A review of the apprenticeship tax and how the tax system incentivizes employers to invest in training – FE News

In his spring statement, the Chancellor of the Exchequer, MP Rt Hon Rishi Sunak, announced that:

The government will consider whether further intervention is needed to encourage employers to provide the high quality training the UK needs. This will include examining whether the current tax system – including the operation of the apprenticeship tax – does enough to incentivize companies to invest in the right kinds of training. Spring 2022 statement – ​​p39.

A few days later, the Treasury clarified the position by noting that there would be no formal review of the apprenticeship system, but that all fees are under constant review.

UVAC’s position is clear. There is no need to drastically change the apprenticeship tax system. Although the system is not perfect, the learning is a success and should not be seen, as the CBI has previously described it, as a “failed experiment”. The NHS uses its apprenticeship tax payments to recruit and train the new nurses and healthcare professionals that society needs and the police use the police officer diploma apprenticeship to professionalise police training and promote more inclusive recruitment. In the private sector, the introduction of the tax has led to greater emphasis on training new and existing employees for the highly skilled roles the economy needs. Since the introduction of the tax in 2017, apprenticeship has become an ambitious choice. Apprenticeships help employers improve their performance and apprenticeships open new pathways to highly skilled, professional and well-paid jobs.

Of course, some modifications were necessary. The apprenticeship tax has not worked as effectively in some sectors. New flexibilities such as Flexi-Job apprenticeships, where one person can work for multiple employers, will help employers in the creative sector and some other industries to make greater use of the apprenticeship tax, and will come into their own. Other flexibilities such as initial training, where more training takes place at the start of the apprenticeship, and accelerated learning programs are also welcome developments.

Some of the ‘flexibilities’ offered by a number of organizations make less sense, however. Proposals such as using the tax to pay for apprenticeship wage subsidies and expanding the apprenticeship tax to be a tax on skills or training simply wouldn’t float. Let’s do the math. The apprenticeship tax in England raises around £2.5 billion. Assuming around 393,000 annual apprenticeships start per year, as was the case before the pandemic in 2018/19, this equates to around £6,400 of funding available for the training and final assessment associated with an apprenticeship. With employers increasingly focusing on higher skill levels and longer apprenticeships, they will increasingly cost upwards of £6,400 to deliver. In simple terms, there is no funding to pay a contribution towards salary costs. One can also ask why, under normal circumstances, jobs should be subsidized by the state. If the employer needs a job, which should be a feature of every apprenticeship, surely the employer should finance the salary and employment costs?

Where a tax on skills or training makes more sense, it also runs into the problem of affordability. If the apprenticeship tax were extended to a wide range of skills and training programs, how would it be rationed? What types of programs and employers would be included and excluded from support? Alternatively, would those advocating this policy want to see a substantial increase in the apprenticeship (or skills) tax from 0.5% of payroll to 1.0% or 1.5% of payroll to fund a wider range of programs?

Although there may not be substantial changes to the apprenticeship tax system, what was particularly interesting in the Chancellor’s statement was the reference to the current tax system and the question of whether it encourages companies to invest in training. The Chancellor faces a range of challenges including public debt, inflation, cost of living crisis and more. One of the answers to all these challenges is to increase productivity. The US economy is about 23% more productive than the UK economy, while France is 18% more productive and Germany 10% more productive (figures from The temperature, March 25, 2022). Although several factors can explain the UK’s low productivity, lack of investment in skills is undoubtedly a key factor. Interestingly, in his statement, the Chancellor noted that:

“British employers spend barely half the European average on training their employees. Furthermore, less than 10% of training expenditure by UK employers is spent on high quality formal training offered by external providers. » Spring 2022 statement – ​​p38.

In the coming months, Treasury officials will no doubt examine how tax policy and possibly tax credits can be used to help employers invest in skills and training that improve business performance and productivity. organization. In advancing such a review, UVAC would suggest considering the following four questions:

1. Jhe role of the state, the individual and the employer in financing training – The apprenticeship tax imposes on employers, beyond a certain payroll, a financial contribution, in addition to general taxation, to the apprenticeship budget. This approach was novel and raised some interesting questions. The state, as a corporation, individuals and employers all, of course, benefit from investment in training. But what does each have to pay? What must the State, employers and individuals contribute respectively to the training or retraining costs of a cook, hairdresser, engineer or nurse? In concrete terms, how could tax incentives for employer training be linked to the new Right to Lifelong Loan (LLE) open to individuals and financed by the State, or to the financing of apprenticeships? Who pays what for the training and what can they expect in return?

2. A focus on future skills needs and skills gaps and shortages – In his statement, the Chancellor referred to companies investing in the right kinds of training. We hope the “good guys” Training refers to the development of skills needed to increase performance and productivity. Interestingly, when many employers used the apprenticeship tax to acquire management skills, they were criticized for spending on “wrong types of formation”, this despite the fact that poor leadership and management skills are seen as a key explanatory factor for low productivity in the UK. Likewise, despite a very clear need to upskill the existing workforce, employers have been criticized for spending too much on apprenticeships for existing employees and too little for young people. What will be essential for any successful skills tax approach will be to help employers invest in the supply of skills their organizations need and for policy makers to remember that learning is a program about learning. stage of an individual’s life, not their age.

3. Skills policy should not focus on correcting the failings of the school system – Employers definitely need to invest more in the training and development of their employees. Too often in the past, however, skills policy has focused significantly on supporting people who, after 11 years of compulsory education, have not reached level 2 skills. While individuals without Level 2 skills (equivalent to GCSE) should be supported, such support should be funded through the general education/schools budget.

4. Avoid focusing on the Magic Bullet – Skills gaps and shortages exist at all levels. Unfortunately, there is sometimes a tendency to see one type of training provision as the answer to the UK’s skills problems. This may be the case with our current focus on technical and higher education. No one will deny the importance of developing a better supply of technical and higher education. Indeed, UVAC is committed to supporting the higher education sector to provide quality higher technical education. The UK, however, must also retain and develop its focus on providing Level 6 (Bachelor/Professional Skill Level) and Level 7 (Masters Level) if we are to increase our productivity, address gaps and shortages skills in STEM, management, etc. .and deliver high quality public services and the net zero/green jobs agenda.

UVAC looks forward to the debate.

By Mandy Crawford-Lee, Executive Director of the University Vocational Awards Council and Associate Editor of the journal Higher Education, Skills and Work-based Learning

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