Is Labour’s Apprenticeship Levy reform a win for the UK contractor sector?

It is with significant relief that our long-sounded call for reform to the inflexible and failing Apprenticeship Levy has been heeded by the government, by its proposal to create the new Growth and Skills Levy.

Goodbye Apprenticeship Levy, Hello Growth and Skills Levy

The potential big win for temps and contractors in IT and other sectors is that reform to the Apprenticeship Levy will allow flexibility to fund accredited training, rather than be strictly limited to long-duration apprenticeships that are never going to be suitable to project-based assignments.  

So it looks like what employers want and need are finally being put at the centre of reforms to this levy, which will result in the Growth and Skills Levy, and that’s great news -- on the face of it, writes Kate Shoesmith, deputy CEO of the Recruitment & Employment Confederation (REC).

A £39billion problem…

But keep in mind that acute labour and skills shortages could cost the UK economy up to £39billion every year from this year, according to our research.

The key enabler to achieve the growth we desperately need as an economy is ensuring we have the right skills and people in the right areas of the country.  

Alongside reform of the Apprenticeship Levy, the new Labour government has announced the creation of a new arms-length body, Skills England.

What is the job of Skills England?

The body will facilitate dialogue between employers, trade unions, and educators. The aim here is to ensure we have a skills system that is aligned to the labour market.

The Growth and Skills Levy falling under Skills England's remit makes sense to us, and with the right level of input from employers and labour market specialists including recruiters, we can align skills training with specific labour market demands across the UK.  

Again, this is a potentially positive move if it can successfully upskill individuals in this tight labour market and get more people into work. And even working more productively. 

Making the Growth and Skills Levy work 

In short, Labour’s plans to overhaul the current Apprenticeship Levy into a Growth and Skills Levy are promising.

But further clarity around how the ‘GSL’ is going to work for temporary and agency workers is required.  

In principle, introducing some level of flexibility, such as enabling a portion of the levy to fund shorter training courses in sectors identified as experiencing severe labour shortages, is a good way to engage both those who could benefit from progression opportunities and those furthest from the labour market. It has been an unfortunate paradox that the people the government really needs help have, to date, been excluded from benefitting from the levy. 

And apprenticeships are undoubtedly a good thing -- but only when they are right for the role.

In many professional services , apprenticeships can be a vital stepping stone into an area of our economy with ongoing skills shortages. But depending on the discipline, it may be that a short course is far more appropriate as additional training for, say, experienced contractors in computer programming, financial services or project management.

Apprenticeship Levy: the contractor ineligibility issue

To the government, we’d also say it is crucial for them to understand the nuance behind why we in the recruitment industry are asking for flexibility in the new system (the GSL) which will emerge from reforming the Apprenticeship Levy.

Roughly, around 960,000 of the one million temps, freelancers and contractors who are on assignment via a recruitment business on any given day in the UK are ineligible for Apprenticeship Levy funding. This is because of strict funding rules imposed by the current AL, and just 2% of temporary assignments are for 12 months or more -- the minimum duration required for an apprenticeship.  

Employers are paying for what they can’t use

The UK’s skills system is overdue reform if we are to better incentivise investment in skills and really address labour and skills shortages.

A particular issue that is not unique to the recruitment industry has been how the levy has been assessed as payable -- yet it is assessed on payroll. A business needs to have an annual payroll of more than £3 million, and then 0.5% tax is paid as an apprenticeship ‘levy.’ This money can then be claimed back and used for apprenticeships. But the reality is, too few employers can actually use their accumulated levy funds, despite being required to pay it! And it’s a not an insignificant amount of money. In fact, the amount of unused funds paid into the levy by our members came in at a hefty £104million (according to our 2019 research).

Moving forwards, hopefully

From our perspective, as a professional body dedicated to hiring, we would now like to see far more awareness of the nuances around how people choose to work in today's labour market.

Contracting and freelancing aren't new. However so much of the regulatory system is still geared towards assuming that everyone works in a permanent, full-time job. The reality is this -- they don't. Starting with reform of the Apprenticeship Levy is a small step in the right direction from the new Labour government. The creation of Skills England and enabling greater business input are welcome too, representing a second and even third step forward. The critical component to not stand still however, or worse – take us back at square one, is partnership and the government valuing input from everyone who contributes to our dynamic labour markets of today.