New apprenticeship tax levy criticised by businesses

Business groups voiced concerns about the government's decision on Friday to go ahead with the apprenticeship levy on large companies, which would help pay for training.

The government will help fund employer apprenticeship schemes to address the growing skills shortage, by imposing a 0.5% payroll tax on all employers with an annual wage bill over £3m, in a policy initially announced by former Chancellor George Osborne.

The state will bear 90% of the costs of training for about 98% of companies with a wage lower than £3m. There will be £2,000 of extra support for every trainee between 16-18 years old or if they are a young carer. In companies with less than 50 employees, the government will cover the entire cost.

Skills minister Robert Halfon said: "Our businesses can only grow and compete on the world stage if they have the right people, with the right skills. The apprenticeship levy will help create millions of opportunities for individuals and employers."

The levy encroaches on traditional Labour territory as the Conservative party aims to gain ground with the working class vote, by promoting manufacturing after the Brexit vote.

Halfon added: "Apprenticeships give young people, especially those from disadvantaged backgrounds, a ladder of ‎opportunity."

The plans are under consultation until 5 September, will be confirmed in October and implemented in April 2017.

However, leading business organisations said the levy needs more thought as it only covers one type of training and businesses need time to prepare.

Carolyn Fairbairn, the director general of the Confederation of British Industry (CBI), said: "The government’s announcement provides business with much needed information which shows some progress, including support for smaller firms, but fundamental problems remain. The levy is too narrowly defined. It covers only one type of training and employers can only reclaim off-the-job costs. As a result, valuable forms of training risk being cut back, with quantity put ahead of quality.

"The April 2017 start date will not give firms sufficient time to prepare, so we urge the government to delay implementation. Though business understands the fiscal challenges, it would be a great mistake to rush ahead before a viable scheme is ready."

This was also echoed by Terry Scuoler, chief executive of EEF, the manufacturers organisation, who said: “Question marks still remain over the design of the new levy system. Employers will want to see a commitment from government that the system will evolve and respond to employer needs not just in the lead up to the implementation date but, importantly, also afterwards.

“Delaying the introduction of the levy would buy the government some much-needed additional time to work closely with industry to iron out some of the major wrinkles. This will be vital if the levy is to support the creation of more high quality apprenticeships.”

Other business groups wanted the tax delayed in order for companies to deal with the impact of the Brexit vote from the referendum, as economists had predicted the UK could dip into a recession and the growing uncertainty over trade terms and access to the single market.

"It is irresponsible for the government, particularly in a time of economic uncertainty in the aftermath of the referendum, to simply press ahead with a policy that is not fit for purpose," Ben Willmott, head of public policy at the Chartered Institute of Personnel and Development (CIPD) told Reuters.