EDSK proposes small businesses pay into the reformed fund

A former skills adviser to the government has proposed a radical overhaul of the apprenticeship levy that would see almost all small and medium sized businesses having to pay into the pot.

Business leaders however warn it will be a “retrograde measure” and “yet another tax burden detrimental to the economic growth that springs from SMEs”.

The EDSK think tank has published a report called ‘Changing Courses’ which proposes to split the current apprenticeship levy into separate funds for apprenticeships and skills training, with more businesses paying into it.

Report authors Tom Richmond – a former adviser to the Department for Education ministers – and Eleanor Regan propose converting the levy into an ‘apprenticeships and skills levy’ which would see all businesses with 10 employees or more contribute 0.4 per cent of their annual payroll costs to the bottom.

That cash would then be distributed to firms in two pots – a national apprenticeship fund to deliver apprenticeships, and a national skills fund to deliver non-apprenticeship skills training.

The national apprenticeship fund would cover apprenticeships up to level 6, and include traineeships.

The national skills fund would then be devolved to mayoral authorities where possible, and be used to upskill or re-skill existing workforces.

In addition, EDSK says the adult education budget and free courses for jobs fund – a flagship government scheme to offer a free first level 3 qualification to those who do not have one or who are unemployed – into a single devolved ‘local skills fund’.

It also wants a right to paid training leave to be introduced enabling employees to access up to five days of paid leave per year for skills or training courses. Employers would be reimbursed a flat £20 per hour rate for those workers to enable it to arrange cover.

The report said that under the proposals, the number of levy-paying businesses would rise from around 23,000 to 278,000, and raise an estimated £3.8 billion per year – £1.1 billion more than the current system.

Currently, only employers with a wage bill of £3 million or more pay into the apprenticeship levy, at a rate of 0.5 per cent of their annual wage bill.

But EDSK said that the current system, introduced in 2017, is not effective enough.

It recognized that the levy had increased employer awareness of apprenticeships, but said goals from the outset were “vague”.

The think tank highlighted that often employers were opting for higher level courses to use up levy funds. The report also warned that more than 50 percent of apprenticeships are “fake”, with employers effectively rebadging their existing training as an apprenticeship in order to fund it through levy cash. Many had apprentices working for the company more than three months prior to their apprenticeship starting.

The report said it had “undermined the apprenticeship brand and wasted a considerable amount of time, money and effort”.

It added: “By moving away from only funding ‘apprenticeships’ and large qualifications to instead supporting more flexible (and often shorter) forms of training such as non-qualification courses and individual units of qualifications, employers, employees and government can all expect better value for money and greater returns on their respective investments.”

But the plans have not been welcomed by the Federation of Small Businesses, which warned that another tax on small firms would be too much for some.

Tina McKenzie, policy chair at the FSB said the levy was designed to encourage small businesses to take up apprenticeships funded by contributions from bigger firms.

“Undermining this fundamental aspect of the system would be a retrograde measure; yet another tax burden detrimental to the economic growth that springs from SMEs, and fewer apprentices would be trained,” she said.

“Broadening the apprenticeship levy to a training levy, could further reduce the number of apprenticeships available in smaller businesses. Small firms already provide significant training opportunities; they could provide even more which could be done through tax training relief. Adding another tax to them will have the opposite outcome.”

EDSK acknowledged that there could be some resistance from smaller employers to the proposals, but said that “every employer needed to have a stake in the training system”.

Firms with 10 to 49 employers would likely only pay between £1,700 and £4,200 per year, making it a “relatively minor investment”, the report said.

“Even though these smaller organizations are now being asked to contribute to the ASL [apprenticeships and skills levy]they will be able to access financial support for apprenticeships and other forms of training that far exceeds their nominal contribution through the ASL,” it added.

Sector leaders have long called for changes to the apprenticeship system since the levy’s launch. Some business leaders, such as the Confederation of British Industry, have previously called for it to be transformed into a wider skills and training levy.

EDSK’s report comes ahead of potential changes to the apprenticeship levy as part of a review announced by former chancellor Rishi Sunak.

In his spring statement in March, Sunak said he would examine the levy’s effectiveness, although the Treasury later denied it was a formal review.

A spokesperson from the DfE said the levy was an “important part of our reforms” and pledged £2.7 billion in apprenticeship funding by 2024/25.

They added: “We continue to improve apprenticeships, making them more flexible for employers in all sectors and making it easier for employers to transfer their unused funds.”

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