However according to Emily Burt of CIPD employers and providers already ‘fiddling’ apprenticeship levy costs.
Trainers may be offering ‘kickbacks’
Some training providers and employers may be ‘fiddling’ the apprenticeship levy system to inflate their costs before it is even fully operational, according to experts and industry sources.
A number of training providers and employers are believed to be fiddling the apprenticeship levy system even before it goes live in April this year.
The Chartered Institute of Personnel and Development’s People Management (PM) news service quoted industry sources and experts who claim that suppliers are offering employers financial kickbacks for taking on their services.
They are also said to be artificially inflating training costs to reduce the financial burden on employers and increase it for the government.
Under the new system, employers with annual payrolls of more than £3 million will pay the levy and access digital vouchers in a government account that can be spent with registered training providers. But in a brief update published at the start of March, the Skills Funding Agency (SFA) noted that some suppliers were offering employers incentives “by paying or refunding them for certain aspects” of the levy, which is counter to official funding policy.
An industry source told PM that some large employers have also been approaching providers and saying: “’We’re paying a large levy – we’re going to use you as a provider, but you need to provide us with some kickback for using you’.”
“Providers are then saying ‘the price we will charge for training your people is, say, £10,000 for one person, but actually once we’ve finished training them and they have achieved their goal, we’ll give you £1,000 back’,” the source continued. “The employer is then able to recoup money directly from the training provider, not through the government system, which means it would not be auditable.”
There also appear to be issues in the case of the co-investment model used by suppliers to provide apprenticeship training to smaller companies. Here employers pay 10% of training costs, while the government pays the remaining 90% via its voucher system.
But the SFA has expressed concern that some providers are charging for apprenticeship and marketing training at artificially inflated prices.
Penny Tamkin, associate director of management and leadership at the Institute for Employment Studies, explained:
“It’s a fiddle. It looks as though providers are stating that to deliver apprenticeships it will cost them a certain amount, but they’re either not actually claiming that from the employer or reimbursing them further down the line. So money is being claimed from the government that gets passed back to the employer.”
Some training providers and employers may be ‘fiddling’ the apprenticeship levy system to inflate their costs before it is even fully operational, according to experts and industry sources.
Just weeks before the levy – which covers employers with annual payrolls of more than £3m – becomes fully operational, it has been alleged that providers are offering dubious financial ‘kickbacks’ for using their services, or inflating their costs to reduce the burden on employers at the government’s expense.
Under the system, employers pay the levy and access digital vouchers in a government account that they can spend with registered providers. But in a brief update published last week, the Skills Funding Agency (SFA) expressed concern that “some providers are offering incentives for employers by paying or refunding them for certain aspects” of the levy, which goes against funding policy.
The SFA declined to provide further details. But People Management understands some large employers burdened with a sizeable levy bill have been approaching providers seeking incentives for spending their digital vouchers with them.
“We’ve heard that some companies are saying ‘we’re paying a large levy – we’re going to use you as a provider, but you need to provide us with some kickback for using you’,” said an industry source.
“Providers are then saying ‘the price we will charge for training your people is, say, £10,000 for one person, but actually once we’ve finished training them and they have achieved their goal we’ll give you £1,000 back’. The employer is then able to recoup money directly from the training provider, not through the government system, which means it would not be auditable.”
The SFA is also understood to be concerned about the relationship between smaller firms and providers. Under the co-investment model used to deliver apprenticeships, employers pay 10 per cent of apprenticeship training costs, with the other 90 per cent funded by the government through the digital system. According to the update, some providers are inflating their training costs and marketing training at an artificial price, so the employer’s investment can be returned to them at the expense of the government.
“It’s a fiddle,” said Penny Tamkin, associate director of management and leadership at the Institute for Employment Studies. “It looks as though providers are stating that to deliver apprenticeships it will cost them a certain amount, but either not actually claiming that from the employer or reimbursing them further down the line. So money is being claimed from the government that gets passed back to the employer.”
The industry source said: “The introduction of the levy means employers that previously haven’t had to pay anything for training now have to, and whether these employers are large or small, some of them are looking to recoup any money they can.
“The ‘co-investment delivery’ is really for the SME marketplace, not large levy-paying employers. But there have been rumours that some large employers have been ringing providers and saying ‘we’ve got an £800,000 levy – if you want to benefit from it, we need something back, and it needs to be off the books’.”
The incoming apprenticeship model means employers are only able to recoup the cost of the apprenticeship training itself, but the ‘delivery models’ flagged by the SFA update suggest providers are already finding ways to exploit loopholes in the adult education budget procurement system. Attracting employers with such deals could be the answer to a highly competitive provider market, but at best they are a legal grey area, and the SFA has stressed they are not in line with its policy.
“What little information we are given in the update could hint at the financial pressure some providers are under regarding the levy,” Tamkin said. “There’s a lot of pressure on individuals and employers, and the competitive provider market means they will want the business and a good share of the levy funds. It was inevitable that some providers would act unethically, but I suspect this is just a small minority – for many, it may just be that more clarity is needed.”
Mark Dawe, CEO of the Association of Employment and Learning Providers, blamed an ongoing lack of clarity around the apprenticeships levy for contributing to such issues. “The government said it would put out guidance ages ago about what is and is not acceptable, but those guidelines are yet to come out,” he said. “We’re weeks away from the levy and this information still isn’t available, which makes the government culpable in terms of not publishing clear guidance.
“Providers saying ‘you pay us the 10 per cent and we’ll slip it back to you in a brown paper envelope somewhere’ is obviously not acceptable practice. But what is more likely is that there are providers having discussions about other services they can provide employers with alongside apprenticeship training.
“Although opportunities such as recruitment assistance have never been part of the funding package, many providers would offer them to the employee anyway because it’s part of the commercial deal they are doing. That’s where the lines get blurred.”
Only a minority of employers and providers are believed to be involved in potential rule-bending, and many are welcoming the levy as a chance to address future skills issues. There have, however, been concerns that some employers might rebadge existing graduate recruitment schemes to maximise their levy investment.
The SFA said it would continue to review practices in the run-up to the levy’s implementation, and hinted that it would strengthen the rules. It is believed this could mean the government will not invest its 90 per cent in apprenticeship training until it has received proof that the employer has paid 10 per cent.
Overall, the apprenticeship levy has been criticised for lacking focus by the commons education and business select committees, just a week before it is due to come into effect. MPs on the sub-committee for education, skills and the economy described the levy as a “blunt instrument that risks being unduly focused on simply raising participation”, and warned the target of three million apprenticeship starts by 2020 emphasised quantity of training over quality.
Ministers lack a plan to target the levy at areas of acute skills shortages, and have failed to outline how the increased numbers of apprentices will help fill the country’s skills gaps, MPs said.
While there is an urgent need for technicians in construction, engineering and manufacturing, where training has been shown to boost skills and wages, more than two-thirds of apprenticeship starts have been in other sectors, including education and human health work, that show “no significant wage effect” from training.
MPs described this as “undermining” the contribution apprenticeships can make towards solving skills shortages. In addition, certain industries such as pharmaceuticals and the creative arts will still be required to contribute to the £3bn annual charge, but will not benefit from the levy as they tend to recruit graduates, said the committee.
Co-chair of the sub-committee Iain Wright MP added that the government’s flagship apprenticeship policies were “inherently contradictory”. “Ministers have a centrally dictated, top-down three million target – welcome though that focus is – at the same time as insisting that this approach will be bottom-up and address the skills requirements of individual firms, sectors and regional economies,” he said. “These requirements will often be very different, and the government should target those sectors of the economy and regions of the country where skills shortages are particularly acute.”
The committee recommended that the government place a greater emphasis on the outcomes and successes of apprenticeships; a stance supported by the CIPD, which fed into the committee. “As it stands, the levy is a relatively blunt tool – the funds are not targeted and can only be spent in one way, which is problematic given that apprenticeships aren’t the only answer to the skills gap,” said Elizabeth Crowley, skills adviser at the CIPD.
“In the longer term, we would like to see the levy widened to a broader skills levy that reduces the unintended consequences of converting existing development and training into apprenticeships, which is a very expensive rebadging of existing provision.”
The report comes amid ongoing uncertainty among the business community over the levy, with many organisations claiming they have not been adequately prepared. A poll from City & Guilds conducted in February suggested that a third of UK employers that will be eligible to pay the levy were unaware of its existence. Research from the CIPD found that only 9 per cent of organisations planned to use the levy to create new apprenticeships, while more than half of employers in a more recent survey by BPP Professional Education planned to turn graduate schemes into apprenticeships.
Crowley urged employers to back the apprenticeship levy as it is implemented nationwide. “We do need to get behind the levy and get the best out of it – the CIPD will be working proactively with members to support them, and use it as an opportunity to invest strategically in their workforce,” she said. “With the possibility of reduced access to EU migrants post-Brexit, it’s important that we look at what skills will be needed both now and in the future, and treat the levy as one aspect of a refreshed workforce development strategy, with a strong focus on quality.”
Resources
Fixing a Broken Training System: The case for an apprenticeship levy
