The new apprenticeship levy will push schools beyond breaking point

In August 2015, David Cameron pledged to deliver three million new apprenticeships by 2020: an extremely ambitious target with very little funding available to support it. Almost inevitably, therefore, a policy tool was developed to ensure that employers would fund these apprenticeships through a new tax: the apprenticeship levy.

From May 2017, all employers with payroll costs of over £3m will have to pay a 0.5 per cent a year apprenticeship levy into a digital account set up by HMRC. They can then access those funds for the training and assessment part of recognised, accredited apprenticeships and if they do this, the government will top up their levy funds. However, any levy that they don’t spend within 18 months will be lost to them and clawed back by HMRC. Those funds that have been clawed back will be available for smaller employers who don’t have to pay the levy, and also for larger employers that would like more funding.

For schools, this new obligation is a disaster. The National Association of Head Teachers first reported in the autumn of 2015 that school budgets are at breaking point. This came as a surprise to many outside the education sector as the schools budget has been perceived to have been protected since 2010. The National Audit Office’s recent report into the “Financial sustainability of schools” published in December confirmed the illusion of that protection, as although the overall school budget is protected in real terms on a per pupil basis, there is no provision for it to increase in line with inflation.

It’s not just inflation that’s caused the current crisis though, but the cumulative impact of a number of government policies. For example, in 2015, schools faced increases to employer national insurance and pension contributions of over 5.5 per cent, which will have an enormous impact on their budgets year on year as payroll costs typically represent 75-80 per cent of school budgets.

In a recent survey of 1200 NAHT members in school leadership roles, 18 per cent reported that their budget is in deficit and another 70 per cent had only avoided a deficit by carrying over a surplus from previous years, or by making tough decisions to achieve savings: redundancies, cutting investment in professional development, not carrying out repairs. Solutions that were essential but unsustainable long term.

The NAO report confirmed that mainstream schools will have to find savings of £3bn by 2019/20 to counteract cumulative cost pressures, and that this represents an 8 per cent real-terms reduction in per-pupil funding between 2014-15 and 2019-20. The DFE's own data now suggests that 98 per cent of schools face a real terms reduction in per pupil funding, with an average loss per primary pupil of £339, and £477 per secondary pupil. This amounts to the first cut in education spending since the 1990s.

The apprenticeship levy is a further burden on schools, but the policy design is also deeply unfair on schools that are still local authority maintained—all maintained schools will have to contribute to the levy, because their employer is the local authority whose payrolls will exceed the £3m threshold, whilst the Department for Education estimates that only 47 per cent of standalone academies and 88 per cent of those operating as multi academy trusts will be burdened with it.

In addition to these problems, there are very limited opportunities for apprenticeships in schools so there are very limited opportunities for schools to recoup the levy payments they’ve made. The biggest flaw of this new levy is that it can only pay for training and assessment—it can’t pay for the salary of an apprentice. So, at a time when schools are cutting jobs, how would they fund an apprentice anyway?

The requirement to spend it within 18 months, on accredited programmes only, also requires quite a sophisticated strategic approach to training that larger schools or groups of schools can secure, but that will be out of reach for smaller schools and academies. We expect that much of the funding paid out by schools will benefit either other parts of the local authority, or will be clawed back by HMRC to fund apprenticeship programmes in other parts of the economy. We can hazard a guess that there will be some private sector employers who will develop expertise in running programmes to use these funds.

The government has not properly considered how this new levy will impact the schools sector. With only four months to go until launch, it still hasn’t communicated with schools clearly about how this will work and many still don’t know that they will be paying it. It has also failed to find ways to help schools make use of the funding available. This oversight means that the new levy is just another factor pushing school budgets beyond breaking point.