Business to pick up the bill for training up the workforce

Business to pick up the bill for training up the workforce

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Author: Sarah Lovell

Applies to: UK wide

As the government seeks to resolve the UK's skills gap and reduce net migration into the UK, we examine two new charges which are proposed to be levied on businesses.

In the Budget, George Osborne announced a proposed 'apprenticeship levy'. Hot on the heels of that the Immigration Bill sets out proposals for an 'immigration skills charge'. So what are these two charges?

Skills Shortage

There is a shortage of skilled workers in the UK. According to recent data employers reported that 22% of all vacancies were a result of skills shortages. That figure has nearly doubled since 2009. This arises from a lack of technical skills in sectors such as professional, IT, caring etc. but other issues include lack of basic communication, literacy and numeracy skills.

Businesses have been criticised for failing to provide training to employees but the same survey showed that 66% of establishments provided in house training with 49% providing external training with a total training expenditure among the respondents of £42.9 billion.

The skills shortage has been circumvented by the recruitment of overseas nationals. However, the government has promised to reduce net migration from outside of the European Economic Area (EEA). Steps taken have included closing various immigration routes such as the highly skilled migrant route and limiting the number of general certificates of sponsorship under tier 2 of the points based system.

Recent governments have concentrated on increasing the number of apprenticeships. The government is seeking to push that cost away from it and on to the private sector.

Apprenticeship Levy

In the budget the Chancellor announced an increase to the number of apprenticeships in the UK with a target of 3 million by 2020. The government spends £1.5 billion a year funding apprenticeships. The estimated costs of providing the new apprenticeships is £3.5 billion leaving £2 billion to be found, presumably from the levy, although there is no guarantee that the government will continue to provide funding at the current level or at all so the cost to be a lot higher.

The proposal is for all large companies to pay a levy. This will then fund a digital voucher scheme for apprenticeships so that those providing apprenticeships will be able to control the training given. At the moment there is precious little detail on which businesses will be affected and how much the levy is likely to be. The government has recently launched a consultation which closes on 2 October and asks such questions such as how the government should determine the size of the companies which will be required to contribute.

The reaction from business has been negative in the main. The CBI has called the proposal a 'blunt tool'. The lack of detail has been criticised and concern has been expressed by SMEs as to whether they will be expected to contribute.

There is no doubt that the measure is designed to up skill the workforce in the UK and to address the issues with the current apprenticeship system. However, a spokesman for the Department for Business, Innovation and Skills did say that the move was designed to incentivise business to train from within the workforce rather than to recruit from overseas.

Immigration Skills Charge

Through the Immigration Bill 2015, the government proposes to introduce the immigration skills levy. According to the Immigration Minister, James Brokenshaw, the aim of the charge is to encourage business to recruit from with the resident labour market and to reduce the burden of the immigration system on tax payers.

The charge will be applied to all employers who sponsor non-EEA nationals under tier 2 of the points based system. This will further discourage employers from sponsoring skilled workers given that there is already a charge for each step of the process from applying for a sponsor licence to creating and assigning a certificate of sponsorship.

As with the apprenticeship levy there is very little detail available with the government promising to consult on the proposals. Nor is it clear what the proceeds of the immigration skills charge will be spent on and this will form part of the consultation process.

Summary

These two measures are a clear indication of the route that the government is taking. Its aim is to reduce the skills gap and address the issue of net migration. Previous efforts to do this have failed and now the government is looking to push the cost of new efforts onto business. It is very much a question of "watch this space" to see which businesses will be effected by these proposals and to what extent.

Disclaimer

This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

About the author

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Sarah Lovell

Senior Associate

03700 86 8333

Sarah is an experienced employment specialist who advises both public and private sector employers. She has particular experience in the retail sector providing advice to large retail corporates and she is a member of the HR Retail Circle. Sarah acts for a number of higher education institutions and was seconded to the Human Resources department of a large higher education employer. Sarah also advises on business immigration matters.

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