Last month a survey of business leaders showed that ahead of the 6 April 2017 staging date for the new Apprenticeship Levy, a third of firms remain confused about its financial implications for larger companies. This could lead to problems in the medium term, as many medium-sized and major firms will be slapped with an extra bill they were not prepared for. Having worked with industry on this for the last 18 months, I can say that it is less complicated than it appears and provides firms with a unique opportunity to shape in-work training.
The premise of the Apprenticeship Levy is simple: The Government is committed to recruiting 3 million apprentices by 2020 and is introducing the Levy to both fund this reform and, crucially, encourage businesses to participate. It estimates that it will raise £2.5 billion from the Levy by 2019-20 - double the amount spent in 2010-11.
From 6 April all companies with a payroll of £3 million or over will be required to invest in the scheme. Businesses can use HMRC's PAYE tools to work out how much they need to pay and then divide this figure by 12 to calculate their monthly bill. In the past, the majority of apprenticeships have been offered in SMEs, but this Levy should encourage larger businesses to expand their apprenticeship numbers.
This might look like another tax, but unlike other taxes companies can use the payment very specifically on their own staff development needs. Additionally, the government tops up the pot by 10%, so it can be seen as an investment with a 10% immediate return, provided employers work out how to use it.
The Apprenticeship Levy therefore represents a huge opportunity for employers to reshape the way they manage skills-based learning, something employers have been crying out for. For decades, employers and industry organisations have lamented the lack of real-world knowledge graduates have. Our Graduate Skills Survey, run in conjunction with the CBI last summer, found that 41% of employers are not satisfied with their graduates' levels of business and customer awareness. Now, through this change, employers have the opportunity to shape post-16 work experience in partnership with education organisations. And where better for trainees to learn soft skills than in conjunction with employers and work experience? Isn't it possible that the main reason we continue to have complaints about graduate skills from employers is that we are trying to teach professional skills in the wrong place with the wrong teachers? The Levy is an opportunity to teach professional skills in a professional environment.
Employers have two ways in which they can tackle the Levy - they can be relatively conservative, or they can be bold and work to reshape education in a way that suits them. Many employers will probably take the first approach, choosing to repackage their existing training in a bid to recoup as much of their initial Levy contribution as possible. In parallel, many higher education organisations will tweak their programmes to make them more industry-engaged. This approach will also suit the prevailing opinion of students and experts who believe that higher education needs to be more closely aligned to the requirements to business.
However, other companies might want to really maximise this investment opportunity. The Apprenticeship Levy provides a significant opportunity for businesses to redesign the skills and education and talent pipeline to suit their own needs, and there is scope for some real innovation here.
At Pearson College London we recognise the potential challenge that the Apprenticeship Levy poses for businesses and have already started working with the likes of Tesco, Unilever, WPP's Ogilvy, Direct Line Group, IBM and Pearson to develop a Rotational Degree Apprenticeship programme. This combines degree study with work experience and student-apprentices build their experience across three very different large companies. This should significantly develop each apprentice's commercial acumen along with a whole host of other skills. This has the added benefit of supplying companies with a stream of junior staff who have both the academic rigour that a degree instils, along with the practical job-ready skills that businesses say are in short supply in today's graduates.
And although the Levy is aimed at larger companies, smaller ones also benefit from the scheme. Previously the government paid 2/3 of training costs in an apprenticeship with an SME, but the extra funding being created by the Levy means in the future the government will pay 90% of the training costs. If this is used to recruit high calibre employees and pay for their development, this is great value for money. In fact, depending on the success rates and the age of the apprentices, SMEs can even get rebates that take the cost to surplus. And rightly so, as SMEs employ the largest part of the work force it is important that they are incentivised to participate in this skills revolution.
There is still scepticism surrounding apprenticeships, but this is changing. An apprenticeship scheme we ran with the BBC this year had 178 applicants for every place - beating many Oxbridge colleges. Once we normalise the idea of doing an apprenticeship, I predict that schemes with well-regarded companies will become as competitive as courses at top universities.
We have found that organisations taking advantage of schemes like this benefit in a number of ways. First, it gives them control over the training programmes that new recruits undertake. This means that they can be tailored to the specific needs of their business or sector. Second, as courses last a set period of time, staff retention is higher. Third, this approach greatly benefits young people, as it means that they do not have to choose between an academic qualification and practical work-based learning. This seems like a very promising way of educating the skilled workforce needed to meet the uncertainties of the next few years.
If businesses are to take the bold route to meeting the Apprenticeship Levy, they need to start planning now, identifying where the skills gaps are in the workforce and exploring and creating options with educational organisations. Organisations that put plans in place ahead of 6 April should benefit from the current funding available and train their apprentices at little cost; it needs to be considered as an investment and not a tax as it is an opportunity to develop an existing workforce or bring new talent into the company. Businesses need to encourage buy-in from across all levels of the organisation. Once people meet a few apprentices and realise the calibre of people these schemes can attract, managers are likely to become keen. It is also important to develop a plan for attraction and engagement, from communicating any initiatives to existing staff through to building partnerships with training providers, to designing a strong recruitment and progression pipeline. If tackled effectively, it is a significant opportunity for businesses to address their future skills needs and develop their workforce.
On 6 April the Government is taking the proverbial thoroughbred business and education horses to the same watering hole - but it cannot make them drink. This next step will need to come from businesses. I would urge organisations to seize this once-in-a-generation opportunity, to shape work-place training to suit their own needs. Carpe diem!
Roxanne Stockwell is Principal of Pearson College London - the first higher education organisation founded by a FTSE 100 company