Utilities to lose out on half of apprenticeship levy funds

Utility companies have been able to recoup just half of the funds they paid into the apprenticeship levy over the past three years, with tens of millions set to be returned to the Treasury.

This is according to research by Energy & Utility Skills, whose chief executive Phil Beach told Utility Week he believed the Skills and Post-16 Education Bill, currently going through Parliament, is a chance to simplify and rationalise a “complex and cluttered” qualification system, including changes to the levy.

Beach said Energy & Utility Skills wanted to see a strategic review of the levy to understand how unlocking unspent funds might help to target diversity, inclusion and social mobility issues, as well as how to connect this to the growing demand for green jobs.

The apprenticeship levy is due from all employers with a payroll of £3 million or more, at the rate of 0.5 per cent. Those who are eligible recoup their contribution via the apprenticeship service to pay for their apprentices’ training.

Only a minority of businesses achieve near-full recovery of their levy payments to spend on apprenticeship training, others transfer funds they cannot use to other eligible employers.

Most however see a proportion of unspent funds in their levy account expire and reclaimed by the Treasury.

Beach said Energy & Utility Skills recently surveyed the sector and received 22 responses from the biggest utilities, all of which employ more than 100,000 people directly and have recruited 4,000 apprentices over the last three years.

He told Utility Week: “Our analysis of the responses shows that over the last three years, these 22 employers have recouped an average of 54 per cent of the levy paid in.

“Or, put another way, these employers have used around £37 million of levy over three years and stand to lose almost the same amount back to the Treasury.”

The figure was recently referenced in a Lords debate by Liberal Democrat Peer Mike Storey, who said he considered the bill the most important education bill faced by the Lords in the last 20 years.

“The skills and vocational education bill arrives when we face huge skills shortages, high rates of youth unemployment and the uncertainties of the post-Brexit, post-pandemic world. Yet opportunities are there, not least the green revolution. The bill must be about the education system that we want for our children and young people,” he said.

Beach meanwhile pointed to how the current policy has had “unintended consequences” and that faced with a “use it or lose it” levy, employers may use their funding to pay for apprenticeships for existing employees to be trained in new roles to avoid losing the money to the Treasury.

Increasing flexibility, he said, would provide employers with additional opportunity to target apprenticeships primarily at young people – in line with the original policy intent.

He further explained that flexibilities in the current rules on eligible use of levy funds, such as extending the costs to cover induction, initial assessment, delivery and management of apprenticeships, as well as funding additional ‘bolt on’ training, would allow better targeting on genuine skills to support green jobs.

He added: “It would help to prevent the substantive diversion of the levy to programmes focussed on avoiding the loss of funds to the Treasury rather than on skilling young people, or genuinely skilling existing employees for emerging new roles, such as those in green jobs.

“Given the government’s commitment to expanding apprenticeships and improving their quality, the bill should make provision for a review of the apprenticeship levy to allow flexibilities that support the aims of the apprenticeship programme and the green economy.”

Net zero

Elsewhere Beach said he believed the bill should make the “explicit link” between upskilling the existing workforce, crucial to hitting net zero, and developing apprenticeship and college provision.

He added: “The bill makes provision for a range of opportunities to support adults to upskill and reskill and this is particularly welcome. The challenge of meeting ambitious net zero targets places significant importance on upskilling and reskilling the existing workforce quickly.

“In addition to supporting the drive towards net zero, this will train the trainers of tomorrow’s apprentices and college students.”