THE LOWDOWN ON THE LEVY

pprenticeships 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 coinvestment 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 1618 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.

02why Apprentices Are Worth It

The investment in an apprentice can pay dividends, with the IMI’s own analysis showing that a Level 3 Automotive Maintenance and Repair Apprentice can deliver up to 200% return on investment within the three-year apprenticeship.

“Apprentices are a long-term investment in the future of a business and represent outstanding value,” says Frank Harvey. “Given the right support and training from the business and training provider, apprentices should not be viewed as cheap labour, but as a vital requirement to safeguard a business’s future.”

In addition, employers can get an extra £1,000 payment from the government to support younger apprentices in the workplace.

“Apprenticeships are an effective way to attract fresh ideas into a business, upskill the next generation, and give businesses the skills they need to grow,” says Tina McKenzie(below), policy chair at the Federation of Small Businesses.

“Encouraging more small firms to hire apprentices is key for productivity and economic growth, and the apprenticeship funding system was set up with small businesses in mind. Large firms pay the apprenticeship levy into their accounts, and then unspent levy funds can be used to fund small business apprenticeships.”

Apprenticeships Need A Boost And The Levy Can Help

The levy is not working as intended, with a low take-up of the scheme. Only 713,000 people registered as apprentices in 2021, which is the smallest total since 2010.

“There are a number of influences,” explains Mark Armitage (below), the IMI’s head of membership products and services. “Apprenticeship starts were heavily impacted by the pandemic, which affected many industries. Then, just as we were seeing numbers grow as companies were climbing out of the pandemic, we saw further impact by the cost-of-living challenges.”

This is hitting the motor industry, which faces its biggest skills challenge in two decades. Apprenticeships would help to address the shortage in qualified electric vehicle technicians, as well as boost a workforce suffering from an aging population and decreased immigration.

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 Frank Harvey at the Independent Garage Association. “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.”