How ITPs can ensure more SMEs benefit from levy transfer

More upheaval is not necessary if ITPs use their unique place and the capacity they've built to leverage more levy transfers, says Jon Graham

More upheaval is not necessary if ITPs use their unique place and the capacity they've built to leverage more levy transfers, says Jon Graham

8 Mar 2023, 5:00

It’s fast approaching six years since the Government’s apprenticeship levy was introduced and it’s safe to say it remains contentious. In the past two weeks we’ve seen a number of organisations lobbying the government for change. Recent research from City & Guilds found that an overwhelming 96 per cent of UK businesses would like to see a change to the levy. Others are calling for wholesale reform. 

Ministers have so far resisted such calls and even in the unlikely event a reform is proposed, it is likely to take a significant amount of time. So, what happens now?

Returned levy funds are often presented as opportunities missed, but within the current system levy payers can in fact generate opportunities with their unused funds. They can do this via transferring up to 25 per cent of unused levy to non-qualifying businesses in need. This was among the key recommendations of City & Guilds and it is a way of reducing skills shortages in the sectors most affected.

Supporting SMEs by widening access to apprentices is a key aspect of this. Not only will it address the issue of access to apprenticeships for non-levy paying smaller businesses, it will also help to address the differences in outcomes for levy-paying and non-levy-paying businesses, which the Federation of Small Businesses (FSB) set out in its ‘Fit For The Future’ report.

Leveraging support

I strongly believe this is where the ITP industry can effectively step in.  Working in partnership with employers and colleges, they can use existing infrastructure, connections and knowledge to ensure that as many people as possible can benefit from quality apprenticeships in the sectors that need it most.

ITPs should use their voices to champion ways of supporting SMEs within the current system. A lack of resource, knowledge and time are some of the key barriers that are currently preventing smaller businesses taking up apprenticeships.  Many smaller employers simply don’t know about the support that is available to them to invest in and expand their workforce. 

ITPs can remove some of these barriers by facilitating levy transfers. They are well placed to understand the transfer mechanisms and can ease the process by managing the relationships between partnerships, which will help to encourage more take-up.

Levy transfer has numerous benefits for SMEs and the large levy-paying organisations. It’s an opportunity for large employers to meet their wider objectives such as social mobility and support the regions and communities that they operate in.

For sectors with the most acute staffing shortages – such as the care sector – this collaboration between levy and non-levy paying businesses is vital.

Tackling shortages

Lifetime provides apprenticeships in sectors such as retail, hospitality, care, early years and active leisure. We identified a need and opportunity for additional levy funds from our partners, who are among the UK’s largest employers, to be channelled within the care and early years sectors.

The number of people starting apprenticeships in the early years sector fell from just over 27,000 six years ago to just over 16,000 last year. While in the care sector, there were over 165,000 vacant posts when the results were published last Autumn. 

We believe everyone deserves to learn the life-changing skills they need to realise their full potential, and we work with our employer partners to achieve this. That’s why we set up a levy transfer service. Channelling funds to trusted and vetted SMEs in the care and early years sectors enables employer partners from any sector to support those with the most acute shortages.

On balance, reforming the levy risks leaving millions of businesses and learners temporarily in the lurch. Meanwhile, expanding it to include other forms of training risks impacting quality.

But by working together to improve the current system, it’s possible to provide tangible impact and outcomes for more employers and learners from otherwise unspent levy.

Six years is a very long time in politics but a short time to embed a new system and build the capacity to deliver it. That capacity is growing, and more leadership from ITPs could negate the need for levy reform.  

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2 Comments

  1. The Levy is a hypothecated tax (to be spent on what it was collected for, apprenticeships) and was designed to shift expenditure away from the public purse to business, with the Government collecting the tax, redistributing it and creating the rules around how it operates. Where you previously had public expenditure (funded by other forms of taxation), the levy was created to have income and expenditure and was really nothing more than a reorganisation of a Treasury spreadsheet, an accounting trick.

    For large businesses not spending their levy funds, the underspends are returned to Treasury and used (supposedly) to fund non levy apprenticeships. So what is the point of levy transfers if unspent levy is recycled back in to fund SME apprenticeships anyway?

    The unnecessary levy transfer system was created because of setting a cap for SMEs.

    An unnecessarily complex system simply diverts funds towards bureaucracy. Increases in the costs of bureaucracy are then addressed, not usually by removing complexity, more commonly by workforce efficiencies.

  2. albert wright

    Money returned to the Treasury from Levy under spends tends to stay there and rarely gets spent to help SMEs.

    In my experience as an SME (I admit it was 5 years ago) finding a company with funds to transfer proved very difficult, complex and time consuming, as well as bureaucratic for both parties and it never took place.

    I don’t think today is any different. Most Government schemes / support in the sector are underused because they are too much bother for the potential benefit involved.