What will the Apprenticeship Levy mean for charities?

December 3, 2015 at 11:34

In last week’s Spending Review, the Chancellor provided details of the Apprenticeship Levy announced in the July’s Budget. The levy is estimated to create 3 million new apprenticeships by 2020 and raise £3 billion a year. We have written to the Skills Minister, Nick Boles, to highlight some of the challenges facing charities and will be meeting with officials to discuss how the levy can be used to support skills development in the sector.

What is the apprenticeship levy?

What are the practicalities?

What are the challenges?

Wider questions around the principles of charitable resources

What is the apprenticeship levy?

The apprenticeships levy will be introduced for all employers with a pay bill over £3 million. The levy will be set at 0.5% of their pay bill and every employer will receive a £15,000 allowance with a view to offset it. Initial estimates suggest that around 1,200 charities will be affected, and will cost £70 million collectively.

CFG will be contacting the 500 members whom we believe will be affected by the levy.

Alongside the levy, the government will establish a new Institute of Apprenticeships to set standards. An independent Chair will lead the institute’s work and will be supported by a small board made up primarily of employers, business leaders and their representatives “to ensure employers continue to improve apprenticeship quality at the highest level”.

We have called for the Skills Minister to ensure that the charity sector is represented on this board, reflecting the sector’s position as a major employer and to make sure that the Institute works for our sector. The latest figures show that the 821,000 people work in the sector and over 60% of them are employed on a full-time basis – this is larger than agriculture, property, and mining, quarrying and utilities sectors.

What are the practicalities?

  • Funds will be made available in a digital account. The government is still consulting on what this will look like in practice and we will be feeding into this consultation.
  •  The levy will enable employers to fund apprenticeships other than their own. This is beneficial for charities who can invest in the development of skills in their supply chain. The ease of being able to transfer funds to other organisations will be determined by the result of the consultation on the digital account system.
  • Employers will have 24 months to spend the funds in their digital account. Where employers do not spend these funds, they will be made available to other employers. We will be emphasising to the government that it is important that where this happens that these funds should be redistributed within the charity sector as far as possible. This will help ensure that the sector can make the most of much needed investment in skills.

What are the challenges?

As a significant employer, it is right that charities play their part in creating opportunities and there are some instances where charities have created new opportunities for skills development. For example, a number of international development charities have partnered with City and Islington College in London to establish an international development sector apprenticeship.

However, the charity sector as a whole faces challenges unique to other parts of the economy. For the sector to be able to take full advantage of the levy’s benefits, these challenges will need to be taken into account.

A lack of capacity

The CFG policy team has written extensively about the damage that the capacity crunch is having on the charity sector’s financial sustainability and it has a role to play here in the development of charity apprenticeships.

Overall investment in charity sector apprenticeships has decreased as growth in the sector’s income remains below its pre-recession peak (the most recent data shows that the Sector’s income growth in 2013/14 was just 0.1%).

Unlike private businesses, the vast majority of charity funds are typically allocated to their cause, making it difficult for charities to find room in their budget to invest in development and recruitment.

Indeed, the UK Commission for Employment and Skills (UKCES) survey 2013 found that 17% of voluntary organisations not investing in training cited lack of funds as the reason, compared to 10% in the private and public sectors.

The closure of the Third Sector Skills Council

In CFG’s response to the government’ consultation on the Apprenticeship Levy proposals, we highlighted the importance of skills councils in ensuring its success.

Since the incorporation of the third sector skills council, Skills Effect, into the Skills Platform there has not been an organisation in a position to develop the apprenticeships system in the sector. This, coupled with the fall in investment, has resulted in a lack of strategic oversight and investment in apprenticeships programmes across the sector.

In comparison, the industry sector has 6 Sector Skills Councils and 5 Sector Skills Bodies who work with over 550,000 employers to define skills needs and skills standards in their industry, and 19 National Skills Academies, which lead the development of the infrastructure needed to deliver specialist skills in individual industries and sectors of the economy.

Investment in recruitment and development is vital

Given the limited resources available for charities to develop training opportunities in the sector and the lack of a skills council to provide strategic oversight of skills development and standards, the sector as a whole has a lot of catching up to do to if it is going to develop meaningful apprenticeships that will attract young people to work in charities.

The levy can help with this if employers can use it to develop new apprenticeships and recruitment as well as paying for direct costs.

However, as it currently stands the levy only covers the direct costs of apprenticeship training and assessment:

If apprenticeship funding were used to meet a wider set of non-direct training costs to employers it would have required the setting of a significantly higher levy rate. Employers in some sectors may have been able to use a higher level of contribution to meet wider costs, but this would not be true of every employer in every sector. That is why we think it is better that individual employers can choose how and when to meet these wider costs, outside of the apprenticeship funding system”.

Even if the levy is extended to cover these non-direct costs, without strategic oversight from an organisation such as a skills council, it will be a challenge for the sector as a whole to identify skills shortages. We will continue to engage with government to ascertain what role the Institute of Apprenticeships will play in this, as well as ensuring that the levy creates a robust apprenticeship system that will strengthen the charity sector’s skill set in the long term.

Wider questions around the principles of charitable resources

There is also a wider question of how this levy interacts with the principles which underpin the use of charitable resources.

For example, redistribution outside of the charity sector of apprenticeships levy funding could call into question whether money given for public benefit should be allowed to leave the sector in order to subsidise private sector employers and support private benefit. Should funding given to one charity by a funder or donor should be allowed to leave that charity in order to subsidise another charity’s operations which were not their intention?

We want the government to engage us on these questions.

– Anjelica Finnegan, Senior Policy Officer, CFG