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Use the apprenticeship levy opportunity to attract better talent

Recently, larger organisations were hit with the apprenticeship levy. In the rail industry, where apprenticeships are already popular, this will encourage further employment of apprentices. But, argues Nigel Eagers of NSAR, they’re the lucky ones! Smaller organisations might lose out – and so may potential apprentices if we don’t treat this as a real opportunity.

The apprenticeship levy is with us. In case you haven’t yet caught up with the key facts, then you should know that from the start of April, if your organisation is in England, you must pay the levy if your payroll bill exceeds £3m at a rate of 0.5% (gross) of your total PAYE. You will pay regardless of whether you train apprentices or not. 

Some larger organisations are already calling the levy a payroll tax. But for organisations where apprenticeships matter, then the view can be quite different. And apprenticeships really matter to the UK rail industry. Without a steady flow of people with technical skills, the industry will struggle to complete projects on time and staffing costs will continue to escalate. NSAR has worked with the industry to prepare a suite of new apprenticeship standards to develop the technical skills needed. They include new standards for rail engineering covering track, telecommunications, signalling, electrification, overhead lines, traction and rolling stock and rail systems. There are now over 10 apprenticeship standards at various levels, with asset and operations pathways, covering the rail industry. 

New admin challenges 

For rail, encouraging the perception and uptake of apprentices is good. The levy will take more than £30m out of the sector, so it makes great sense to offer apprenticeships right across the industry – they will already have been funded! But the levy does bring with it challenges. There is a greater burden of administration on employers to recover apprenticeship funding. Previously this burden would have fallen on the training companies or colleges providing the service. 

All that said, there are some doubters who question how effective the levy will be in improving the quality of our apprentices. A recent report from the Institute of Fiscal Studies (IFS) said that government spending on apprenticeships in England is only expected to increase by £640m between 2016-17 and 2019-20. That means most of the revenue raised from the apprenticeship levy (£2.4bn nationally) will be spent elsewhere. It concluded the nature of the funding system means there is a “risk that the apprentice ‘brand’ is becoming just another term for training”. 

Concerns expressed 

The target of 600,000 new apprentices a year in this Parliament is a 20% increase on the level in 2014-15. Up to 5,000 of these will be in the rail industry alone this year. Ofsted suggests that this large expansion risks increasing quantity at the expense of quality. Although the government is trying to increase the quality of apprenticeships, the Institute for Apprenticeships may come under pressure to approve these new apprenticeships too quickly. 

But most observers think these dangers are an exaggeration. Speaking on a recent BBC Today programme, a senior research fellow at the London School of Economics, Dr Hilary Steedman, said: “I think the IFS has really overstated their case here. We have a really serious skills problem in this country and we need to raise skills through apprenticeships in order to promote economic growth and improve our productivity levels, which are dire compared to Europe.”

Apprenticeship perceptions shifted 

Even more positively, at a recent event in London, the chief executive of the Association of Colleges, David Hughes, argued that the levy has helped shift the perception of apprenticeships. “The levy is a great thing,” he said. “It has raised the profile of apprenticeships, and got people talking about them. Employers have never taken this sort of programme so seriously before.” 

But he also noted that there are challenges to overcome before it can be truly effective: “The risk [taken by the government] is enormous. It’s a change programme that has thrown everything in the air and attempted to change it all at once.” 

In another recent survey, one in 10 (11.3%) organisations currently not employing apprentices stated that they are planning to do so when the levy comes into force. Still, one-third (32.3%) do not employ apprentices and have no plans to do so. 

Investing in staff skills and development has often been seen as a risky investment; organisations making this valuable investment fear they can lose staff to competing organisations who don’t take the same approach. The apprenticeship levy helps remove the incentive not to invest in staff. If organisations want some, or all, of their levy back, they will need to employ apprentices and invest in their skills. 

Opportunities for small businesses 

Ironically, it may be the non-levy paying organisations that miss out the most. These organisations have wage bills below £3m. In some business sectors, this is less important as it is predominantly larger organisations who take on apprentices. But this is not the case in the rail industry. Smaller businesses may benefit from government funding by a system of co-investment, with the employer paying 10% and the government covering the other 90% of the training cost. 

But smaller organisations will need to negotiate new contracts with training providers to secure the funding on offer. Small businesses in the rail industry are busy places with little capacity to add new roles to their roster. They are also less likely to know what’s available to them and whether they can access additional funding. 

Broadening out 

At NSAR, we are working with both levy and non-levy-paying organisations to enable them to optimise the new rules. For both sizes of organisation, there is a need to think more broadly than the immediate view of an ‘apprenticeship’ as something for young starters. Some commentators have suggested that many levy payers will take advantage of the wide range of occupations covered by apprenticeships, for example management training, to expand the types of apprenticeship they offer to recover what they’ve put in and develop their staff. 

The combination of new rail apprenticeship standards, the introduction of the levy and the funding of apprenticeships for smaller organisations creates a coherent range of skills development programmes and funding for the industry. At the very least, it is worthwhile looking at training available through the industry’s education and training skills supply chain: further education colleges, infrastructure owners and specialist academies. 

The opportunity to present an industry with a sector-wide skills development programme should really help attract the talent needed and improve diversity.

FOR MORE INFORMATION

W: www.nsar.co.uk