Applying the apprenticeship levy in Scotland

Funding for skills - Image credit: Holyrood

A UK-wide apprenticeship levy will come into force in April 2017, requiring larger companies and public sector bodies that have pay expenditure of over £3m per year to pay 0.5 per cent of their annual bill to the government for apprenticeship training.

The scheme was announced in the UK budget in 2015 and is intended to increase the number of apprenticeships in the UK.

In England employers will be able to access the funding for training of apprentices through an apprenticeship service account and draw funds to support their own apprenticeship training or pass some of the funding onto another company, such as one of their suppliers.

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However, because apprenticeships and training is a devolved area, Scotland’s share of the money raised from the levy will be passed to the Scottish Government as part of the UK Government block grant that is allocated under the Barnett formula.

This means the Scottish Government can decide how it spends the money, which doesn’t need to be on apprenticeships.

The Scottish Government has indicated that it intends to invest Scotland’s share of the levy, which amounts to £221m in 2017-18, £230m in 2018-19 and £239m in 2019-20, at a national level rather than give it directly to employers for training.

Following a consultation in July and August last year, the Scottish Government published its plans for the levy in January 2017.

This includes the intention to increase apprenticeships to 30,000 new starts by 2020.

It has announced that the levy will be used through organisations such as Skills Development Scotland, colleges and other initiatives to support the creation of a £10m Workforce Development Fund which will help employers upskill and reskill their workforce and address skills gaps.

It will also continue to expand the number of Modern Apprenticeships, increase the number of graduate level and foundation apprenticeships and provide funding for other initiatives such as Individual Learning Accounts and rural supplements for training providers in remote areas.

The Scottish Government has been critical of the introduction of the apprenticeship levy by the UK Government, but says it has listened to feedback on how it is used.

Minister for Employability and Training Jamie Hepburn said: “While the UK Government forced this levy on Scotland without consultation, we have done all we can to involve employers in decisions on how the funding is spent.

“We have responded to the needs of employers by announcing an approach that is much broader than is currently proposed in England, and that will support skills, training and employment.

“We will use the apprenticeship levy to give the workplace more options and flexibility.

“While we will boost Modern Apprenticeships, we will also address skills gaps and the training needs of existing employees where a full apprenticeship might not be appropriate.”

However, the implementation of the apprenticeship levy in Scotland has caused concern among some in the business community and the public sector.

Perhaps the strongest criticism has come from local government.

COSLA has estimated that the apprenticeship levy could cost local authorities £24m as employers on top of the £25m it says councils already spend on opportunities for young people such as apprenticeships, graduate traineeships, probationer teachers and work experience.

In the consultation, COSLA argued that funding from the apprenticeship levy should be given back to local authorities in full by the Scottish Government to support the work they already do in partnership on the Developing the Young Workforce (DYW) strategy to reduce youth unemployment by 40 per cent by 2021.

According to COSLA, it was told on 6 December that local government would have its levy funding returned in full in the next financial year only to find out a week later that it wouldn’t.

A COSLA spokesperson said: “From a COSLA perspective, this decision by the Scottish Government undermines the DYW programme and is nonsensical.

“It is also entirely counterproductive to efforts to reduce youth unemployment in Scotland by putting in danger the future of valuable local initiatives provided by councils for young people.”

And business organisations have been highlighting that the levy comes on top of a number of challenges that they already face, such as Brexit and increasing business rates.

The Scottish Chambers of Commerce have repeatedly listed the apprenticeship levy among pressures facing businesses this year, although the main focus of its concerns have been on taxes.

And law firm Grant Thornton has suggested that the changes could leave Scottish employers facing “unnecessary higher costs and loss of competitive edge” because it will need to indirectly access funds and those with cross-border business interests will face two separate administrative systems.

One of the key concerns is that employers must see a direct benefit from the levy and that they should not pay twice for training.

Feedback from the building industry organisation Homes for Scotland (HFS) has echoed that of COSLA.

Nicola Barclay, HFS Chief Executive, said: “We back many of the Scottish Government’s proposals, in particular those which relate to Modern Apprenticeships, including increased support for graduate level and foundation apprenticeships as well as the establishment of a Flexible Workforce Development Fund.

“However, already affected by significant skill shortages across all areas, including trades and professions, home builders face the prospect of paying a double levy given existing arrangements with the Construction Industry Training Board on training, qualifications and apprenticeships. 

“We are therefore extremely disappointed that the Scottish Government has chosen not to address this matter in the form of direct support for our industry by channelling funds back, ignoring the concerns raised by HFS and other stakeholders.”

With challenges for the both the public and private sectors ahead from Brexit, falling public sector budgets, weaker economic growth than the rest of the UK and rising business rates, it’s clear that all sectors will need to see the benefit of the levy in terms of growth and a more skilled workforce.

Following the Scottish Government’s announcement last month of how the levy would be used, the director of the Scottish Retail Consortium, David Lonsdale, said: “It is imperative that levy-paying employers in Scotland are not only able to directly access the funds for their broader skills needs but are at the heart of designing how the funds from the levy will be utilised to aid productivity and growth.”