How Does the Levy Work?
The Apprenticeship Levy is a charge introduced by government to help fund their plans to deliver a step change in apprenticeship numbers and their quality. The levy is designed to put apprenticeship funding in the hands of employers and encourage them to invest in and create apprenticeships.
The levy applies to all employers across all sectors in the UK, including local authorities. The rate is set at 0.5 per cent of an employers’ pay bill, collected monthly via Pay As You Earn (PAYE). All employers have an allowance of £15,000, which means that the levy is applicable on pay bills over the first £3 million. All London boroughs qualify to pay the levy.
All employers have access to the Digital Apprenticeship Service whether they have paid the levy or not and use it to manage the government funding available to them to pay for apprenticeship training. All Levy-paying employers receive a 10 per cent top-up to their digital accounts funded by government. All employers with a digital account have 24 months to spend their funds, including top-ups, before they expire.
The levy came into force April 2017.
What can the Levy be Spent on?
The government has been very specific about what levy funds can and cannot be spent on. Funds can be used for:
- Apprenticeship training and assessment (with an approved training provider and assessment organisation up to its funding band maximum).
Funds cannot be used for:
- Statutory licenses to practice
- Travel and subsidiary costs
- Managerial costs
- Work placement programmes
- The costs of setting up an apprenticeship programme.
What are the opportunities for London?
- Identifying skills gaps – The levy represents a big opportunity for employers to identify skills gaps in their organisation and use levy funds to help fill them.
- Upskilling existing staff – The levy also represents an opportunity to provide training to existing staff members to improve their current skills or learn new ones.
- Developing new apprenticeship standards if there are gaps – As the government makes the transition from apprenticeship frameworks to the new apprenticeship standards it is important that employers consider if the right standards are in place, whether there are any gaps in provision and how they can use the trailblazer programme to develop new ones.
- Working with supply chains and other employers to encourage levy spending – There is no ring-fence in place for the share of the Levy that London generates, so any unspent levy funds will be recycled elsewhere in the system. It is important that boroughs use their leadership role and contacts with business to encourage them to spend their levy funds on recruiting apprentices and training existing staff before their funds expire and are reallocated elsewhere in the system.
- Working with other London boroughs on developing new standards, delivering economies of scale, identifying common skills or jointly procuring training for more specialist roles.
What are the challenges for London?
- London’s Area Cost Adjustment removed – The government has confirmed that they will scrap the Area Cost Adjustment for London (ACA). The ACA has previously applied across all adult skills provision, including 16-18 and 19+ apprenticeships to reflect that the cost of delivering an apprenticeship in London is higher than in other parts of the UK.
- Impact on boroughs’ resources – London Councils has estimated that the Levy would have cost the boroughs £38m in 2014/15, inclusive of schools. There may also be a further impact on boroughs' resources through potential extra salary, admin and procurement costs.
- Extra administrative burden – Requiring employers to find and part-pay for training represents an administrative burden that could be an additional barrier to SMEs.
- High public sector target introduced – The government’s proposed public sector target would require London boroughs to deliver nearly 5000 apprenticeship starts per year – more than twice what boroughs have been able to deliver since the Levy was introduced.
- Restrictions on working with supply chains – The government currently only employers to transfer 10 per cent of funds to another employer, which is too small to make a substantive impact. London Councils welcome the extension of the transfer to 25 per cent from April 2019.
- Rethinking recruitment policy - Boroughs may need to update their existing Workforce Development Strategies.