What do emergency apprenticeship incentives mean for employers?

Richard Marsh, Kaplan’s apprenticeship director, assesses measures in the Summer Economic Statement to help boost employment.

Boris Johnson talked about guaranteeing an apprenticeship for every young person as Britain seeks to rebuild the economy and protect jobs.

The Chancellor’s Summer Economic Update didn’t quite include this. But it did offer a raft of welcome incentives for employers in England.

• £1,000 for taking providing unpaid work-experience for a trainee.
• £1,000 for taking back a Furloughed worker.
• A six-month wage subsidy for hiring an unemployed young person (Kickstart).
• A payment of £2,000 or £1,500 for taking on an apprentice (for six months only).

Employers who recruit an apprentice aged 16-24  will be paid £2,000, while those who recruit an apprentice aged 16-24 will receive £1,500. This is in addition to the existing £1,000 payment for 16-18s.

This incentive is available in addition to the other assistance, such as the ‘Kickstart’ funding. All of which makes it very attractive to take on an apprentice.

There seems to be no change to the apprenticeship levy, so;

• Employers will still pay for training via their ‘levy’ or if not a levy payer then they will contribute 5% of training costs unless they employ less than 50 people and take on a 16-18-year-old (when the 5% is not required).
• There will still be a rebate of employer National Insurance contributions for apprentices aged under 25.

How many more apprentices will this generate?

How many apprenticeship starts will there be as a result of these inducements? This is the million-dollar question.

The Government has not released figures, but for comparison, there were just under 50,000 starts for under 19s between August and December 2019.

In reality, this is about preventing a collapse in opportunities. At this point, any increase in numbers would be very welcome.

However, these roles will need to be advertised soon or potential applicants will be on courses in Colleges (not that this is a bad place to be!) and it will be too late for this summer’s education leavers.

Another obvious concern is apprentices might be released after their six month wage subsidy ends.

The return on apprenticeship investment

There are many good reasons to create apprenticeships. They can be used to increase Social mobility and Diversify workforces or to retrain for Technological advances.

However, at their core apprenticeships are about returns on investment (ROI) and there is no evidence of any large-scale apprenticeship programme lasting for the long-term if these returns are not clear to all parties:

• Apprentice – Invests their time and effort. Accepts a potentially lower short-term wage in return for skills and experience. Expects higher future earnings and better career prospects.
• Employer – Invests in the individual; in the expectation of higher productivity and/or profit in future.
• State – Regulates for quality, equality of opportunity. Invests to meet the educational cost with the hope of increased future tax returns.
• Education provider – Invests in course materials, facilities and tutors; in the expectation of profitable outcomes

These new incentives recognise that it is employers that create jobs (including apprenticeships) – not Government (and not prime ministers!). So they seek to help the process by improving ROI through a larger and faster return.

The same intention was behind the introduction of the apprenticeship levy.

It forced larger employers to invest in apprenticeships then to try and recoup that investment. The levy allowed employers to choose who they wished to train. In contrast, the new incentives seek to tilt the scales in favour of the young.

Understanding the ROI of Apprenticeships in the UK

The German and Swiss apprenticeships systems have become part of the fabric of those economies. Part of the reason employers support them is they deliver a well understood and proven profit.

The ROI of apprenticeships is much less well understood in the UK.

A recent study by Warick University’s Institute of Employment Research found that taking on a Level 3 Accounting Apprentices can cost up to £14,615 in the first year. But this is transformed into a net benefit ranging from £67 (for a levy payer recruiting an existing employee as an apprentice and retaining them for five years) to £25,784 (for a non-levy payer recruiting a new employee as an apprentice and retaining them for eight years).

This incentive to tackle the aftermath of the coronavirus (Covid-19) pandemic will cushion these initial costs and further increase the long-term return.

All of which should give employers the confidence to recruit now and providing the opportunities that this summer’s education leavers desperately need.

About the author

Richard Marsh is Apprenticeship Director of Kaplan Financial.

AAT Comment offers news and opinion on the world of business and finance from the Association of Accounting Technicians.