New apprenticeship levy to be introduced across the economy

In line with the UK Chancellor's Autumn Statement & Spending Review, the government have released their response to the Apprenticeship Levy consultation.

At this point, it is clear that a levy will be introduced and that it will apply to every UK employer, but with those with a wage bill of less than £3m per annum will receive an allowance to offset the cost, and it will all be collected and distributed through PAYE. It is not yet clear the impact this will have on the Construction Industry Training Board (CITB) which also collects a levy from employers in the construction industry, which includes the majority of the joinery industry. 

The BWF responded to the apprenticeship consultation outlining the need to retain a reformed CITB to meet the joinery industry's skill needs. Any further views on the latest proposals, which you can find in the briefing below. can be sent through to dave.campbell@bwf.org.uk

This Levy briefing page from CITB includes the following details on the proposed new Apprenticeship Levy on large firms following the 2015 Spending Review and Autumn Statement.

When will the Levy be introduced?

– The Levy will be introduced in April 2017.

What is the Levy Rate?

– The rate for the levy will be set at 0.5% of an employer’s pay bill and will be collected via Pay as you earn (PAYE).
– Paybill will be calculated based on total employee earnings; it will not include other payments such as benefits in kind and will apply to total employee earnings in respect of all employees.

Who will pay?

– All employers In England, Scotland and Wales with a paybill of more than £3 million will pay the Levy.
– The Government estimate that this equates to less than 2% of UK employers
– Employers will receive an allowance of £15,000. The effect of this allowance is that the levy will only be payable on pay bill in excess of £3,000,000 – employers with a pay bill less than £3,000,000 will not pay anything.

Examples:
Employer of 250 employees, each with a gross salary of £20,000:
Paybill: 250 x £20,000 = £5,000,000
Levy sum: 0.5% x £5,000,000 = £25,000
Allowance: £25,000 – £15,000 = £10,000 annual levy payment

Employer of 100 employees, each with a gross salary of £20,000 would pay:
Paybill: 100 x £20,000 = £2,000,000
Levy sum: 0.5% x £2,000,000 = £10,000
Allowance: £10,000 – £15,000 = £0 annual levy payment

How will the Levy work?

– Employers in England will be able to reclaim the money via a new digital voucher system.
– Employers in England who pay the levy and ‘are committed to apprenticeship training’, will be able to get out more than they pay in to the levy, through a top up to their digital accounts.
– Every employer will have the opportunity to direct the funds that are available in their digital accounts to meet their apprenticeship training needs with approved training providers, and will be given a reasonable amount of time to do so.
– Where employers choose not to use the funds in their digital accounts, the Government will make these more widely available.
– Government will consult with industry and employers on how the future voucher mechanism will work.
– While the majority of SMEs will be exempt from the Apprenticeship Levy, there are currently no details as to whether vouchers could be passed on in the supply-chain or from larger employers directly to SMEs.

What about the Devolved nations?

– The levy will apply to employers across the UK, however:
– As skills training is a devolved policy area in Northern Ireland, Scotland and Wales, only employers in England will receive funds in their digital account to spend on apprenticeships training in England. The Voucher system will not apply in the devolved nations.
– The Chancellor estimates that by 2019-20 the levy will raise £3bn. Of this, £2.5bn will be spent in England (which equates to roughly 83% of the revenue raised) with the remaining £500m split between the devolved nations Scotland, Wales and Northern Ireland receiving their ‘fair share’. This implies the Barnett formula will be the method of distribution.
– Funding allocated through the Barnett Formula is not hypothecated, therefore there is no guarantee that additional funds for devolved nations will be spent on apprenticeships.

Who will oversee this?

– The Government is yet to confirm who will oversee the new Levy stating that; ‘Operational functions associated with funding for apprenticeships and administration of the levy will be fulfilled by the Government’s operational agencies.’
– However, it is widely anticipated that a new Institute of Apprenticeships, to be established by April 2017, will have the responsibility of setting the Apprenticeship Levy rate.

What about the quality of apprenticeships?

– To ensure employers drive quality in the apprenticeship system the Institute for Apprenticeships will be led by employers to regulate the quality of apprenticeships within the context of achieving three million starts by 2020.
– An independent Chair will lead the work of the body, supported by a small Board made up primarily of employers, business leaders and their representatives, to ensure employers continue to improve apprenticeship quality at the highest level.
– Employers will continue to design new apprenticeships and they will engage directly with the body to submit their standards and assessment plans for approval. These will be peer reviewed by a small number of experts to ensure they meet the published quality standard before being approved for publication. The body will also support the work of BIS and DfE in setting a cap on the level of funding available for each apprenticeship standard.

And funding for young people?

– There will be an announcement in a few weeks on additional incentives to support young people to take on an apprenticeship.

What about the construction levy?

– The Government and CITB are working together to consult with employers ahead of the introduction of the apprenticeship levy on how existing arrangements will be affected and whether any changes will be required.

What happens now?

– CITB will consult with industry through a special consensus to work on the implementation of the levy.  
– The Government say they will introduce legislation to implement the new levy in the Finance Bill 2016. (which will follow the 2016 Budget)
– The Government says that they will continue ongoing work with the Devolved Administrations to resolve the practical issues of implementation, funding flows and the interaction of the levy with devolved skills responsibilities to ensure the levy works for employers across the UK.