The lowdown on the levy

Apprenticeships are an obvious answer to the escalating skills crisis that threatens to hold back the British motor industry.

With an expected shortfall of 160,000 workers by 2031 due to retirement, migration and technology, apprenticeships have the power to deliver enormous benefits to the automotive industry, helping to boost the supply of skilled labour.

Yet many larger employers are forfeiting vast sums they have been forced to set aside under the Apprenticeship Levy – a government initiative designed to boost apprenticeships. Under the levy, employers with an annual wage bill larger than £3m must set aside the equivalent of 0.5% of their payroll to fund apprenticeships in England.

The companies can either spend the cash on an approved apprenticeship scheme or transfer a quarter of their levy pot to smaller firms in their supply chain.

However, with a decrease in apprenticeships, much of the pot is being clawed back by the government under a ‘Use it or lose it’ clause. Any unspent money is taken back after 24 months, with the total returned reaching more than £2bn since the
levy was launched in 2017.

“The unclaimed levy pot is definitely a wasted opportunity,” says Frank Harvey, head of member services at the Independent Garage Association, an organisation that represents the repair sector. “If levy-paying businesses are not utilising their pot, there should be a clear opportunity and messaging to make this pot available to smaller employers to encourage and provide them with the confidence that any apprentice they take on will be supported.”

How to access the Apprenticeship Levy

A proportion of the unclaimed pot is redirected to fund apprenticeships for small companies that don’t pay the levy. These smaller groups can access the funds through a co-investment scheme with the government. In 2019, the co-investment rate for small firms was reduced from 10% to 5%.

However, smaller firms aren’t making the most of this opportunity to boost their workforce at a lower cost. The latest figures from the Federation of Small Businesses (FSB) show that just 16% of small employers currently have an apprentice on their books, with the biggest barrier being administration costs.

Non-levy payers contribute 5% towards the cost of training and assessing an apprentice, with the government covering the rest – up the funding band maximum. This amount is paid directly to the training provider. Larger companies can withdraw the funds they have paid into the levy to spend on apprentices, with the government adding an additional 10% on top.

However, the levy cannot be used to fund an apprentice’s wages. The current national minimum wage rate for an apprentice is £4.81 per hour for those in their first year of training or aged 16-18. There may also be additional costs, including time spent mentoring and managing apprentices, travel expenses and accommodation costs, while training providers may also charge recruitment fees.

For small businesses with fewer than 50 employees, there’s the small employer waiver. The waiver means that these businesses can take on apprentices aged 16- 18 at no extra cost, and also extends to apprentices aged 19-24 who have previously been in care or have a Local Authority Education, Health and Care Plan. In these cases, the government will pay 100% of the training costs up to the funding band maximum.

Funds are just a few clicks away

However, many employers say the levy system is too bureaucratic and complicated. “The whole levy piece has been opaque from the beginning,” explains Harvey. “In general, smaller employers are uncertain about how they would fund an apprentice and how the levy would work for them, if at all.”

Companies can access levy funds through the online apprenticeship service after creating a digital account.

“This allows businesses to see what funds they have available and how much is being paid in each month, including the government top-up,” explains Mark Armitage from the IMI. “It also allows them to allocate funds to put an employee on an apprenticeship with a chosen training provider.”

The levy pot can only be used to deliver apprenticeship training and assessment from approved providers, with the government providing an online list of organisations eligible to receive levy funding to train apprentices. Some employers have claimed that greater flexibility in what companies can spend the levy pot on would help to boost the uptake of apprenticeships.

“Apprenticeships should be made more flexible and agile to enable businesses to access less academic school leavers, who, unfortunately, are being left behind,” says Dean Lander (above), head of repair sector services at training provider Thatcham Research. “This in turn would help small businesses within industry supply chains to train people for their specific business needs and create a skilled workforce for future jobs.”

However, the FSB’s Tina McKenzie warns that expanding the list of things that large firms can spend this cash on would lead to a steep drop in funds available for small business apprenticeships. Either way, awareness among small employers about the benefits of paying for apprenticeships must increase if the motor industry is to plug its escalating skills gap.

“It’s a worthwhile investment in the development of people,” says Lander. “If you train people appropriately and use this time not only to help them develop skills but also create strategies for the application of those new skills to their work, the efficiency gains will pay for themselves.

“I firmly believe a levy scheme with greater flexibility is required, along with more assistance to enable large employers to work with their supply chains and encourage more apprenticeship starts. We urge the government and the industry to find ways to collaborate in making apprenticeships a positive and more supported experience for all.”

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