Apprenticeship Levy: Use it before you lose it

The British motor industry is facing a skills crisis. A shortfall in mechanics will leave a yawning gap exacerbated by the sector’s desperate need to bring in digital skills to navigate the electric revolution in automotive.

And yet there is an under-utilised solution to the skills crisis in the form of the Apprenticeship Levy – a system that asks big employers to put away cash to fund workplace training. However, flaws in this scheme mean that billions of pounds is being lost, with unspent funds being clawed back by the UK Treasury as tax. That’s an incredible waste of money that could be used to boost the industry.

While many automotive employers have embraced apprenticeships as a way to bring much-needed new blood with tech skills into a sector currently going through a digital transformation, they also can utilise the levy system to upskill existing employees and tackle the skills gaps in their existing workforce.

Given that the UK motor industry is facing a predicted shortfall of 160,000 workers by 2031 due to an aging population and the rise of electric vehicles and decrease in immigration, this system has never been more critical.

“At a time when there are more job vacancies than people looking for work, employers must find a way of showing investment in their workforce,” says Mark Armitage, the IMI’s Head of Membership Products and Services.

The answer to a pressing problem?

The IMI’s own analysis of job adverts in March 2022 showed a 51% increase in postings year-on-year. With sales of new petrol and disease cars set to be banned at the end of the current decade, the IMI has warned that the automotive retail sector has neither the skills or the talent pipeline it needs to service and repair EVs.

“Investing in putting your existing workforce through apprenticeships should be more widely adopted,” says Armitage. “It should be part of every employer’s organisational development strategy, including talent management and succession planning.”

The Head of Membership Products and Services also notes that non-levy-paying companies only need to contribute 5% of the training and assessment costs, with the Government footing the rest of the bill – a major financial incentive for smaller retail shops to start spending.

According to a July 2022 report, since 2019, employers have surrendered more than £3.3bn to the UK Treasury in apprenticeship levy cash they didn’t spend. The clawback has exposed flaws in the apprenticeship system, which was designed to boost spending on workplace training and improve the UK’s poor record on economic productivity.

Official data also shows that the clawback in cash coincided with a 72% drop in entry-level apprenticeships in England. The IMI’s own figures show there was a 63% drop in apprenticeships in the automotive sector during COVID-19. “The pandemic had a detrimental impact on numerous industries, which in turn meant there was a sharp drop in recruitment activity, including apprenticeships,” says Armitage. “Employers that survived the pandemic are now trying to build their workforce.”

When the levy breaks

Since 2017, large employers with an annual salary bill above £3m in England have been required to set aside a sum that’s equivalent to 0.5% of their payroll to fund apprenticeships. These firms can use the cash to pay for an approved apprenticeship scheme or transfer up to a quarter of the levy pot to smaller companies to fund workplace training.

However, any money that’s not been spent after two years is taken by the Treasury as tax. The huge sums that are being clawed back have been attributed to a levy system that’s seen as being too rigid and confusing for many automotive businesses to navigate.

“The apprenticeship levy system had good intentions but is poorly thought out, complicated, difficult to access for employers, and very clunky and long winded – which is not what’s needed in today’s high-speed world,” says Sabina Hegarty, Managing Director of training provider Calibre Group Solutions. “Apprenticeships are difficult to navigate with lengthy and complex end-point assessment processes, which can take many months to complete. Motor dealers looking for the next generation of sales execs or service advisers don’t want to have to wait 18 months for them.”

However, there is another way: companies can use the funds to train existing employees.

“Upskilling people to develop within their business or industry is always a good thing and builds a talent pipeline for the future,” explains Hegarty. “Apprenticeships are much maligned by their name, which means existing staff are sometimes reluctant to be called an apprentice.”

Dean Lander agrees. “Upskilling is a key enabler to business growth, and having the flexibility to access this levy pot to create new skills within existing teams is a good thing,” says the Head of Repair Sector Services at training group Thatcham Research. “Many employers recognise the positive opportunity to use apprenticeships to develop higher-level skills within their management and support teams. With the ability to access funded programmes to upskill, it has meant that many more employed people can get much-desired training to help with career progression.”

Apprentices are required to spend an average of six hours per week away from work. “This may seem like a lot of time, but it’s a well-made investment into the development of people,” says Lander. “If you train the people properly and use this time not only to help them develop those skills but also create strategies for the application of those new skills to their work, the huge efficiency gains will pay back quickly.”

Some employers have faced a certain amount of controversy for using the Apprenticeship Levy scheme to fund training for their senior executives rather than the fresh talent the motor industry needs. But, as Mark Armitage says, “There should be sufficient flexibility within the system to flex depending on your circumstances.”

The levy pot is there to be spent, so there’s no reason why you shouldn’t invest in your staff and prepare your business and its people for a very different future in the automotive sector. It isn’t a perfect system, but it does aid development, which is critically needed.

In other words: get spending.

For more information on the Apprenticeship Levy, including what to do if you’re an employer with operations in other parts of the UK, read the Government’s information on apprenticeship funding

This is an edited extract from IMI's new MotorPro magazine, received free as part of IMI membership.