Many of the changes are designed to improve productivity and to improve the work opportunities for all individuals.
The benefit cuts will inevitably be a challenge for many of those who are unemployed or in low paid jobs and there was little detail around the additional support that the government has said it would provide. The Living Wage announcements together with the Apprenticeship Levy were also a surprise to many commentators. We need to see much more detail to understand the impact of these changes but we have set out some initial reactions below.
Apprenticeship levy
For skills and in particular Apprenticeships, the government has announced that all large employers will pay a levy to fund the Apprenticeship programme. It is very unclear how this levy will work, who will pay it and what it will fund. Without knowing that detail, it is impossible to say whether it will work and increase productivity across employers of all sizes.
What we do know is that this signals the move away from the current funding proposals for Apprenticeships which we said all along would not encourage more employers, especially SMEs, to engage with the programme.
There are clearly risks with any levy which ‘forces’ employers to pay an additional tax albeit targeted at Apprenticeships. The UK does not have a good record of making such levies work and we have said that we need to maximise employer choice, not legislate for their involvement. The CBI has said that it has concerns about levies and if the levy is only paid by large employers, there is a risk that they will determine how the money is spent. The drive for productivity means that we have to engage SMEs who will deliver much of the growth in the programme.
AELP has many questions about how the new proposals might work and is very willing to be involved in the discussions about how they might work. In the meantime before any radical change which would not happen before 2017, we need to review the Trailblazer funding pilot which now appears to be unnecessary.
It is interesting to note that the only thing that everyone agreed with before the election was that we needed a period of policy stability to deliver Apprenticeship growth. Our view is that the levy proposals will need time to develop and implement effectively. In the short term, we should focus on growing the programme and work towards a new way of funding Apprenticeships once that growth is embedded over a period of the next 3 or 4 years.
Living Wage
The other major change that will affect these plans are the proposals around the Living Wage. The changes to the minimum wage will only affect 25 year olds and above. This means that we may end up with different rates for young apprentices, older apprentices, normal employees up to 21 and then 21 to 24 year olds. This may mean that employers will be encouraged to recruit young people, especially where there are additional national insurance incentives. It will be very important to balance any increases in rates for young people with the ability of employers to pay their costs. This issue has to be reviewed in line with any new proposals for Apprenticeships.
Reduction in benefits
For those who are unemployed and those on low pay, there will be a number of challenges with reductions in benefits. People going on to ESA benefits will see a cut in rates and there will be a lower cap for benefits of £20,000 (£23,000 in London). Young people will lose housing benefits and those who are 18-21 will go on to the Youth Obligation where they will have to consider a number of work options including Traineeships. What is not clear is how the government will provide the additional support that these people will need to get into sustainable and well paid work.
Work Programme and Traineeships have to be at the core of any support and the funding needs to be made available. The government at the election set out the commitment to move towards full employment and create more opportunities for those most in need of jobs such as those with a disability. This is very much part of the productivity challenge and we will need to see a much more integrated employment and skills offer.
People receiving benefits will lose their benefits when they increase their income, so we need to ensure that there is effective support for in work skills development that gets people out of the in work benefits cycle. We know from the evidence that there is a strong payback for government in funding this in work training. The drive for productivity has to focus on training and retraining at all levels of the economy from low paid roles to high level technical skills.