How can we make the apprenticeship levy fit for purpose?

Written by
Sarah Wild
City & Guilds Group

21 Jun 2018

21 Jun 2018 • by Sarah Wild

In partnership with City & Guilds Group, we gave HR directors a chance to discuss their first-hand experiences of implementing apprenticeship levy schemes and to share frustrations and advice.

Launched with a fanfare by the government in April 2017, England’s apprenticeship levy was designed to cement “a world-class apprenticeship system, led by employers”.

Under this scheme, employers with a payroll of £3m or more pay 0.5% of their total pay bill towards funding for apprenticeship programmes. The money goes into a central pot, which they have two years to claim back to spend on apprenticeship training.

At the time, ministers pledged the levy would boost apprenticeship numbers and drive up the quality of courses, ensuring “every big company plays its part in delivering new generations of skilled apprentices and industry-led training standards to meet their needs”. It would also “make sure that young people have the skills and expertise that employers demand”.

A year on, 90% of the levy remained unspent. And this month, the government’s own figures showed that the number of people starting an apprenticeship in the current academic year had fallen sharply by 28% compared with the previous year, leading to calls for it to be reviewed or axed. The target of creating 3 million apprenticeships by 2020 looks further away than ever.

Defending the levy, skills and apprenticeships minister Anne Milton and Institute for Apprenticeships chief executive Sir Gerry Berragan penned an open letter in The Times (backed by 51 signatories) championing the “diverse and high-quality opportunities on offer” and claiming that “employers are developing new, high-quality apprenticeships, at all levels, all the time.”

People power

It was against this backdrop that Changeboard held a timely roundtable discussion under Chatham House Rules, in partnership with City & Guilds Group, inviting HR directors to share their experiences of implementing the levy.

Led by City & Guilds and ILM managing director Kirstie Donnelly, and facilitated by Alexander Mann Solutions’ head of global citizenship Tim Campbell, a strong advocate of apprenticeships, it enabled a frank discussion between those charged with overseeing their organisations’ levy schemes.

A case study showcasing “creative ways in which employers are thinking about and using their levy”, was provided by IBM’s senior manager – apprenticeships & school leaver schemes – Julia Game, describing her company’s journey to becoming an employer-provider, delivering some of the off-the-job training element of apprenticeships to its staff.

Coinciding with the event was the launch of City & Guilds Group’s People Power report, questioning whether the UK economy has the skilled people it needs for the future.

This contains the findings of a survey of 1,000 UK employers, and makes interesting reading on the subject of apprenticeships, demonstrating high levels of positivity around their inherent value: not only do 38% of respondents say it is their chosen method of bringing new blood into UK businesses (versus 27% who have a graduate scheme), but apprenticeships are also the most used form of training within UK businesses, with 42% saying they have programmes in place.

The report urges employers to “make the most of the apprenticeship levy to build a talented, home-grown workforce and upskill employees at all levels”, particularly in the face of Brexit, encouraging HR to “look at their talent development plans and see where the levy can be used to support reskilling and upskilling, as well as entry-level recruitment”.

However, it acknowledges that “with 90% of the levy still unspent, it’s clear that employers need to be convinced of its benefits” and demands greater support and advice from government on how to access the system.

“Some thought should be given to simplifying the current system, as employers have told us they find its complexity off-putting,” it adds.

Simple flexibility

Donnelly assured participants that, while City & Guilds Group was not a signatory to the Times letter, it remains strongly supportive of apprenticeships.

“I’m incredibly optimistic about some of the findings in our report, but more importantly, about the future of apprenticeships, despite the gloomy news,” she enthused.

“I see too many brilliant examples of young and more mature people getting opportunities as a result of apprenticeships that they just never would have had. We’ve got to expect that it will take some time for a system like this to bed in – it takes 5-10 years; therefore, we’ve got to be brave, and we’ve got to stick with it.

“The employers I work with say all it would take [for the levy to become a useful tool] is some simple flexibility, some simplicity adding into the system; maybe unlocking some of the funding but trusting that that won’t erode quality.”

For Donnelly, there needs to be tripartite collaboration between employers, ministers and the training and education sector, to get apprenticeships right.

This positivity was echoed by roundtable attendees.

“The opportunity the levy offers is vast,” acknowledged one HR director, while another pointed out that the money constitutes “a lot more than our training budgets would be”.  

“We have such an opportunity to embrace this and make a difference to so many people’s lives and the economy,” added a third participant.

“I think that’s part of the frustration,” responded Donnelly. “It would only take a little bit more creative thinking and flexibility and we could get to that point.”

So what are the issues holding employers back?

Problems raised included the inflexibility and restrictions of the current scheme that create barriers to spending the money; this is encouraging some employers to write off the levy as a tax rather than treating it as a tool for training.

“A number of organisations we work with that have said that, because of headcount issues and concerns around Brexit, they’re just going to pay the tax,” confirmed Campbell.

The inflexibility is fuelling feelings among some that the levy was actively designed to be unworkable: “There is a cynical view that this was designed to be ever-thus; that the treasury is sitting there rubbing its hands together,” asserted one participant.

Even those companies prepared to view the levy as a tax are failing to see the clear social benefits of their contributions.

“I would love to know if there is another organisation that has managed to use the money we put in the pot,” said one HR director. “I thought ‘at least it can be used to upskill in other industries that don’t have what we have in terms of a professionally skilled and educated workforce’, but there isn’t any benefit from a social level that I can see yet. So there are some real frustrations, beyond not being able to use it internally.”

Off-the-job training

One tangible barrier highlighted by employers has been the complexity of the Digital Apprenticeship Service (DAS), which has made it difficult to draw down levy funds. “My biggest frustration is probably with the DAS account with regards to the forecasting,” complained one participant. “I have to sit and do lots of spreadsheets myself.”

Another specific inflexibility relates to the requirement for apprentices to spend 20% of their time in off-the-job training. “If that could be flexed down to 10-15% we would get far greater uptake; not so much around the new hires, but around the experienced people,” commented an HR director.

A second shared how her company’s finance team was quick to do the maths before taking on apprentices under the scheme: “They asked themselves which was more valuable to them: spending the apprenticeship levy or having people in the business for that 20% of the time?

“We found we couldn’t just switch existing staff on training programmes to apprenticeships, so with the 20% element, people said ‘I’d rather just carry on doing the training separately and have them in the business longer’,” she added.

The fact that only 10% of levy vouchers can be passed down through supply chains is another restriction participants referenced, while the rules around what the levy can be spent on are also limiting.

“An issue for us is manager capability,” said an attendee. “I fundamentally don't think that the managers in our organisation understand how to support apprentices, so I’d like to spend money on that.”

“If a proportion of the money could be spent on infrastructure to support this within your businesses, that would at least be something,” agreed Donnelly.

Campbell urged ministers to be open to flexibility around standards and frameworks, a call echoed strongly by Donnelly.

“When we talk about flexibility, what we’re saying is ‘let’s have the flexibility by industry; by regional skill shortages; by particular initiatives'. It may be that certain industries do only 10% off the job,” she said. “We need to get this heard or it will fundamentally damage how long we can keep the system going.”

Inadequate standards

For some employers, the lack of relevant standards for potential apprentices is another barrier, leading to questions around the readiness of the training and education sector to meet the needs of all organisations.

“We’ve always recruited apprentices aged 16-18 and we’re struggling to find appropriate standards for these intakes,” commented a participant from an engineering firm. “We’re still using the old frameworks. Our biggest struggle is finding those standards that work for our business.”

Co-operation between organisations in specific sectors may be one way of addressing this.

Meanwhile, the England-centric nature of the levy versus the global nature of many large organisations is a further stumbling block for many.

“Trying to find a way to do a UK spend is quite challenging, because ownership, typically, doesn’t sit in the UK,” warned an HR director. “Having to put a different standard in place to other regions: it’s a cultural challenge. We get the right to spend money that nobody else has access to.”

She added that Brexit is creating a “huge pressure point” for her organisation. “When we look at five-year strategy, there are lots of question marks. Apprenticeships are a longer-term commitment and that feels very difficult in this climate. We’ve run into challenges with the rigidity.”

Opportunities for school leavers

Despite the promotion of apprenticeships to younger people (“the marketing and  conversations are predominantly around school leavers” according to one HR director), opportunities for this demographic remain scarce.

As one participant summed up: “The big demand is coming for degree apprenticeships but we have off-shored our entry-level roles. I feel I’ve got the talent, but I haven’t got the opportunities.”

This is pushing employers to use the money in ways that do not fit with the social intentions underpinning the levy.

“Unfortunately, the piece that looks most relevant is management upskilling and MBA level; socially and ethically, that’s not necessary the place where we want to be putting this money, but we’re struggling,” explained a delegate. “We’ve outsourced a lot of entry-level roles and headcount allocation is a big issue for us as well.”

“What’s interesting is how low the figures have been in the 16-18 category,” acknowledged Donnelly. “So although the imagery is pushing that out, that’s not translating because employers are using their levy in different ways. There are all these expectant 16-18 year olds having this imagery forced on them but they’re not being able to find the opportunities.”

Lateral thinking may help employers identify entry-level roles in less obvious parts of their organisations; for example, IBM is considering business and administration apprenticeships in its real estate business, and paralegal apprenticeships in its legal division.

“Managers are now asking, with entry-level positions, could that job be done by an apprentice?” explained Game. “That’s been an internal PR exercise. I have my apprenticeships road show, highlighting the new options for existing staff.”

Generational attitudes

PR is also needed around attitudes to apprenticeships, both within organisations and schools and colleges.

“We’ve had to do an internal promotion or campaign about it to overcome the prejudices within the organisation from the hiring manages about apprentices,” admitted one participant, while another stressed: “We still struggle with parents and teachers thinking that apprenticeships are a second-class career option; even degree apprenticeships.”

“What’s really sold apprenticeships internally has been the apprentices themselves,” reassured Game.

Another delegate elaborated: “When we have the discussion [about apprenticeships] with our senior management team the response is luke-warm, but when you actually get to the individuals, it’s magic. Those are our heroes and our stories.’

Being creative around the levy makes progress possible, delegates agreed, but the irony of having to “be crafty” is not lost on employers.

“It seems unbelievable that you can have so much money to deliver something and have so many frustrations getting that done,” said Campbell. “It’s interesting that even large global brands are having to be crafty around how they follow through on a government commitment.”

He stressed the urgent need for a dialogue between employers and ministers to find solutions to ongoing problems.

“We need our stories and we need our heroes but we also need realism,” summed up Donnelly. “We need to show what is really happening out here. And the more channels we can use to flush back up, the better.

“I’m leaving the conversation with lots of optimism, but a healthy dose of realism about the fact that there’s an awfully long way to go,” she concluded. “I’m certainly not hearing from any of you ‘slam-dunk, money spent’ but that you see it as real frustration that it’s money you’d love to be able to use better but you can’t get at it.”

City & Guilds Group