The apprenticeship levy – how will employers respond?

04 November 2016

4 November 2016

Research has been conducted into how employers are likely to react to the introduction of the apprenticeship levy.

The research provides a summary of the possible effects of the apprenticeship levy on:

  • apprenticeship take-up;
  • existing employer-provided training schemes; and
  • the range of occupations that could be trained using an apprenticeship.

From April 2017, large employers in the UK will be required to pay an apprenticeship levy based on their total pay bill. This study, undertaken by the Institute for Employment Research and IFF Research, was commissioned by the Department for Business, Innovation and Skills (though the policy responsibility for FE and apprenticeships has now shifted to the Department for Education) in order to better understand, in advance of the implementation of the levy, employers’ likely behaviours in response to this mandatory contribution towards apprenticeship training.

At the time of the study’s fieldwork being carried out, employers were only beginning to come to terms with the idea of an apprenticeship levy and its implications for their business. Though most employers could roughly estimate the size of their levy liability they were unsure of how much apprenticeship funding this could fund in practice - some indicated that until they had more information on expected levels of employer contribution to the costs of apprenticeships there was little point in trying to work out their planned response to the introduction of the levy in 2017. For those who had a longer history of engaging with apprenticeships and knowledge of the costs of this form of training, this was somewhat clearer. Employers were however clear to note that the levy payment would be entered as a cost in their internal management accounts and as such it would need to be accounted for in some way.

Though concrete plans for the use of their levy funds were not in place for the majority of employers involved in this study, many were in the process of preparing outline plans for consideration by management. The initial reactions of employers to the apprenticeship levy can be summarised as follows:

  • Business as usual – a view more typical of businesses already involved in the delivery of relatively high cost apprenticeship (e.g. engineering and construction) where the decision to train apprentices was largely driven by the employer’s demand for skills in the workplace that could really only be met through apprenticeship. An indicative estimate suggests that a substantial share of employers fell into this group;

     

  • Using the levy as a catalyst to increase the provision of apprenticeship training in the business – a response provided by employers that had hitherto been engaged in providing relatively low cost apprenticeships (e.g. in business services) but where similar alternatives to this form of training were available. The payment of the levy would likely tip such employers towards adopting the apprenticeship training route as opposed to the alternatives available to them. For some businesses, they had already begun to increase their use of apprenticeships but the levy was likely to accelerate this uptake. An indicative estimate suggests that a substantial share of employers fell into this group;

     

  • Concerns relating to how a sufficiently large number of apprentices (to allow them to fully utilise their levy payment) could be trained – for many employers, especially those that engaged in relatively low cost apprenticeships (e.g. in hospitality, customer service, health and social care) they looked set to incur a relatively large levy liability which would require considerable numbers of apprentices to be trained to fully utilise the levy. Such employers expressed concern about having the capacity to expand their apprenticeships to the level required to reclaim their levy in full. A relatively small proportion of employers fell into this group;

     

  • Writing off the levy payment and absorbing the cost in the bottom line of the company’s accounts – where employers did not see a way to reclaim their full levy payment there was recognition that the cost would need to be reflected in the management accounts and often the cost would be recorded against the training or HR department of the business. Some would accept the levy payment as a sunk cost but for others they expected the cost to be offset against their overall training budget. A relatively small share of employers fell into this group.

After expressing their initial reactions to the levy, employers were asked to consider in more detail how they might adapt their behaviour once the levy was implemented. Amongst the more detailed responses, employers expressed the following:

  • expanding the range of occupations that could be trained via an apprenticeship;
  • providing apprenticeships at higher levels;
  • continuing to use apprenticeships to train their existing staff;
  • converting continuing professional development (CPD) courses into apprenticeship programmes (especially those related to Leadership and Management).

Whilst many employers expressed dislike for the levy, upon exploring their responses further it was found that on balance they were inclined to look for means of reclaiming as much of their levy payment as possible by increasing their apprenticeship provision. As this study has highlighted, there are many constraints on employers being able to achieve this goal, but employers in general were looking to find ways of ensuring that their bottom line was not affected by the levy.

There was little evidence that the introduction of the levy would have any impact on the behaviour of those employers who fall just outside the levy’s scope. They did not expect larger employers to over-train such that they would no longer need to invest in apprenticeships to the same degree.

Detailed information is contained within the full research document - The apprenticeship levy: how will employers respond?