Why the Apprenticeship Levy needs reform at Spring Statement 2019

There’s quite a lot on chancellor Philip Hammond’s plate in the run-up to the Spring Statement 2019, but he can’t afford to ignore the mounting problems with the Apprenticeship Levy, writes Jordan Marshall, policy development manager at the Association of Independent Professionals and the Self-Employed (IPSE).

Mr Hammond should note that many businesses have complained about the levy’s complexity and inflexibility, arguing that it does not do enough to support their training needs.

Figures, tweaks and worries

This criticism does seem to be borne out by the cold hard data. At the end of 2018, the government confirmed that more than 80% of firms paying the levy had not taken on an apprentice, with the number of people starting an apprenticeship actually falling a year after the levy was introduced.

Tweaks to the policy have been made, most notably by allowing companies to transfer levy funds to smaller companies in their supply chain. This is a sensible move, but government needs to go further to allow contractors and the self-employed as a whole to upskill too.

Training can be a particular problem for self-employed people if they are struggling with low incomes. Being able to invest the time and resources to learn a new skill is extremely tricky for one-person businesses who may be worriedly struggling to keep their operation afloat. Even for those single-person traders in a more comfortable position, making time to train is difficult because there is the worry that the hours or days on training should really be spent on finding the next client, at the same time as saving enough money to tide them over in difficult times.

Where the government should act on training

One way the government can address this is by giving recruitment agencies more flexibility to subsidise training courses for contractors and the self-employed. The issue at the moment is that many agencies are large enough to have to pay the levy, but predominantly have self-employed people working through them, so the Apprenticeship Levy does not allow them to support upskilling these individuals.

We believe that the government should continue to hone the policy by enabling greater flexibility. Giving agencies the ability to use levy funds to subsidise training for the self-employed makes sense -- allowing firms to provide training in a way that works for them, while also making training more accessible for the self-employed.

But there are other steps the government can take to also improve the picture. The New Enterprise Allowance (NEA) has proven successful in helping people out of unemployment to start businesses. The scheme needs to be expanded, though, to allow low-earning self-employed people to access support under the NEA. Awareness of the programme needs to be improved, as does the mentoring support available to participants.

How Hammond can help business soloists further

At this Spring Statement or the very first opportunity if not, the government should also re-examine the case for making training for new skills tax-deductible for the self-employed, as it is for employees. The current system both unfairly disadvantages the self-employed and runs counter to the government’s goal of creating a flexible labour market that can adapt to rapid technological change.

More innovative ideas like Adult Education Vouchers need to be explored too. Popular in a number of European countries, these vouchers can be redeemed at accredited providers and create a simple route to lifelong learning.

Furthermore, we need to take a long hard look at the UK’s construction sector. At one million, there are more self-employed people in it than in any other industry, and upkskilling the sector is crucial to improving productivity and realising the government’s ambitious programmes in both infrastructure and housing. But the way training is delivered in the sector urgently needs reform. Research shows that the Construction Industry Training Board (CITB) has little or no impact on encouraging the provision of training: 71 per cent say the possibility of a CITB grant to cover training does not influence decisions to send workers on a training course.

Final thoughts

As self-employment continues to grow and becomes a more important part of the labour market, it is absolutely crucial that we get our professional development, training and upskilling infrastructure right. If we want to not only ensure freelancers, contractors and the self-employed are able to progress in their careers, but also boost productivity across the economy at a time of Brexit and other challenges, it is vital that more is done to improve access to training. Although there are many quarters calling for his attention at this time, the chancellor should know that getting the government’s flagship Apprenticeship Levy policy on a more sustainable, flexible footing would be a very good start.