Autumn Statement: Apprenticeship levy set at 0.5%, but will SMEs be affected? » SMEInsider

Autumn Statement: Apprenticeship levy set at 0.5%, but will SMEs be affected?

With the Conservative party determined to create three million new apprenticeships by 2020, chancellor George Osborne reiterated plans on how to fund the project, stating that the apprenticeship levy will raise £3 billion a year, with large businesses paying a 0.5 per cent payroll tax from 2017.


‘Committed to supporting apprenticeships’

With a widening skills gap and a constant battle to tackle unemployment figures, the Conservatives have been putting plans in motion to revolutionise the sector. In August, David Cameron confirmed plans to create three million new apprenticeships within the next five years.

‘‘The greatest asset any employer has is their workforce,’’ explained the Prime Minister. ‘‘And by investing in them, they are investing in the success and future of their business.’’

‘‘As a one nation government, we are committed to supporting 3 million quality apprenticeships over the next 5 years – to help strengthen our economy, deliver the skills that employers need and give millions more hardworking people financial security and a brighter future.’’


What did the Autumn Statement reveal?

In the Spending Review and Autumn Statement, Osborne confirmed that the treasury will be collecting close to £12 billion from large employers between 2017-2021, which works out at around £3 billion a year. The rate of tax has been set at 0.5 per cent of an employers payroll, with large firms solely footing the bill.

Apprenticeship levy graph

There have been fears that the Tories will sacrifice quality in favour of quantity when implementing the apprenticeship initiative, but Osborne assured MPs that this will not be the case:

‘‘To make sure they are high quality apprenticeships, we’ll increase the funding per place – and my Right Honourable Friend the Business Secretary will create a new business-led body to set standards,’’ said Osborne.

‘‘As a result, we will be spending twice as much on apprenticeships by 2020 compared to when we came to office.’’

‘‘Britain’s apprenticeship levy will raise £3bn a year. It will fund 3 million apprenticeships. With those paying it able to get out more than they put in,’’ added the chancellor, who admitted to it being a ‘‘huge reform to raise the skills of the nation and address one of the enduring weaknesses of the British economy.’’


How has the apprenticeship announcement been received?

There are many who have expressed their disappointment with the apprenticeship levy, including Neal Todd, partner at city law firm Berwin Leighton Paisner.

‘‘It is disappointing to see the government introducing an additional levy on employment when it should be continuing to encourage businesses to come to this country and to employ people in the UK,’’ said Todd.

‘‘Relatively small additional taxes are not necessarily a problem. However, it indicates the wrong direction of travel for taxes.’’

‘‘Coupled with the continued rhetoric on avoidance, multinationals may well question whether the UK will remain a tax friendly environment in the years to come,’’ concluded Todd.


SMEs could be affected by the levy after all

Stewart Segal, chief executive of the Association of Employment and Learning Providers (AELP),  is pleased that the tax doesn’t affect learning providers, meaning that their budgets can be spent elsewhere:

‘‘We are pleased that the 16 to 19 non schools budget and the non-Apprenticeship budget for adults have been protected in cash terms although that does mean real terms cuts for the next five years as costs increase,’’ said Segal.

‘‘This will mean that budgets need to be prioritised towards key programmes such as Traineeships, English and maths and support for the unemployed, ’’ continued the chief exec.

Segal does hold some reservations towards the levy, fearing that small and medium-sized businesses could be affected by the tax.

‘‘It will also apply to more businesses than we expected because the £3m benchmark means that employers with less than 150 employees could be included in the Levy,’’ said Segal, who added that there needs to be more clarity given towards the rules around the levy if we are to see an effective implementation by 2017.


Levy will encourage more firms to hire apprentices

Carl Lygo, vice chancellor of BPP University, one of the first higher education centres to introduce ‘Degree Apprenticeships’,  believes that the levy will influence the way businesses will hire staff in the future.

‘‘We welcome this levy as it has great potential to increase not only the number of apprenticeships, but particularly those higher quality schemes at or above level three,’’ explained Lygo.

‘‘The Government is serious about improving the quality of apprenticeships, so that they become a viable alternative to the traditional route through university, greater employer ownership of degree programmes is essential.’’

‘‘By encouraging companies to think more laterally about how they could incorporate apprenticeships, possibly alongside their existing graduate programmes, then this levy could be exactly what is needed,’’ concluded Lygo.