Apprenticeship Levy to fund three million apprenticeships

The new apprenticeship levy of 0.5% announced yesterday by the Chancellor George Osborne in his Autumn Statement will raise £3Bn a year and provide enough funding for three million apprenticeships.

The levy will come into force in April 2017 and will hit businesses with a payroll of £3M and over, offset by a £15,000 tax-free amount.

The Chancellor said 98% of companies would be exempt from paying the levy due to £3M payroll threshold. It is envisaged over £11Bn will be raised over the next five years.

The measures have had a mixed response with some seeing levy as “a payroll tax”.

Director General of the CBI, Carolyn Fairbairn, described the apprenticeship levy as a “sting in the tail” in the Autumn Review for employers. She commented: ““It is a significant extra payroll tax on business and by widening the net it will now catch more smaller firms. You only need to have 100 to 150 staff on minimum wage, so quite a few small firms will be caught by this.”

Robert Chote, the Office of Budget Responsibility Chairman said: The apprenticeship levy behaves like a payroll tax, so we assume that the costs are passed on into lower profits and – primarily – lower wages.

“This reduces earnings growth later in the forecast. Bear in mind that this comes on top of the higher minimum wage and auto-enrolment into pension saving, which also increase business costs.”

However, the apprenticeship levy was welcomed by others who agreed with the Chancellor’s comments of companies being able to “get out more than they put in” by employing apprentices.

Petra Wilton of the Chartered Management Institute, said: “If businesses want a skilled workforce then it’s only right that they pay for it.”

John Allan, National Chairman of the Federation of Small Businesses commented: “The FSB supports the decision to use payroll as a measure to determine which businesses pay the Apprenticeship Levy, as opposed to headcount.

“The 0.5 percent payroll levy on firms alongside a £15,000 allowance will mean that the levy will only apply to firms whose total payroll exceeds £3 million. We believe this is a fair level as it recognises that not all businesses will be able to afford to pay the charge.”

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