How should you spend your Apprenticeship Levy?

by Matt Grimshaw
January 24, 2017

The Apprenticeship Levy is coming! From April this year, businesses with a payroll of over £3m will face a 0.5% levy. This money will be allocated to a digital account for the company to spend on approved apprenticeship training. For big businesses this charge will be millions of pounds a year and critically, after 18 months any money you haven’t spent gets taken by the government. For answers to some commonly asked questions, see our Apprenticeship Levy FAQs.

Faced with this new scheme, the instinctive reaction is loss aversion – spend your money before the government takes it away from you.

The easiest way to do this is to engage a registered training provider who can deliver the apprenticeships for you.

But before you do this, we think it’s worth asking yourself 3 key questions:

1. How will you make sure the apprenticeship programmes you run have a positive impact on your business?

The problem with loss aversion is it can blind you to the sunk cost fallacy. In other words, you end up spending even more money in an effort to not lose your apprenticeship levy funds.

Before you start an apprenticeship scheme, make sure you know the true cost to your business. This should include the fees that will be paid from your levy account, but it also needs to account for the cost of people’s time to participate, set up and administer the scheme.

With this cost in mind, ask yourself what return on investment do you need to see and in what time frame? How will you measure it? And, importantly, how long do you need to retain your apprentices in order for them to pay back on the investment in them?

If you can’t prove that your apprenticeship scheme is having a positive impact on the performance of your business, then the sensible business decision is to write off the levy as a charge and just let the government take the money. Don’t throw good money after bad.

2. Where will you get the most return for your investment?

You can spend your Apprenticeship Levy funds on a vast range of training programmes, not just what you might think of as traditional technical apprenticeships.

There isn’t a formula for calculating which roles will give you the best returns but your company’s people strategy should give you a clear idea of where and how you’re looking to derive a competitive advantage from your people.

We think it’s useful to consider a few guiding principles:

    • Are there any technical skills gaps that pose a risk to your business? Could you use the Apprenticeship Levy funds to invest in the basic capabilities you need to maintain your ‘licence to operate’?
    • Have you got roles where a minority significantly outperform their peers? If so, can you use your Apprenticeship Levy funding to address this under-performance?
    • Could you use apprenticeships to invest in particular roles or new capabilities that would give you a real point of difference from your competitors?
    • Managers matter – our view is that investing in management capability tends to produce the largest and most sustainable improvements.
    • How can you plan for the future? How can you align your apprenticeship programmes with what your business needs 3+ years down the line?

3. Can you get your best to teach the rest?

If you want to spend your Levy funds, the quickest and easiest route is to engage an external contractor who will design, deliver and assess the apprenticeship for you. If your payroll is more than £20m (and therefore you’ll have more than £100k in levy funds) don’t do this!

If you are looking to develop practical applied skills (including the skills needed by front line managers) – without doubt, the most effective way to do this is to get your own people to train your apprentices. Don’t outsource this training to people who don’t know your business, who aren’t familiar with your operating context and who haven’t done the job themselves.

Instead, register as a provider under the Apprenticeship Levy scheme. Do the bulk of the design and delivery in-house. Your starting point as always, should be to identify your pioneers (the people currently outperforming their peers). Once you’ve found your pioneers, coach them to be able to teach others.

This approach has two advantages: first, you can keep the bulk of your Levy funds in-house; second, by getting your best to teach the rest, you’ll get better outcomes.

In our opinion, the only justification for using external partners (The Pioneers included!) is if they bring specialist knowledge, a challenging new perspective or expertise that your people don’t have.

If you’d like to discuss how you might design and deliver apprenticeships in an evidence based way that delivers value to your business; what roles you ought to focus on or how you can use your pioneers most effectively, please get in touch.

We’re also running a breakfast meeting on this topic on Thursday 9th February. It’s free to attend – book your place here.


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