The apprenticeship levy – what does it mean for the profession and alternative routes to qualification?

In light of our recent consultation on alternative routes to qualification as a Scottish solicitor, our Head of Education Rob Marrs reflects on the possible implications of the impending 'apprenticeship levy'.

In the summer of 2016, the UK Government published details on a new apprenticeship levy. This is due to be introduced in April this year (2017) aiming to raise somewhere in the region of £3 billion per year to help the government meet a target of funding 3million apprenticeships by 2020.

The levy is aimed at larger businesses. For all employers operating in the UK, the levy is set at 0.5% of a company’s pay bill (payable through PAYE alongside income tax and NI) but will only apply to those companies with a wage bill of more than £3million per year.  Employers will receive up to £15thousand from the government to offset against the levy.

So, if an employer has 250 staff each earning £30,000 the levy will be 0.5% of its £7.5million wage bill (£37.5 thousand) minus the £15thousand they are given as offset. The levy for this business would be £22.5 thousand. The UK government estimates that around 2-3% of employers will have to pay the levy.

Businesses that don’t pay in should also benefit from the levy. They will be able to access funding to help train apprentices without having to pay in.  

The point of the levy is not to create a system whereby the largest employers can claim back as much of their levy as possible (what, after all, would be the point?) but rather to allow (small to medium enterprises (SMEs) to access funding to train apprenticeships.

Employers in England – we’ll get to Scotland in a moment – will be able to claim back their levy contribution in the form of digital vouchers, which can then be used to pay for training apprenticeships. What this is supposed to do is to incentivise employers (both those who pay into the levy and those who do not) to support apprenticeships. To incentivise this further, those paying the levy receive a 10% top-up to spend on training (meaning they can draw £11 for every £10 they put in). As a final incentive for employers to use the money for apprenticeship training, government has announced that the unspent funds left in employers’ digital accounts will expire after 18 months. It is going operate on a ‘’use it or lose it’’ basis.

For those entities who will have to pay into the levy, it is important to note that there is essentially a ‘’double-whammy’’ cost. If an employer were to take on an apprentice they would be able to claim back some of the training costs associated with an apprenticeship. They would still have to pay the apprentice a salary and there would be other costs that could not be recouped (management time, general overheads etc).  Of course, over time an apprentice should add value to the business so the sums get tricky quickly.

But what of Scotland? Well, as often is the case in constitutional politics, it is complex. Training levies and the collection thereof, is a reserved matter whilst skills policy (including apprenticeships) is devolved. Towards the end of 2016, the UK Government announced the Scottish Government’s settlement from the UK apprenticeship levy. This will be £221millon in 2017-18 rising to £239million in 2019-20.

The Scottish Government has argued that the apprenticeship levy monies largely replace other funds that were previously received. In essence, they are arguing that there is not much more money in the pot.

The Scottish Government has stated that this apprenticeship funding will be used to support skills training (including Modern Apprenticeships and graduate apprenticeships) more generally. It seems from the figures that the Scottish Government will spend under half of the £221million on apprenticeships. The larger portion will be spent on a wider range of workforce development and pre-employment programmes.

There are arguments in favour and arguments against the Scottish Government’s approach and use of such funding. For those legal employers with a payroll of over £3million, it seems that they may well be at a disadvantage compared to their competitors south of the border. Cross-border entities may well find it easier to start apprenticeships in England than they do here.

Regardless: The largest legal employers will be paying significant amounts in to the levy and will be looking for ways to see how they can regain some of that income. For smaller firms, this may be an opportunity to hire great talent that they otherwise could not.

And what of law? It is true that there is currently no apprenticeship route to qualification, but legal employers could hire apprentices in other areas (e.g. HR, IT, marketing, finance, administration etc.). Employers could even revisit the Modern Apprenticeship in Paralegal Practice. This was designed by a number of firms here in Scotland some years ago but has never been used. If there was significant interest there’s every possibility that an apprenticeship provider would begin offering it.

There is also our current consultation on alternative routes to qualification.

So, could we create an apprentice route to qualification? There is no reason why such a route couldn’t be established and there’s no reason why such a route couldn’t benefit from funding from the apprenticeship levy. We do need the profession to help us here though. Do you want such a route to qualification? Would you hire people on the basis of this route to qualification?  There’s plenty of time to get your responses in. We need an evidence base to develop policy in this area. This is the profession’s chance to give us your feedback and have your say.