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The Apprenticeship Levy in UK – How will employers respond?

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.

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).

This study has used qualitative methods and was based on a relatively small sample of employers thus it is not possible to provide quantitative estimates of what the overall impact of the levy on apprenticeship numbers is likely to be. The study has, however, allowed for an assessment of the overall impact and how this may differ by the characteristics of employers. On the basis of the case studies of employers carried out in this study, the impacts of the levy can be classified as follows:

• a neutral impact in businesses where the introduction of the levy will have no impact on apprentice volumes. This was observed mainly for the traditionaltrades in the engineering and construction sectors where apprenticeship is the common means of acquiring the skills necessary to work in craft jobs;
• quantitative additionality where the levy will likely bring about a higher number of apprenticeship starts because it has accelerated the speed at which apprenticeships are taken up by the employer (such as using apprenticeships to meet new occupational training needs). For example some employers in financial and professional services indicated the levy will increase the number of apprentices taken on because it will accelerate the pace at which they move over to apprenticeships to train people in intermediate / technician level occupations. There is also likely to be some increase in the number of apprentices taken on in business support services (e.g. business administration) across all sectors. Employers in retailing, hospitality, health and social care also often expected to increase the number of apprentices they have, but a substantial share of these are likely to be existing employees;
• qualitative additionality where unaccredited training – sometimes allied to management and leadership training – falls under the ambit of apprenticeships in the future as firms look at different ways of ensuring they fully reclaim their levy payment.

There is some displacement and substitution to take account of in assessing the additionality pointed to above. In addition there was some evidence of sunk cost where employers will react as if the levy was purely a tax and they will not modify their training activities but will instead take the hit on the company’s bottom line. There is a risk here that some other training activities will be reduced or discontinued as the company looks to offset the levy payment in some way. A relatively small share of employers reported that they would treat the levy as a sunk cost. And in general, the sense was that, at this early stage, employers did not foresee the levy having a major impact on reducing other forms of training taking place in the organisation. Employer considered how they might offset the costs of the levy but in general they were uncertain how they would achieve this in practice (e.g. they were unsure about the extent to which they might negotiate the price of training with a provider). Relatively few firms said they would consider becoming a Direct Grant employer as a consequence of the levy’s introduction.

Some employers gave consideration to providing apprenticeships at a higher level than hitherto, but mentioned that if they were to do this they might not call the learners apprentices as this tended to be associated with training at a lower level.

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.

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Chosen excerpts by Job Market Monitor. Read the whole story at  The apprenticeship levy: how will employers respond?

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