What the Apprenticeship Levy means for you

 25 November 2015

In the 2015 Autumn Statement George Osborne announced a new apprenticeship levy on employers with the aim of covering the cost of apprentices’ training. The levy will apply to larger companies in the creative and cultural sector.

Analysis of the Apprenticeship Levy and a new publication on apprenticeships in the creative industries will be available at our National Conference, 3 March 2016. Book your ticket now.

The policy aims to ensure that all those benefitting from an apprenticeship – apprentice, employer and the state – play a role in funding it. It is also fundamental to achieving and paying for the Government’s 3 million target for apprenticeships by 2020.

What is the apprenticeship levy?

The broad principle is that large employers will all be required to pay a levy. Firms will receive an allowance of £15,000 to offset against their levy payment. This means that the levy will only be paid on any paybill in excess of £3m.

These employers will pay a 0.5 per cent of their pay bill into a central fund. In return they will access electronic vouchers that can be used to access training funding for their own apprentices. As now employers will still have to pay the wages of apprenticeships in addition.

Typically they will ‘buy’ this training from a college or recognised independent training provider. No money will pass hands: the voucher system will trigger a payment to the training provider. It is possible that some very large employers will develop their own apprenticeship training and, if so, there are questions about how this training will be regulated. For arts organisations there’s the question of how they will judge and ‘buy’ training when the number of training providers offering creative frameworks is limited. How will they judge quality and manage the new relationships?

Any unspent levy money – funding that a company has contributed via the levy but can’t spend on training their own apprentices – will be distributed more widely. There are many unanswered questions about how this will work.

How might the levy work in practice?

In the current system the employer pays the apprentice wages, the funding agency pays for the training and the apprentice is the employee (so adds their labour to the mix). Even now, some apprenticeships are only part-funded by the Government, so the employer already pays 50 per cent of the training costs of apprentices over 19 years old. Traditionally, training has been provided by Further Education colleges and independent training providers. This has often been through ‘day release’.

Imagine a large arts organisation – perhaps a theatre employing 300 employees with a payroll of around £6,000,000. They could be paying £30,000 per annum through the levy (most people are saying 0.5 per cent is the likely level). To recoup this fund they would need to recruit four or five apprentices per year and to find around an additional £50,000 in wage costs to the apprentices – unless they are willing to pay apprentices the absolute minimum, which we know is impossible to live on independently.

The levy could become a tax on companies that don’t take apprentices, or can’t take enough to reclaim the training funds.

If, in any one year, the theatre couldn’t recruit enough apprentices to cover the levy payment it could potentially let smaller creative businesses access the fund, or the levy may end up in a more general pot to be distributed to other employers.

If small businesses benefit from being able to buy the training with unspent vouchers from bigger organisations they will still need to find the wage costs. There is a huge danger that our larger creative businesses – for example in the film, media and digital sector – will end up paying through the levy and, because they can’t take enough apprentices in any one year, the money will be redirected to other sectors.

If so, an inadvertent effect of the levy would be that it becomes a tax on companies that don’t take apprentices, or can’t take enough in any one year to reclaim the training funds, that is redirected to sectors that are more apprenticeship friendly.

What is the impact on creative businesses?

It’s not hard to see the issues emerging for creative businesses. Even with a will to create apprenticeships, major companies may not be able to recruit apprentices at a consistent level year-on-year. And this approach will also impact on NDPBs like Arts Council England who have little experience of recruiting non-graduates. Their levy bills may be substantial.

In the creative industries we have seen great success with introducing apprentices – over 5,000 placed in nearly 900 companies over the last few years – and initial findings from the Creative Employment Programme suggest that apprentices add significant benefit to creative businesses in terms of productivity and contribute effectively to the diversification of the workforce.

Arts organisations may be subsidising established apprenticeship areas like hairdressing, construction and plumbing.

But creative companies struggle to find the wage costs of their apprentices. This proposal will force bigger companies to pay the wage costs and the training levy. They will only be able to reclaim what they’ve paid in if they recruit apprentices in proportion and use their vouchers to buy training.

The new proposals put the ‘buying power’ with big employers, but it is not yet clear how smaller organisations will access the vouchers. One proposal is bigger employers that can’t use ‘their’ allocation for their own training of apprentices might share their available vouchers with their ‘supply chain’. This term that doesn’t really reflect the ecology of the creative industries, so perhaps they could instead allocate it to other small creative businesses?

At the very least it would be helpful if any unspent levy funding from arts organisations and creative businesses could be ring-fenced to benefit other creative companies. Otherwise arts organisations will be subsidising apprenticeship training in established apprenticeship areas like hairdressing, construction and plumbing where employers are able to drive take-up.

How will this affect the creative industry?

A consultation on the Levy was held in Octobver 2015, and the information sheet nelow providea guide to the key issues.

Further analysis, with case studies from creative employers who have taken on apprentices, will be available in our new publication, to be launched at our 2016 National Conference - Building a Creative Nation: Putting Skills to Work.


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