November 26, 2015

UK to introduce apprenticeship levy

The UK government has announced plans to introduce a new payroll levy to fund three million new apprenticeships.

Firms with a wage bill of over £3 million will pay the 0.5% levy from April 2017, raising an expected £11.6 billion over four years. The government estimate that over 98% of employers will be exempt from the levy.

The plans have been criticized by business groups. Simon Walker, director general of the Institute of Directors, described the levy as a “new payroll tax”, and said: “We are very concerned by the government’s assumption that a quarter of the money collected will be spent on just administering the levy. Firms have been promised they will get back more than they put in, but it’s not clear how this will happen if so much is being lost in bureaucracy.”

The apprenticeship levy was announced yesterday as part of finance minister George Osborne’s autumn statement. Also in the statement was confirmation that the government has backtracked on controversial plans to cut working tax credits, which had been expected to take effect from April 2016. The UK government has committed to cutting £12 billion from the country’s welfare budget.

Robert Lerman has written for IZA World of Labor about the benefits to employers of investing in apprenticeships. He writes that apprenticeships are usually profitable for firms and workers, and that: “By providing firms with information on economic returns, by helping them set up apprenticeships, and by funding off-site training, policymakers can promote the expansion of effective career training and increased worker earnings with only modest public expenditures.”

Richard Burkhauser has also written for us about the effectiveness of income tax credits in alleviating poverty. He argues that tax credits are more effective as an anti-poverty measure than the minimum wage, writing that: “Earned income tax credits effectively raise the hourly wages only of workers in low- and moderate-income families, while increasing labor force participation and employment in those families.”

Read more on this story at the Guardian and BBC News.

Related articles:
Do firms benefit from apprenticeship investments? by Robert Lerman
The minimum wage versus the earned income tax credit for reducing poverty by Richard V. Burkhauser
Should the earned income tax credit rise for childless adults? by Harry J. Holzer
Does vocational training help young people find a (good) job? by Werner Eichhorst