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One year in, is the infrastructure levy working yet?

As anniversaries go, the apprenticeship levy’s first is one the Government might want to forget. Intended to tackle skills shortages by requiring businesses with annual wage bills of ?3m or more to pay 0.5pc of their payroll cost into a training fund, which they can then draw on, the levy has faced heavy criticism since its launch last April.
Complaints include it being too bureaucratic and inflexible, and it was launched without the mechanisms needed to function being ready, meaning it has actually put off companies from taking on apprentices. Others say it’s just a tax on businesses, and unlikely to deliver the skills the workforce needs. 
Official figures show the complaints may be justified. In the first quarter after the levy’s introduction, there was a 60pc plunge in the number of people starting apprenticeships as companies struggled to get to grips with the new system. Declines have eased since, but hopes the levy – which covers 20,000 businesses and will raise more than ?2bn a year – would fix the skills shortage look misplaced.
Data obtained under the Freedom of Information Act by the Open University found that of the ?1.39bn paid into the levy by English businesses, just ?108m has been drawn down, indicating that employers are struggling to navigate the system. “It’s been an absolute disaster,” says Alan Tuohy, managing director of Playfords Building Services. “It’s not so much a tax as a money recycling scheme. In the past I told training bodies we wanted to take on apprentices, they provided some for us to interview and we’d take on who we wanted. All we had to do was pay them and send them to college one day a week. The rest was handled for us by the training bodies.
One year in, is the infrastructure levy working yet?

Apprentices getting trained up

Credit:
 Monty Rakusen
“Now we have to pay the levy, the trainer invoices us and we claim it against electronic vouchers. The boss of the Huntingdon-based electrical engineer, which has 110 staff, added: “There are lots of businesses who just can’t go through all that. It’s a fiasco.”
Chancellor Philip Hammond acknowledged the issue in his spring statement, saying ?80m would be diverted to SMEs to help them find their way through the system. 
Tuohy also thinks that by drawing in all industries, the levy risks devaluing apprenticeships. “Apprenticeships should be linked to serious career paths that produce craftsmen and women. With everyone having to pay it, you’re getting big companies creating apprenticeships in things like customer service and cleaning because they can set up their own in-house training to make sure they get back what they pay in. Those jobs are essential, but are they really apprenticeships?”
With everyone having to pay it, you’re getting big companies creating apprenticeships in things like customer service and cleaning because they can set up their own in-house training to make sure they get back what they pay in. Those jobs are essential, but are they really apprenticeships?
While the principle of improving training is correct, Tuohy thinks the levy risks becoming a “massive failure for industry, but a massive success for government, because it can keep all the unspent money”. 
Engineering and manufacturing have long been the heartland for apprenticeships and it is from those sectors that some of the harshest criticism of the levy has come.
“The promise was that the levy would be employer-led, and companies would have purchasing power,” says Verity Davidge, head of skills and policy at engineering and manufacturing trade body EEF. “They’d pay into it and then get the money back to spend as needed on the skills they wanted. It could have been really good – but that hasn’t happened.”
Key problems cited by EEF include levy funding not covering the high cost of training in technical fields. The maximum funding available to be spent on a single apprentice is capped at ?27,000 but some firms say they spend ?100,000 on an apprenticeship.
What is it? | The apprenticeship levy
Another issue is that new apprenticeship standard programmes are not ready, meaning companies can’t spend levy funding. The problem is acute in high cost sectors – such as engineering and construction – where the upfront funding required to set up a new training programme can prove a roadblock. “It’s far easier for training bodies to deliver lower cost and lower risk apprenticeships than to offer a four-year engineering apprenticeship, which has high upfront costs,” says Davidge, adding that under the levy training providers are paid by monthly instalments.
EEF isn’t the only body to report problems. The Institute of Directors says its members are having similar issues, and both groups are also concerned about the 24-month limit companies have to claim funds they paid into the levy or risk losing them.
“For a lot of companies the apprenticeship standards won’t be in place within 24 months so they’ll lose their money,” says Seamus Nevin, IoD head of policy research. “Another change that needs to be made is increasing the 10pc cap on the amount levy payers can transfer,” he says. 
Being able to shift the levy would also tackle the problem that training tends to be focused around big centres, with some regions not having anywhere to spend the funds. 
One year in, is the infrastructure levy working yet?

Apprentices
Rather than just criticising, EEF and IoD are proposing measures to make the levy work. Their suggestions include reviewing maximum funding and incentives to encourage training in areas where the UK has specific skills shortages, such as science, technology, engineering and maths. Other solutions to problems include allowing employers and trainers to negotiate their own payment schedules, being able to transfer more of what they pay in to other companies and ending the time limit that means they could see their contributions to the levy effectively evaporate. 
It’s not just in engineering and manufacturing that the levy is causing concern. As some of the country’s biggest private employers, supermarkets are taking a stand on the system. The British Retail Consortium (BRC) says its members pay ?180m annually into the levy but it actually costs them a fifth more. This is because of the current requirement that apprentices spend 20pc of their time in training – often away at college – meaning companies have to find people to “backfill” the jobs they leave empty the equivalent of one day a week. BRC chief executive Helen Dickinson says: “Without additional flexibility in what the funds can be spent on, retailers are unable to fully engage with the policy.”
The BRC is not alone in questioning the 20pc requirement, with others arguing this is an arbitrary level and much relevant training can be carried out in the business. For all the criticism, business is not fundamentally against the level.
“Employers support it by and large,” says the IoD’s Nevin. “It’s not fundamental reform, but tweaks that are needed. Government just assumes because business is speaking out they don’t want to pay it.” 
What next after GCSEs? A guide to apprenticeships, BTECs and NVQs
EEF’s Davidge agrees that training, however funded, can only be a good thing for the wider economy as long as it is in areas where the UK does have skills shortages, rather than lightweight apprenticeships to hit the Government target of 3m people starting apprenticeships by 2020.
“Employers were told they would be in charge of their own destiny with the levy,” she says. “No one wants to be told what they can buy, but that is what it feels like. Without changes it could do more harm than good – employers need to be given control.”
One company taking a more positive view of the levy is Shropshire-based engineer Grainger & Worrall.
James Grainger, director of the family-owned business that has 700 staff, says: “It might need some modifications but where do we go as a country if we don’t do this? There’s been a generational gap in training. The more companies adopt it the better it is for the country overall.”
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