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The failing Apprenticeship Levy denies SMEs the apprentices they need to close the productivity gap

4 min read

If our country is to meet the challenges of a post-Brexit world, we need to guarantee funding and support for SME apprenticeships independent of the levy, writes Tan Dhesi MP.

Apprenticeships should be a vital part of SMEs, enriching the workforce, enabling social mobility and raising productivity. Considering that the most recent ONS data showed that productivity is 30% higher in France and 35% higher in Germany, our widening productivity gap cannot be ignored if we are to compete successfully and obtain the supposedly “easy” post-Brexit trade deals promised by this government.

Having run my own start-up construction business, I know full well the importance of an SME investing in its people. Those who fail to do so stagnate and start to go backwards. Sadly, the Government’s rushed implementation of the Apprenticeship Levy has resulted, not in an increase within businesses of apprenticeships and opportunities for the most disadvantaged, as was hoped and very much needed, but the opposite. This is devastating, especially considering the huge impact apprenticeships can have on young people’s lives. Just last week I met with some brilliant apprentices working in my constituency and I know their input is hugely appreciated by the many businesses in Slough. Unfortunately, far from “turbo-charging” and helping these businesses further, the Levy has left many of them hobbled - unable to fill vacancies, address their skills shortages or meet opportunities for expansion.

So, how do we explain this? Under the Levy, in England employers are required to pay 0.5% of their payroll above £3 million per year into a ringfenced digital account to be spent on apprenticeships. This is topped up by a further 10% public contribution. If levy funds are not used within two years, they expire. The system was based on an expectation that many employers would not spend all their levy funds. These unspent funds were intended to cover most of the costs of apprenticeships for the SMEs who do not pay the levy.

At the time the Government estimated around 50% would remain unspent and so available for non-Levy payers. Some might say predictably, some Levy payers found ways to increase their spending. Indeed, The Sutton Trust warned in November 2017 that an estimated two-thirds of businesses apprenticeship schemes were merely ‘converting’ existing employees and certifying existing skills, and that the Levy may encourage more of these ‘conversions’ and re-badgings as a way for large employers to reclaim their money. Without this financial support, costs for many SMEs can become prohibitive, with The British Chamber of Commerce (BCC) reporting that, “for SMEs in particular, the new rules have added to the barriers, complexity and cost of recruiting and training staff”.

The failure of the Levy for SMEs is compounded, because these disappeared apprenticeships were most likely to have been taken by young people starting with lower qualifications. The very group we might imagine a revamped apprenticeship scheme should help the most.

The unanimous voice of SMEs is that the Levy, as currently constituted, is failing. It is failing them, their current employees and their future employees. It is failing tens of thousands of exactly those people who most need help and by extension the communities in which they live.

Education can and should provide an equality of opportunity for everyone at every stage of their life, if there is an accessible pathway for everyone. The current system prevents young people starting their career journey by failing to provide the appropriate level of support they need. Lack of such support is denying SMEs the opportunities to recruit the apprentices they require to help address the productivity gap.

As Apprenticeship Week has just ended, I hope the Government use this opportunity to listen carefully to those in the sector calling for Government action and guaranteed funding for SME apprenticeships, independent of the levy. If our country is to meet the challenges it will face in this post-Brexit world, we need to support SMEs on this vital issue.


Tanmanjeet Singh Dhesi is the Labour Member of Parliament for Slough.

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