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Comment: The apprenticeship levy - What you need to know

Michael Ryley

Michael Ryley discusses the apprenticeship levy and how it could kickstart an influx of fresh talent into the renewable energy sector.

Employment in the fast-growing renewable energy sector has increased substantially in recent years and according to the trade association Renewable UK a further 70,000 jobs could be created in this sector by 2023. Attracting new employees with the required skills is a necessary prerequisite of continued growth and apprenticeships are an increasingly popular way of developing the workforce. Many of the major companies in the sector run programmes and there are independent schemes such as the Wind Turbine Technician Apprenticeship, the first of its kind in this sector, created by Renewable UK and run in association with City & Guilds.

All employers with a payroll in excess of £3 million will need to review their approach to apprenticeships in the light of a forthcoming Government initiative to promote apprenticeships, which will impact on how schemes are run and funded.  The Chancellor announced in his Autumn Statement last November that an apprenticeship levy will be introduced and draft legislation has now been published ahead of the go-live date of 6 April 2017. In short, all employers with a payroll in excess of £3 million will be required to pay a levy set at 0.5% of the employer’s total wage bill. It is widely seen as a payroll tax, yet it has the unique feature that the funds raised will be ploughed back into funding apprenticeships.

The levy is intended to fund and facilitate more apprenticeships; the hope is that the levy will not only encourage more companies to hire apprentices, but that it will also push up the quality of these schemes, as employers will have more control over the type of ‘off the job’ training they provide. The Government is “committed to boosting productivity by investing in human capital” and it has committed to an additional 3 million apprenticeship starts in England by 2020. 

The levy will be paid through PAYE. Employers are not permitted to make any deductions from the wages of the apprentices or other employees in order to fund the levy, so they will need to budget for an increase in the cost of labour. At the same time employers will need to consider how to harness the benefits of the new funding which will be available to support apprenticeships, including whether to establish apprenticeship schemes to take advantage of the funding.  Employers who pay the levy will be allocated funding via a digital voucher system to allow them to purchase ‘off the job’ training.

It is hoped that by giving employers more choice and control over the training they offer to their apprentices, a high standard of training will be maintained.  With recent statistics showing that only 69% of all apprentices actually finish and become qualified, the Government’s aim of placing employers at the heart of apprenticeship training should encourage more apprentices to complete their training. 

To the extent that contributing employers do not use their digital vouchers within two years, this funding will become available to employers who are not required to pay the levy. This means that companies within the renewable energy sector with a payroll of less than £3 million per annum will be able to benefit from the system even though they have not contributed. This is significant, as the Government has stated only around 2% of the UK’s employers will actually have to pay the levy. The details of how such companies will benefit has yet to be explained.

Although the apprenticeship levy does not come into force until April 2017, those who will be affected by the levy need to factor this significant additional cost into their forward planning. The introduction of this levy is likely to have a major impact on how training is organised and funded within larger organisations and employers need to start exploring how their business can benefit from the scheme. The new Digital Apprenticeships Service will provide online support and guidance to assist businesses with the management of their apprenticeship programmes and to source relevant training – this is available to all, including those employers who do not pay the levy. 

The response from employers to the apprenticeship levy has been mixed. Many are pleased that the Government is doing more to support apprentices and to boost both the number and quality of schemes available. However the Confederation of British Industry has voiced concerns over the imposition of a mandatory payment, describing the levy as a ‘blunt instrument’.  The Government consulted on the imposition of the levy in the summer of 2015 and most of what we know about the scheme is drawn from the official response to that consultation (published in November). However, many practical details of the scheme and the operation and implementation of the levy still remain unclear. 

Apprenticeships are a ‘devolved matter’ in Scotland, Wales and Northern Ireland. Employers in the whole of the UK will have to pay the levy but the Government is still liaising with these devolved administrations to finalise arrangements for giving employers access to funds.  

There is a shortage of skilled engineering construction workers in the renewable energy sector, where the ECITB already runs an apprenticeship scheme. Just how and to what extent the levy will have a significant impact in that area remains to be seen. Employers already paying the ECITB or CITB levy are alarmed that there are as yet no provisions to exempt from the scope of the apprenticeship levy those employers already paying an industry levy – so they are concerned at the prospect of paying twice over. It is clear from ministerial statements that this situation is not intentional, so it remains to be seen what solution will be adopted to rectify the situation. 

Importantly, this payroll tax is payable regardless of whether the business currently has, or intends to have, any apprentices. The fast-growing renewable energy sector could certainly benefit from more young, well-trained talent and hopefully this levy will encourage more employers to consider establishing an apprenticeship scheme.  However, the devil is in the detail and it is vital that employers keep a close eye out as further details about this new scheme emerge, regardless of whether they will be paying the levy.


Michael Ryley is a partner in the Employment, Pensions & Immigration team at Weightmans.



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