By Simon Field, British Council TVET Consultant, UK
Like many countries, the UK has introduced a skills levy, and it has some unusual features.
Partly because of a decline in employer-provided training, the UK introduced an ‘apprenticeship levy’ in 2017. It is imposed across the UK but is only linked to apprenticeship in England. Employers pay 0.5% of their payroll over £3 million, so smaller employers pay nothing.
While up to now the funds have been available only for apprenticeship, the new Labour government plans to broaden its scope to cover other forms of vocational training, even while giving some priority to apprenticeship.
Unlike most skills levies, apprenticeship levy receipts are consolidated with other tax receipts rather than being placed in a ring-fenced budget. An apprenticeship budget for England is set separately.
Despite this arrangement, this levy is not just a tax like other taxes. Funds contributed by each levy-paying employer are registered in a digital account, topped up by a 10% contribution from the government. Employers may then use this account to pay for apprenticeship training for their employees. (This is a notional account only, and the payments in fact come from the national apprenticeship budget). So, from the perspective of an individual employer the funds they contribute are entering a ring-fenced budget available to them only for apprenticeship.
But this ring-fenced budget is not quite the benefit that it first appears. Small employers have training needs too. So smaller employers who do not pay the levy have been granted nearly the same level of access to the apprenticeship budget as larger employers – they sometimes have to find just 5% of the costs. So, the digital accounts of levy-paying employers represent no more than a limited privilege.
Most skills levies in Africa, like other ‘earmarked’ taxes, are rendered acceptable to the employers who pay the levy because they can see their contributions going to support useful training. Such acceptability must be weighed against the potential inefficiencies of earmarked taxes, often disliked by tax experts because of the rigidity of ring-fenced budgets. The UK apprenticeship levy represents an intriguing attempt to square this circle through a delicate and precarious balance between a regular tax on the one hand and an arrangement in which employers who pay the levy can see their payments accumulating in ‘their’ training budget on the other. No doubt this balance will be addressed in the new reforms, which will re-establish the levy as a ‘Growth and Skills’ levy.