‘Sting in the tail’ from Osborne

A levy on businesses to help create three million apprentices was the sting in the tail of George Osborne’s Spending Review, according to the new director general of the CBI.
The Chancellor of the Exchequer, George Osborne delivers his joint Autumn Statement and Spending Review to MPs in the House of Commons, London. PRESS ASSOCIATION Photo. Picture date: Wednesday November 25, 2015. See PA story BUDGET Main. Photo credit should read: PA WireThe Chancellor of the Exchequer, George Osborne delivers his joint Autumn Statement and Spending Review to MPs in the House of Commons, London. PRESS ASSOCIATION Photo. Picture date: Wednesday November 25, 2015. See PA story BUDGET Main. Photo credit should read: PA Wire
The Chancellor of the Exchequer, George Osborne delivers his joint Autumn Statement and Spending Review to MPs in the House of Commons, London. PRESS ASSOCIATION Photo. Picture date: Wednesday November 25, 2015. See PA story BUDGET Main. Photo credit should read: PA Wire

Carolyn Fairbairn also warned that the new Apprenticeship Levy will be “a significant extra payroll tax on business” that will now catch smaller firms.

Ms Fairbairn’s concerns were echoed by John Cullinane, the tax policy director of the Chartered Institute of Taxation, who warned that firms would face hefty costs as a result of the levy.

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Mr Osborne confirmed that the apprenticeship levy will come into effect in April 2017, at a rate of 0.5 per cent of an employer’s pay bill.

A £15,000 allowance for employers will mean that the levy will only be paid on employers’ pay bills over £3m. Less than two per cent of UK employers will pay the levy, the Government said.

It follows the announcement in the Summer Budget that three million new apprenticeships will be created by 2020, funded by a levy on large employers.

Mr Cullinane said: “The Apprenticeship Levy is the big revenue raiser in this year’s Autumn Statement, raising an extra £3bn a year from business by 2020 with what is basically a new payroll tax.

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“Fixing the rate at 0.5 per cent of payroll is at the top end of expectations and will mean a hefty additional cost for some businesses.

“One concern is that some firms that invest a lot in training may still lose out, because of the form in which that training takes place. For example, professional services firms put a huge amount into training their students, but mostly not in the form of apprenticeships.

“Larger firms in this category, who will also have to pay the levy, could be big net losers as a result, despite being big investors in training. They may also be incentivised by these rules to change the focus of their training rather than increase overall investment in training.”

Putting the levy alongside all other tax changes announced since the election results in a net increase in taxation of £11.805bn in the financial year 2020 to 2021, according to Mr Cullinane.

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Jonathan Oxley, the chairman of the Institute of Directors in Yorkshire and the Humber, said: “Companies do at least now know where they stand and will have to work out how to get the best from the levy.

“However, apprenticeships are already a growing success story within our region and I’m not convinced an additional payroll tax is a further positive step.” Andy Tuscher, regional director at EEF, the manufacturers’ organisation, added: “The apprenticeship levy is a blunt instrument, and the Government must work hard to ensure employers are not disadvantaged and that many smaller and medium-sized businesses are exempted.

“What really matters is creating high quality, well trained apprentices who can look forward to successful careers in industry. This cannot be a simple numbers game where businesses are clobbered to pay for apprenticeships.

“The Government’s approach to this requires a lot more sophistication than we’ve seen so far.”

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While applauding the Government’s goal of helping to fill the skills gap, Adam Walsh, business director of The Right Fuelcard Training Company, which is based in Hunslet, near Leeds, questioned whether some of the current providers of apprenticeships were up to the job.

He added: “A major priority for the Government is to invest in ensuring a sound support system for host companies and apprentices themselves.

“Perhaps far fewer, but far better performing providers would be easier to appoint, manage, and assess.

“Employers seeking apprentices would likewise be advised to obtain undertakings to ensure that providers live up to their promises. The failures to see through apprenticeships to productive conclusions are bad for the nation and inconvenient and costly for employers.”

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The Apprenticeship Levy has the potential to lead to investment in skills but risks creating extra bureaucracy for businesses, according to Andy Wood, practice leader for Grant Thornton in Leeds.

He added: “Although there is positive intent behind the levy, the actual impact could be akin to a tax on jobs, and adds yet another layer of complexity to corporate compliance and reporting.”

Mr Wood said that some sectors, such as care and education agency worker providers, would be awaiting the detail with bated breath.

He added: “Future increases in the minimum wage and salary growth will see more businesses pay the levy than first anticipated.”