Apprenticeship levy could lower wages, finds think tank

The Institute for Fiscal Studies has also warned that the Government’s plans could result in fewer jobs.

The new system of funding, which comprises an apprenticeship levy for large employers and a system of up front mandatory cash contributions for smaller ones, comes into force in April.

The levy, which is effectively a payroll tax on businesses with a minimum annual paybill of £3m, does not take into account pension contributions and NICs. In effect this incentivises employers to find ways to lower the levy bill, the report said.

With childcare already a low-wage sector, the report’s prediction that ‘this could lead to employers decreasing employees’ wages and increasing pension contributions in exchange’ will be of concern.

In addition, ‘the effects of this tax may not simply be to reduce firms’ profits... We would expect the burden of the tax –at least partially – to fall on employees, because the imposition of the tax lowers employers’ demand for workers and therefore wages fall’, the report says.

 The Green Budget report, called Reforms to Apprenticeship Funding in England, said the Government’s predictions that the taxpayer received £26-£28 for every £1 invested in apprenticeships ‘wildly overstated’.

‘The case for intervention is strong enough without overstating it in this way’, it adds.

Further, a ‘significant expansion of apprenticeships could come at the expense of quality’, and the report recommended that apprenticeships in England be expanded ‘more gradually’ and where high quality provision can be ensured.

Nursery provision in maintained schools is likely to be hit by the apprenticeship levy, as technically staff are employed by councils, which meet the wage bill criteria. The IFS report calls for public sector bodies such as councils not to have to meet a target of employing at least 2.3 per cent of their workforce as apprentices.

The report said mistakes made in ‘recent decades, by encouraging employers and training providers to relabel current activity and seek subsidy rather than seek the best training’, should not be repeated.

The new system has been introduced to meet a government target – described as ‘arbitrary’ in the report - to increase in the number of apprentices to 3 million by 2020.

Gordon Marsden MP, Labour’s Shadow Skills Minister, said, ‘The IFS are confirming what we have consistently warned the Government about over the past 12 months.

'Rushing to hit a 3 million target without sorting out the quality or increasing the proportion of apprenticeships under the age of 25 means they risk failing to deliver the long-term skills strategy we need.’

 A Department for Education spokeswoman said: 'The apprenticeship levy will boost our economic productivity, increase the country’s skills base and give millions a step on the ladder of opportunity. In 2019 – 20 the levy is forecast to raise £2.8 billion, this will take the total investment in England to £2.45 billion, twice what was spent in 2010, with the Devolved Administrations receiving £460 million.’

 She added, ‘The evidence suggests that employer investment in training is declining, and low compared to many of our international competitors.

 ‘There is a variety of evidence – e.g. from our annual learner and employer surveys; from matched administrative data, which allows us to assess the impact of apprenticeships on people’s employment rates and earnings – which suggests good benefits of apprenticeships to learners, employers and the economy.

 ‘We are increasing the quality of apprenticeships through more rigorous assessment and grading at the end of the apprenticeship, and all apprenticeship standards must demonstrate the acquisition of transferable skills that an apprentice can develop to progress in their careers.’