Last week, the Chancellor, Philip Hammond said that the government is going to make some changes to the controversial Apprenticeship Levy to make it more flexible and better suited to meeting the skills gap.

Since 2017, businesses with an annual pay bill of £3million or more have to invest 0.5% of their pay bill in apprenticeship training.  The idea was to increase the uptake of vocational training, to fill skills gaps which could worsen after Brexit. The reality has been somewhat different. Recent figures from the Department for Education indicate a 28% decrease in the number of apprenticeships taken up in the 2017/2018 academic year.

The government appear to accept that the system is not working in the way it anticipated.  

So what's gone wrong?

Well, for a start, many businesses have complained that that the funds don't cover the training costs they incur.  The maximum allowance is £15,000 per head and this is insufficient to cover the costs of certain advanced apprenticeships.

In addition, many of the training programmes do not provide the skills businesses say they need.  For example,  Sir John Timpson, the chairman of Timpsons, said that his company does not benefit from the £480,000 it pays to HMRC because the approved training schemes on offer do not cover repairing shoes - a key part of its business.  It elected to fund its own comprehensive apprenticeship programme instead.

Similarly, Christopher Nieper, Managing Director of luxury fashion brand David Nieper says there aren’t any training courses in his local area for sewing or garment technology and his business is unable to use the levy money towards its own in-house training.

What is changing?

From April 2019, employers will be able to transfer a quarter of their annual apprenticeship levy fund to another business in their supply chain (since July employers have been able to transfer 10% to non-levy paying organisations).

The government will also invest an extra £5 million to help the Institute of Apprenticeships offer more training options to bridge some of the gaps. This is unlikely to satisfy those businesses who wish to use their funds to develop their own bespoke programmes. 

The government also said there will be greater investment in apprenticeships in science, technology, engineering and maths but no specific details are available yet.

Time will tell if these limited measures will be sufficient to reverse the decline in the numbers of people beginning apprenticeships. 

Lessons from abroad? 

The government has said that it will consider how the levy will operate after 2020.

Perhaps, as part of that review, it should look at other countries with successful apprenticeship schemes for inspiration. In Germany, around 60% of the young people enter a “vocational training programme” as an alternative to university education. Given that the country’s unemployment rate for 15-24 year olds is 6.7 % compared to the average 17.3% across EU member states, it is clear that the scheme is quite successful. Indeed, of the thousands of young people undertaking schemes at Mercedes-Benz or BMW, 9 out of 10 will obtain a permanent job and others may be offered short-term contracts.  According to Susanne Burger, Deputy Head of International Co-operation at Germany's Ministry of Education and Research the key to the success of an apprenticeship scheme is “strong co-operation between government, the business community and social partners.”

Need more information?

Please contact our employment partner Mel Stancliffe by email: melanie.stancliffe@irwinmitchell.com or by telephone: 44 (0)207 421 3971.

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