Since prehistoric times, man has been planting and harvesting crops according to the phases of the moon. The idea, in a nutshell, is that crops that produce their fruit above ground should be planted during the waxing moon and root crops during the waning moon.
Since George Osborne announced the apprenticeship levy in his summer budget we have been waiting to find out what sort of crop he is trying to grow. There has been a little more clarification over recent months. We know now, for instance, that the levy of 0.5 per cent of payroll will be raised only on companies with a £3 million-plus wage bill. In England, employers will be able to reclaim the money via a digital voucher – an "e-voucher" – which they can then use to pay for apprenticeship training. This money will replace apprenticeships training funding currently provided by the Skills Funding Agency.
But there are still many questions unanswered about the intent, direction and impact of the government’s approach to apprenticeships. And these leave companies like mine – which already have mature schemes – rather nervous. My concerns focus on three key areas: what its impact will be on existing training budgets; how the training is to be defined and accredited; and the overall benefit to small and medium-sized enterprises (SMEs) and the UK economy.
Getting the training balance right is a vital issue in the UK today. We suffer from an ever-growing skills shortage. We also have an ageing workforce of people who can’t afford or don’t want to retire – especially in the financial sector, where I work. They offer skills and experience but they are naturally resistant to change.
From April 2017, the apprenticeship programme for England will be an all-age, all-sector, all-level programme. The apprenticeship levy funding arrangements directly affect only the largest employers who will be encouraged to take on more apprentices and increase their contribution to staff training. The government is targeting 3 million new apprenticeships over the next five years. They say that employers committed to apprenticeships training will be able to get back more from the levy than they put in when they train over and above the amount of their own contribution. Which raises the suspicion that the scheme might become a target-driven numbers game to get unskilled school-leavers off the dole. It is also unashamedly aimed at big business – and I’ll come to the problem with that later.
Businesses like mine have an existing workforce that needs to be upskilled. We have, in addition to our apprentice scheme, a graduate programme and a continuous training programme, and we recruit skilled people to fill gaps in our expertise. The question is, can we afford to take on new apprentices without diverting attention from upskilling our existing workforce? And the answer is a firm no, until we have much more information about the new guidelines.
Like most new ideas from the Treasury, the devil is in the detail. The impact on businesses will depend on what they are buying into. We know little about the length of proposed schemes or whether businesses can offset their allowance against tax. But most importantly, we know next to nothing about the nature of the training programmes that our £15,000 worth of e-vouchers might buy. We know there will be nominated training providers. But who is going to vet them and their courses, and which courses will be accredited? Will they include much needed soft skills such as letter-writing or how to interact with a customer?
As it stands the apprenticeship initiative appears to be geared only to external training. So, before embracing it we need to know what the net returns are for the apprentice and for the business. And we need clarity on these guidelines quickly. My firm is already planning for its intake of school-leavers for September next year and shaping budgets for April 2017.
We also need clarity around the objectives. Examine these three sentences which I think fairly sum up the apprenticeship levy:
All funds raised by the levy will go towards post-16 apprenticeships.
Employers that do not undertake enough apprenticeships to retrieve their contribution could see their money used to fund top-ups for other firms.
Small firms will use the e-voucher system to pay for apprenticeships training, but the money will not come from the levy.
Read between the lines and the scheme looks suspiciously like a numbers game to reduce youth unemployment, driven by economic dogma. If it is paid for and administered by big business, what role will smaller companies play and where will their training funding come from? There is also a strong whiff of unintended consequences even as the seed is being sown.
A lot will depend on the attraction of the scheme for SMEs. Of the 5.4 million businesses in the UK, 99 per cent are in this category, and they account for just over 50 per cent of the economy, employing some 15 million people. The apprenticeship levy will not affect them, but they will be eligible for e-vouchers for the training of apprentices they take on.
I question whether the government’s scheme will play to the needs and psychology of smaller businesses. Most of these companies put all their energy into keeping on top of the day job. When their businesses grow naturally they need to recruit. But will they take on untrained school-leavers as apprentices, particularly when the training scheme details remain ambiguous and the government’s initiative appears to be directed not at them but at giant multinationals. And yet, without the support of SMEs, the apprentice movement will be unable to reach anywhere near its full potential.
I am a firm believer in the benefit that well-run apprenticeship programmes can bring to the UK economy by tackling our critical skill shortages. But if we don’t get it right in the planting season, we will not see sturdy growth towards the sun.
Ashwin Mistry is Chairman of independent broking group Brokerbility