City AM article: "The Apprenticeship Levy is a tax by another name"

Rowland Thomas spoke to City AM about the "inflexible" Apprenticeship Levy and how Close Brothers Property Finance have been trying to help smaller businesses, but have been hit with administrative hurdles.  

Full article published in City AM online on Friday 23rd August.

"Build, Baby, Build: The Apprenticeship Levy is a tax by another name"

Rowland Thomas, MD Close Brothers Property Finance

SME house builders need to attract young talent more than ever, but the inflexible Apprenticeship Levy is standing in the way, says Rowland Thomas

The new Labour Government’s pro-development approach and commitment to getting Britain back building has been largely welcomed by the housebuilding industry. However, even if the Government delivers on its promise to reform our deeply flawed planning system, there remains the pressing question of who is going to build the 1.5m homes that have been promised?

The housebuilding sector has been hit with widespread skills shortages, with the Construction Industry Training Board estimating a shortfall of 152,000 workers if Labour’s housing proposals are to be met. Of the existing workforce, one out of every five builders is over the age of 50, according to a Home Builders Federation census. It’s clear that in order to overcome both the skills gap and impending retirement crisis, a pipeline of young talent is needed. That means more resources to fund training and crucially, apprenticeships.

Close Brothers Property Finance is a proud advocate for SME housebuilders. Knowing how profoundly they have been hit by skills shortages we wanted to support apprenticeships by gifting a proportion of the substantial funds we pay into our Apprenticeship Levy pot to a number of housebuilder clients. In all my years working in banking, never did I think it would be so difficult to give money away! 

Despite having spoken to several trade bodies and educational charities on how we could share our resources with our customers to finance apprenticeships, we’ve run into numerous administrative hurdles. I’ve since come to the conclusion that the Apprenticeship Levy, although admirable in its intention, essentially functions as a stealth tax. The ‘use it or lose it’ nature of the Levy stipulates that any funds that have not been deployed within 24 months are returned to the treasury. Between 2019 and 2023 a total of £3.5bn went unused and therefore straight back into the Treasury’s reserves.

The Apprenticeship Levy as it currently stands requires businesses with payrolls in excess of £3m annually to pay 0.5 per cent of their annual pay bill into a fund to pay for apprenticeship training. Since it came into effect in 2017, subsequent tweaks from the previous government have enabled businesses to gift up to 50 per cent of their pot to other organisations. Labour for its part has announced plans to transform the Apprenticeship Levy into a broader Growth & Skills Levy that can fund non-apprenticeship training. Although broader reform is welcome, concerns have been raised that this will ultimately reduce the number of available apprenticeships for young people and the former Conservative education secretary said the plans would disadvantage SMEs.

For businesses like ours who want to help smaller organisations that don’t have the same resources as we do, the bureaucratic nature of the Apprenticeship Levy has proven extremely cumbersome. A major barrier has been the requirement that the organisation making a donation is responsible for ensuring the funds are used in the correct manner. Levy gifts also cannot be used to fund apprentice’s wages, only the educational costs, meaning we cannot support SME housebuilders in what is by far their biggest outlay. Another shortcoming is that SMEs also struggle to find training providers with which to partner, as the training provider market is mainly set up to deliver large numbers of apprenticeship places to bigger organisations. 

The Government has correctly recognised that tackling the housing crisis is key to unlocking economic growth, but this won’t happen until we have a system to support greater numbers of apprenticeships. Encouragingly, a recent survey of 100,000 young people by the Careers and Enterprise Company shows that construction is now amongst the top five career choices by the time students are doing their GCSEs. Across all disciplines, applications for apprenticeships exceed supply by a factor of three to one. Demand is clearly there but until businesses have greater discretion on how to use funds from the Levy, smaller businesses and young people stand to miss out and the country risks falling even further behind on housing targets.