There are 4 key problems that I want to highlight from my early analysis of the document:
1) The provision to allow charities to redirect their levy to other charities will not be available for at least the first year.
CFG has highlighted the risk that if charities cannot spend their funds their levy will be redistributed. Because there are no safeguards in place to ensure that the funds stay within the charity sector, we could see money meant for charitable purposes being used to subsidise apprenticeships in the private sector. CFG called on the government to ring fence any unspent levy funds to ensure that they didn’t leave the sector. When CFG met with the Skills Minister we were told that the government is not prepared to do this and that charities should use or lose the levy. The one concession that we were given in this meeting is that employers, including charities, will be able to redirect their levy to other employers. So charities could in effect ensure that money stayed within the sector. This would ensure that money that is given to charities continues to be used for good causes, rather than subsidising private businesses. The guide shows that this already less than ideal solution will not be in place for at least the first year, and there are no details as to how this will work. For example, what will the restrictions be on who charities will be able to redirect their levy too? Will they be able to transfer the full amount, etc. The guide states:
“In the first year of the levy, you will be able to use the funds in your digital account to pay for apprenticeship training and assessment for your own employees. The main aim of the apprenticeship levy is to support employers in growing the number and quality of apprenticeships in their own workforce. We know that some employers will want to use funds in their digital account to pay for apprenticeship training of other employer’s apprentices, for example, someone in their supply chain. We will make an assessment of the pros and cons of any approach, including the trade-offs with other design choices, before providing further information in June.”
CFG will be pushing back strongly on this point, as it is critical that this option to share levy funds with other organisations is up and running when the Levy is introduced. Otherwise, there is a real risk that significant sums of money will flow out of the sector.
2) Employers will have the levy calculated monthly.
This is as opposed to calculating the levy based on the previous years’ or projected payroll. This means that charities will have little time to prepare before they have to pay the levy, both in terms of having the finances in place and/or employing apprentices. I have written before about the unique challenges that charities face in preparing for the levy. The guide states:
“The levy allowance will operate on a monthly basis and will accumulate throughout the year. This means you will have an allowance of £1,250 a month. Any unused allowance will be carried from one month to the next. For example, if your levy liability in month 1 is £1,000 you will not pay the levy and your allowance in month 2 will be £1,500. If you have some unused allowance in a month, but paid the levy previously in the tax year, you can receive a credit which you can use to offset against your other PAYEliabilities. The credit will also reduce the amount of levy paid.”
Employers will have 18 months in which to spend their levy. The guide states:
“Funds will expire 18 months after they enter your digital account unless you spend them on apprenticeship training. This will also apply to any top-ups in your digital account. For example, funds entering your account in September 2017 will expire in March 2019, unless you have spent them. Money is spent when it leaves your digital account as a payment to a training provider. The account will work on a first-in, first-out basis, through either payment or expiry. Whenever a payment is taken from your digital account it will automatically use the funds that entered your account first. This will minimise the amount of expired funds. This will happen automatically. Your digital account will let you know in good time when any funds are due to expire so that you can arrange to spend them if you wish.”
The monthly calculation, however, does present a problem for charities in the sense that they will have to keep a close eye on their pay bill to ensure that they don’t see money seep into their digital accounts. Given the limited amount of time that there is to spend the money, and the time that it takes to set up an effective apprenticeships programme, charities that are caught unawareness could end up seeing those funds permanently.
3) For charities that employ people across the UK there is more uncertainty about how much they will be able to spend.
The guide states
“Apprenticeships are a devolved policy, which means that authorities in each of the UK nations manage their own apprenticeship programmes, including how funding is spent on apprenticeship training. The digital apprenticeship service will support the English apprenticeship system. Scotland, Wales and Northern Ireland have their own arrangements for supporting employers to access apprenticeships. To calculate how much you will have to spend through the English system, we plan to use data that we already hold about the home address of your employees. We’ll use this data to work out what proportion of your pay bill is paid to employees living in England. We’ll make this assessment in early 2017 and will announce the exact date in advance.”
Effectively, this means that if you work in parts of the UK other than England you could end up seeing money taken off you through the Levy but you won’t get it to spend on your own apprentices – depending on the systems introduced in Scotland, Wales and Northern Ireland. Charities need to look carefully at their workforce, therefore, before they estimate how much they think that they will have to pay.
4) It is still unclear how charities can become registered trainers so that they can provide in-house training.
Since the sector lost its Skills Council there has been a lack of strategic oversight in the development of apprenticeships and training in the sector. As such, it has been hard for the market place to develop the right apprentices that the sector needs and for providers to scale up their activities accordingly. As the Levy will force charities to spend money on apprenticeships, many charities are considering whether they will be able to become registered trainers themselves rather than rely on the market which may (or may not) have the courses they need. We will not know how employers can become registered trainers until June 2016, less than a year until the levy kicks in. The guide states:
“We recognise that employers can be extremely successful training providers and we want to encourage those who want to take this route to deliver high-quality apprenticeships. If you want to use funds in your own digital account to pay for apprenticeship training that you provide and manage yourself, you will need to be an approved training provider.”
You can find access to the full guidance here, and I’ll be providing further updates on this issue throughout the year.
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