A brief history
First introduced in 2017, the Apprenticeship Levy was designed to fund apprenticeship training. Businesses in England with an annual payroll totaling over £3m must pay 0.5% of their wage bill into a special account (also known as a levy pot) via HMRC.
The business could then access this as a training fund for new and existing staff but limited to formal Apprenticeship qualifications through approved providers only. The idea was to increase the use of Apprenticeships as a way of upskilling workers, particularly those in underrepresented groups, plug skills gaps and bring about new opportunities.
However, the scheme has been plagued with criticism since its inception, with businesses calling it just another tax. Unused funds expire after 24 months, and according to 2023 figures from City & Guilds, just 4% of businesses used their levy in full, with the average use sitting at around 55.5%, leaving £4bn of contributions unused between May 2019 and the end of 2022 alone.The most common reasons cited by businesses for not utilising the scheme are that it’s too restrictive and bureaucratic; too much red tape and admin, and that the rigid rules of apprenticeships don’t align with their training needs.
In the most part, despite some tweaks, the levy hasn’t achieved what it set out to do, with numbers of Apprenticeship starts actually decreasing in the demographics it was intended to help – entry level and those aged under 25.
Closer to home, the levy has always been met with contention by the recruitment industry, where businesses like ours only fall within scope because of large wage bills due to the number of temporary workers paid each week, but who are unable to access the funds as they can’t meet the criteria for a formal apprenticeship.
The evolution
Fast forward to 2024 and the new Labour government announces its plans to overhaul the scheme. First up, by changing its name from the Apprenticeship Levy to the Growth and Skills Levy as of April 2025.
Announced as part of Labour’s wider plans, also on the agenda:
More training options
In addition to traditional apprenticeships, up to 50% of the levy could now be spent on alternative training options, including shorter courses and upskilling initiatives. Ideal for businesses with a need for specific skills, those who need those skills in place quickly, and where the rigid apprenticeship model doesn’t work.
Potential development of a shorter, more flexible ‘Apprenticeship’ also.
Simplified route for smaller businesses to access funds
Currently, businesses outside of the scope of paying the levy, can still access funds through a co-investment model but often don’t due to its complexity. Government say their plan is to reduce red tape.
Sector specific focus
Additional initiatives to be put in place to support industries with the biggest skills gaps.
Targeted funding to reduce regional skills disparities
Ensuring regional businesses have access to the training and skills they need locally, through focused, targeted programs.
Redistribution of investment to entry level and younger workers – possibly through the removal of Level 7 Apprenticeships
Businesses may be asked to fund their own Level 7 Apprenticeships (equivalent to a Master’s degree) outside of the levy, on the basis that these are often accessed by older, more well-established employees, so funds can be focused on those it was originally intended to benefit.
This has been met with some contention, due to its potential impact on some organisations who rely on a higher level of professional qualification – such as Advanced Clinical Practioners within the NHS.
What do businesses need to do now?
Following these reforms being announced in September 2024, it was anticipated that a roll out would begin in April 2025. However, given the legalities, logistics and number of different stakeholders involved, careful consideration will need to be given to these significant changes, and it’s certainly not going to be straightforward.
For now, we’re awaiting a further announcement with nothing expected to happen until August 2025 at the earliest, therefore the now re-branded Growth and Skills Levy, continues to operate in the same way as when it was known as the Apprenticeship Levy.
This is a genuine opportunity for the Government to clean up the negative associations so many businesses have with the levy in its current form and go forward with a scheme that actually stands to benefit businesses and the wider labour market.
Is the future a levy that’s user-friendly, valuable and effective? Let’s all keep our fingers crossed!