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The Apprenticeship Levy: from transition to implementation

Matthew Kaye explains how the apprenticeship levy will work, and why supporting apprenticeships is such a common feature of Si’s work on economic growth for clients across the country.

From April 2017, a new apprenticeship levy on company payrolls of businesses with a wage bill of more than £3 million will be used to fund three million apprenticeships. This follows on from the Coalition Government’s fulfilment of its pledge to start two million apprenticeships over the course of the last Parliament.

How will the levy work?

The levy will be set at a rate of 0.5% of an employer’s gross pay bill. However, each employer will be given a £15,000 allowance, meaning that only those with pay bills more than £3 million will pay the levy. Those companies will then only pay the portion of their pay bill that is above the £3 million threshold. The levy will be collected through employers’ PAYE and only one allowance per company will be allowed. Public bodies like the NHS and government departments will also pay the levy if their pay bills make them eligible.

In the 2015 Spending Review the government estimated that fewer than 2% of UK employers will be eligible. Looking at ONS estimates for 2015, the UK counted 2.36 million PAYE or VAT registered businesses.

Accessing funding

All employers, regardless of whether they pay the levy or not, will be able to access government funding for apprenticeships through a topping-up of their digital accounts. Digital accounts are online accounts where employers will be able to see their levy contribution and/or how much apprenticeship training they can purchase with a registered training provider.

The amount of funding an employer can spend per apprentice will be capped and will vary depending on the level and type of apprenticeship. Every apprenticeship will be placed in a funding band. The funding band will set a maximum amount of funding that can be used towards training and assessment costs, over the length of each apprenticeship. The same funding bands will apply to all employers paying for apprenticeship training.

The Chancellor confirmed in his 2016 Budget that employers paying into the levy would receive a 10% opt-up to their monthly contributions to spend on apprenticeship training, meaning they can ‘draw down more than they put in’.

Adult Apprenticeships

Si is currently working with the Local Government Association to refresh our 2014 report Fragmented Funding’, where we looked at the fragmentation of central government funding in economic development and regeneration. One of the funding sources we have looked at is the Skills Funding Agency (SFA), which deals with apprenticeship training for adults. In 2016/17 the SFA is making available £1 billion in grant funding to support the costs of apprenticeship training for adults, aiding the transition to the new apprenticeship levy. As its funding priorities letter makes clear, from 2017/18 the levy will provide new funding to support apprenticeship training, bringing the total investment in adult apprenticeships to £1.485 billion by 2019/20.

The future

Apprenticeships usually feature in Si’s various reports on boosting skills provision. They are a tried and tested way to recruit, re-train and upskill staff, whilst simultaneously helping tackle skills shortages and being tailored to specific job roles. To take one example, boosting apprenticeship provision was one of our recommendations the Black Country Consortium in our Black Country Sport Sector Skills Action Plan. Moreover, as our work on Fragmented Funding shows, the new levy is already starting to filter into our economic development work.

We will be keeping a keen eye on how the implementation of the levy goes and how it will influence our future work on the skills agenda.

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