Is the employer levy a big deal? Definitely maybe

20th November 2015 at 00:00
The apprenticeship landscape is changing, but the ramifications aren’t yet clear

In less than 18 months a new apprenticeship levy will be imposed on large employers, changing the landscape of further education and apprenticeships beyond recognition. Definitely? Maybe.

When thinking about how big a deal the levy might be, it’s worth asking: why now? Levies aren’t a new idea. We had them in most sectors for the two decades up to the early 1980s. A couple still exist, in the construction and engineering sectors. In the 2003 skills strategy White Paper, the Labour government promised to support the development of new sector-based levies on a voluntary basis. Lord Leitch offered equivocal support for the same in his 2006 review, and the government followed suit in its 2007 White Paper (I know, I wrote it). The brilliantly Yes Minister talk of the time was of “post voluntarism” if employers didn’t get their act together and invest in skills.

So, have ministers finally tired of employers’ failure to recognise the way that skills drive productivity, which drives profitability and growth? Maybe. Or is the government just skint and in desperate need of new ways to fund tertiary education? Definitely. Are levies a proven policy measure, guaranteed to change behaviour? At best, maybe.

The evidence is pretty patchy. There hasn’t been a serious evaluation of the old industry training board regime. Evidence from overseas (France, Quebec, Malaysia and Australia have all operated levy regimes at some point) suggests a series of flaws, issues and risks.

What could go wrong?

Clunky and expensive administration can take resource away from training and undermine employer engagement. The Skills Funding Agency (SFA) is currently developing a digital voucher exchange to support the new apprenticeship levy, with employers that want to spend more able to buy additional vouchers at a discounted rate. What could go wrong? I’m fractionally too young to remember the individual learning accounts fiasco. Let’s hope that the survivors still in the Department for Business, Innovation and Skills and the SFA shout loud and often about the fractures, failures and frauds that killed an otherwise perfectly sensible attempt to put purchasing power in the hands of the customer.

Even where employers do engage in training rather than bearing the levy as a tax, there is little evidence of productivity improvements flowing from levy regimes. The risk is that we will see further growth in content-light apprenticeships that help the government to hit its target of creating 3 million starts but miss the point: better skilled young people, better able to realise their potential, improving business productivity and performance.

The other big flaw in previous levy regimes is that small firms tend to lose out because the levy unfairly hits their finances, and because they find it hardest to engage with whatever arrangements are put in place for them to access levy-funded training. On this point, the government has definitely got it right. Only “large” employers will be required to pay the levy, and they may be permitted to spend it in their supply chain – a great idea salvaged from the wreckage of the “employer ownership of skills” pilots.

What’s going to happen?

So what’s going to happen in 2017? For large employers faced with the prospect of a new tax, there are some big questions and opportunities on the horizon. We should assume that finance directors across the nation will soon be asking their HR colleagues a simple question: “How do we get our money back?” From that starting point stems either a serious discussion about how the business will invest in emerging talent, or one about what can be badged to ensure funding is reclaimed.

Some will ultimately choose to do nothing and bear the levy as another annoying tax. Some will do enough to spend their levy one way or the other. Others will be receptive to the intended behavioural nudge and get serious about training. Other policy measures – including a serious assault on bureaucracy, clearer and simpler marketing than we’ve ever seen, and (my favourite) human capital reporting requirements for large employers – will be required to cement the last option as the course taken by the majority.

Employers will also have unprecedented (if still limited) choice over who they work with to deliver their apprenticeship programme. Unprecedented because funding will, finally, follow the employer. Limited because only registered providers will be able to play. Again, different employers will make different decisions. Some will rethink their choice of provider now they’re really free to do so. Others will demand that their commercial learning and development suppliers enter the apprenticeship space. This could have profound implications for providers.

And what of providers? Grant funding ripped out of our grant letters; the dynamics of the sales process inverted; the opportunity to increase apprenticeship volumes without having to worry about whether government will fund in-year growth; employers compelled to engage with apprenticeships whether they like it or not; and the threat of new and commercial providers encroaching into our traditional backyard.

Threat? Definitely. Opportunity? Maybe. We set up Hart Learning and Development as a discrete business, at arms-length from North Hertfordshire College, to help us stave off the threat and seize the opportunity of the levy era. For me, then, is the levy a big deal? Definitely. Will it change everything? Maybe.

Matt Hamnett is principal of North Hertfordshire College and chief executive of the Hart Learning Group

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