Background

The government has a key strategic and electoral target of delivering 3 million apprenticeship starts during the five-year lifetime of the current parliament (i.e. by May 2020). During the last parliament (from May 2010 to April 2015) there were 2.24 million apprenticeship starts.

The increase required is a significant one, especially when seen against the backdrop of a huge amount of reform to the whole apprenticeship programme. At the same time as seeking to achieve the 3 million target, the government is:

  • Changing the apprenticeship product, by moving away from the old frameworks to new employer-designed standards based apprenticeships.
  • Introducing a change to the way that employers access apprenticeship funding. In future this will be done via the "Digital Apprenticeship Service" (DAS).
  • Introducing a large-employer apprenticeship levy from April 2017.

These reforms will have a dramatic effect on the way that the apprenticeship and skills "market" operates. It will also change the way that employers behave in terms of their approach to the recruitment, training and development of their staff.

In August 2016, the government made further announcements about how the Apprenticeship Levy will operate in practice from April 2017.

Why Reform?

The government is committed to not only increase the quantity, but also the quality of apprenticeships. In order to do this it believes that they must be:

  • Employer driven...with employers in the "driving-seat" in the development of the new apprenticeship standards.
  • Simple...with a new system that will make them easier to understand for both employers and learners.
  • Higher quality....so that even the lowest level apprenticeships must be of at least a year in length, with higher and degree apprenticeships obtaining parity with university degrees.

Frameworks to Standards

The government has responded to employer based criticism of apprenticeships, by allowing employers to come together in sector based groups, to develop the skills knowledge and behaviours that they believe should form the content of each apprenticeship. These "trailblazer" standards provide a short concise set of outcomes, which it is expected the apprentice will be able to demonstrate. These new standards replace the often long and complex frameworks, which were difficult to understand, and often did not meet the needs of employers.

New standards are in development and being launched regularly and it is currently expected that the new standards will completely replace the old frameworks by 2019/2020.

Digital Apprenticeship Service

From April 2017, employers liable for paying the apprenticeship levy will be able to register themselves on the DAS. They will be able to:

  • Find information as to which framework or standard they need.
  • Locate a training provider who can deliver it.
  • Post their apprenticeship vacancies, and recruit their apprentices.
  • Manage their levy accounts.
  • Find out general information about apprenticeships.

Non-levy paying employers (SMEs) will be able to access DAS from 2019.

Apprenticeship Funding

From April 2017, there will be two main methods of funding apprenticeships:

  • Employers with an employee payroll of more than 3 million will pay for their apprentices from their own levy account (see below).
  • Smaller employers will be part-funded as currently, via a government approved training provider.

Those employers who will not be liable for the levy will have to make a cash contribution towards the cost of training their apprentices.

Apprenticeship Levy

22,000 employers in both the public and private sectors (i.e. those with annual pay bills of more than 3 million), will be liable to pay a levy contribution of 0.5% of payroll from April 2017.

Some key details of the levy are:

  • It will replace all taxpayer funding of apprenticeships. It will be collected from April 2017, and will be paid through Pay As You Earn (PAYE), by HMRC.
  • All affected employers will receive a levy allowance of 15,000, to offset against the levy they must pay.

Where companies with individual payrolls are "connected" (e.g. a company with a divisional structure), only one 15,000 allowance can be shared between them. The division of the allowance must be decided at the beginning of the tax year.

From the second year of the levy (i.e. April 2018), it is intended that connected companies will be able to pool their levy funds to pay for apprenticeship training.

Employers in England will be able to reclaim their levy contributions as digital vouchers to use to pay for training apprentices. This voucher system may not apply in Scotland, Wales and Northern Ireland. The levy will be collected on a UK basis, but the three devolved authorities may decide to make their own arrangements for spending it. A calculation will be made by HMRC to determine the English percentage of levy that an employer will receive, based upon the residency of their employees.

The government has announced that unspent funds in an employer's digital account will expire after 18 months. For example, funds entering the account in May 2017 will expire in November 2018, unless the employer uses them. The digital account works on a "first-in, first out" basis, so payments automatically draw from the funds which entered the account first.

Employers who pay the levy will also receive a 10% top-up from government to their total monthly contributions in England. For every 1 an employer pays in, they can draw down 1.10 to spend on apprenticeship training through their digital account.

Funds in the digital account can pay for apprenticeship training and assessment (with an approved provider and assessment organisation, up to its funding band maximum). These funds cannot pay for apprentices' wages, travel or subsidiary costs, managerial costs, work placements, traineeships, or the costs of setting up an apprenticeship programme.

Recent Developments

August 2016 The government has now made further announcements regarding the Apprenticeship Levy, the most important of which is that it is definitely going ahead in April 2017.

The recent announcements provide us with further detail regarding how the funding system will work.

In summary:

  • Despite speculation to the contrary the Levy will come into effect on 1 April and the new funding system will start 1 May 2017, as the system will pay levy contributions one month in arrears. Employers will be able to see their levy funds from 22nd May 2017.
  • All existing apprentices who are on programme before 1 May 2017 will be funded under current funding system. Therefore, levy contributions will in effect, be used for new starters.
  • The current funding mechanism for standards (1/3 paid by employer, 2/3 paid by government) will be abolished from May 2017.
  • All existing apprenticeship frameworks are to be phased out by 2020.
  • Apprenticeship funding can be used to train existing staff to acquire substantive new skills, and also where the content of the training is materially different from any prior training.
  • For levy employers, 20% of funding will be held back to the end of apprenticeship, as a completion payment.
  • A new Register of Apprenticeship Training Providers (RoATP) is being set up by the government. Any training provider, or employer provider who wishes to offer apprenticeship training, must apply to this register. Applications are likely to be in October.
  • The government has said that further information on the Apprenticeship reforms and the Levy will be issued in October and December 2016.

Possible Levy Implications

For the majority of those employers who do not yet have an apprenticeship programme, there will be an increase in demand for the talents of young people as those employers seek to get a return on their levy "investment". Whilst some will just write off the levy as "`an employment tax", early soundings are that not many will do this without at least investigating how an apprenticeship programme may work for them, and how it might fit within their recruitment strategy.

For those employers who already have an apprenticeship programme, they will also be seeking to maximise the return on investment (ROI) of their levy payments. They will be looking at how they can increase the number of apprentices that they employ. This is likely to lead to a significant change in the level of apprenticeships that are demanded by employers, especially those employers whose levy contribution represents a significant increase in what they are currently drawing down from public funds. We are likely to see a sharp increase in the demand for higher level and degree apprenticeships, as employers seek to spend their levy contributions on programmes of higher value. There is already evidence that some large companies, who historically have recruited large numbers of graduates from university, are looking at reducing their graduate intake, and employing instead 18 year olds on degree apprenticeships.

Generically, across all large employers, given that the levy is a new cost to their business, many will be reviewing their own internal training and development programmes, and seeing what opportunities there might be to map them across to apprenticeship frameworks and standards, and so be able to draw down funding for them.