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Is it time to fire the apprenticeship levy scheme?

In 2017 the government launched the apprenticeship levy to fund its ambitious plan to have three million apprentices in training by 2020. After only a year the scheme is attracting growing criticism from various quarters.

Criticism has been levied by business leaders about the levy - 0.5% of the wage bill for companies whose annual payroll costs exceed £3m. Smaller companies that still employ 50 or more people are also expected to contribute to the costs of the scheme. Admittedly companies can claim back vouchers from the fund created by the levy plus 10% more for providing the training for apprentices. However many companies have currently not sought to do this with the majority of the apprenticeship fund being unclaimed. Consequently many businesses tend to view the apprenticeship levy as just being a payroll tax on businesses.

Others have claimed that apprenticeships are often no more than a means of securing cheap labour, with the hourly rate paid to apprenticeships being below the National Minimum Wage and the National Living Wage. The hourly minimum rate for apprentices in 2018/19 is £3.70. This compares with a National Minimum Wage rate for under-18s of £4.20 per hour and the National Living Wage rate on £7.83 per hour. Claims have been made that some businesses are cynically reclassifying their low-skill jobs as apprenticeships in order to cut the pay they have to pay to staff.

It is unsurprising that given this backcloth the number of young people entering apprenticeship schemes has fallen sharply. Between August 2017 and January 2018 the number of people entering apprenticeships was 24% lower than a year earlier.

The training schemes that can be bought from the vouchers companies can claim back from the government have been criticised as ineffectual. A spokesperson for the British Chambers of Commerce (BCC) claiming that the inflexibility and restrictiveness of the government’s apprenticeship scheme is acting as a brake on skills development.

Is the current scheme fit for purpose? It seems not and an overhaul is warranted.

Martin Upton

Director, True Potential Centre for the Public Understanding of Finance (True Potential PUFin)

20th April 2018

True Potential PUFin is based at the Open University Business School in Milton Keynes, UK

True Potential PUFin is the first and only personal finance research centre in the UK that has an active teaching programme freely available to the public. Supported by the University’s excellence in delivering distance learning, the Centre is uniquely positioned to develop the public’s financial capability and to research the impact and effectiveness of its education programme.

True Potential PUFin is supported by a five-year programme of financial support provided by True Potential LLP.

The views of True Potential PUFin academics do not necessarily reflect the views of True Potential LLP


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