be a period of adjustment for affected employers. Whilst the above concerns mainly highlight logistical problems faced by organisations following the levy’s introduction, our survey did note that apprenticeships appear to be a positive investment for employers in general; there is an average 90 per cent rate retention once the apprenticeship is complete. Hopefully, in the long-term, the levy can be a positive source of financial support, strengthening the learning and development opportunities in place for the wider workforce.