The apprenticeship levy - and how to increase the cost of flexible labour for all

From April 2017, the Government has announced that businesses with a payroll of £3m or greater will be subject to a new Apprentice Levy, a charge of 0.5% of the value of the payroll. The idea is that these firms are putting the money into a ‘pot’ that they can spend on apprentice training within a certain time period, and the government will top up this pot.

On the face of it, this seems a great idea. I am all in favour of apprenticeship schemes and this is a great way of encouraging more companies to invest in young talent. 

However, there is a glaring anomaly that the Government is fully aware of but, as with much of their current badly thought out policies, they are ploughing ahead anyway.

And what is the anomaly:

The levy disproportionately impacts on recruitment agencies. How? I hear you say. Well, any agency that supplies contract or temporary resource will often have 80-90% of its turnover as contractor/temp payroll, whereas most business it is more like 30%.

It is on this 80-90% of turnover that the agency will be paying the levy.

That’s just how it is, you say, and the agency will have a very big pot for apprentices, you say.

But no. The levy pot can only be used for a company’s own apprentices. So the huge levies paid out for payrolling temporary workers will simply disappear into the government coffers.

And the obvious impact of this? Increased cost to the entire country of flexible workers. This added to the increased costs that will be seen as a result of the IR35 Public Sector changes (see my previous rant) will mean that, as a country, we ill move from having one of the most flexible labour markets in the world to having one of the most inflexible labour markets in the world.

As I mentioned above, it is understood that the Government appreciates the impact that the levy will have on the supply sector in contrast to the rest of industry, but nevertheless has given no indication of any intention to make any amendments. As usual, the Government is sticking its head in the sand, its fingers in its ears (not at the same time perhaps) and singing lalala I'm not listening.