Three ways the Apprenticeship Levy could help people in poverty

The Apprenticeship Levy could be a success and could work to tackle poverty, if it is used well. Mike Hawking sets out three ideas for employers to consider.

A key aspect of the Government’s ambition to create three million apprenticeships was launched this week. The Apprenticeship Levy, which came in to force in England on 6 April, was announced by George Osborne in the Autumn Statement of 2015. The then Chancellor said it was “a huge reform to raise the skills of the nation and address one of the enduring weaknesses of the British economy”.

The Levy is a 0.5% charge on companies with payrolls in excess of £3m a year, and government estimates it will raise approximately £2.5bn in 2020. Employers will be able to spend their levy contributions on apprenticeships within their organisation. If after two years the money is unspent, it will be lost to the organisation and will fund apprentices elsewhere. Non-Levy paying businesses will still be able to access funding for apprenticeships, with Government contributing up to 90% of the training costs.

Critics of the Levy have warned it could be treated as another payroll tax by businesses, whilst others have suggested it won’t do nearly enough to tackle the UK’s skills shortage. But the opportunity the Levy presents should not be dismissed. If used well, the increased number of apprenticeships available could help people in poverty enter into and progress in work. This won’t just benefit individuals, but businesses as well. Evidence shows that business practices that lead to better jobs, such as investing in workforce training, can generate higher productivity, better organisational performance, and lower labour turnover costs and absenteeism.

Here are three things that we think employers paying the Levy could do to make the system work:

  1. Target new apprenticeship opportunities to people who have so far not benefited sufficiently from apprenticeships. JRF’s UK Poverty: Causes, Costs and Solutions report highlighted how some minority ethnic groups, women and disabled people have been under-represented in apprenticeship schemes. With greater commissioning power over providers, employers could offer part-time apprenticeships over the two-year funding period, or alter unnecessary entry requirements (such as 5 GCSEs at A*-C), which would help to break down barriers to admission.
  2. Offer apprenticeships as progression opportunities for low-paid staff. The design of the Levy, which funds the learning element and not the wage of an apprentice, means some employers will spend the Levy on existing staff. Whilst this won’t create new job opportunities, the additional skills a good quality apprenticeship can offer could help low-paid staff progress in work. JRF research highlights how a lack of training is a barrier to progression, and the Levy could provide a significant boost to this. However, there is a danger that employers will see the Levy as a replacement for their existing training budget rather than a supplement. The Levy would be viewed as a failure if this were to happen.
  3. Collaborate with other Levy payers to maximise benefits to a place. Our work on Anchor Institutions has demonstrated how organisations collaborating together on issues such as procurement and low pay can have a transformational impact at a local level. The same principle can be applied to the Apprenticeship Levy. For example, up to 10% of an employer’s levy funds can be spent in their supply chain. If larger employers in a town or city worked together to offer a proportion of their Levy to local SMEs who supply them, it may increase the overall number of ‘new’ apprenticeships created. This could increase prospects for people in poverty, and simultaneously support the development of local businesses.

The Apprenticeship Levy may well increase the number of apprentices available in England. A lot depends on how employers embrace it. JRF/JRHT is one of the 22,000 organisations subject to the Levy. We will use the apprenticeship funding both to develop the careers of existing staff, including those on the Living Wage, and to support new employment opportunities for those living in the communities we work with. We hope other employers will make similar commitments to offer opportunities to people and places who might otherwise be left behind.