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Views on Policy Issues – Levies (UK)

What do you think?

Semta represents the view of our employers across government and the media.  If you are an employer in the science, engineering, or manufacturing technology sectors, we welcome your views at policy@semta.org.uk

The issue

• The question of voluntary or statutory company contributions to a central training fund is one which is regularly raised, particularly in sectors where there are skill shortages.
• The introduction of compulsion, in any system which has previously been voluntary, always runs the risk of reducing previous high levels of voluntary involvement to the lowest permissible level of compulsory involvement – a company which previously spent a great deal on training per employee in a voluntary system may only spend the minimum under a compulsory system.
• Following a recommendation in the Leitch Review of Skills, the government is to consider whether it would be beneficial to introduce new enabling legislation to make it easier for Sector Skills Councils (SSCs) to introduce levy schemes where they consider that these would help improve skills and productivity in their sector, where a clear majority of employers in the sector support them, and where impact assessments are positive.
• The UK Commission for Employment and Skills is planning in its first year of operation to review employer “collective measures” such as levies and licences to practice – UKCES will need to reach a view on the wider economic impact of these policies in terms of stimulating growth and competitiveness, and effectiveness in terms of raising skills.

Semta Employers’ View

• Through its Sector Skills Agreement process, Semta has had dialogue with over 5,000 companies regarding their skill needs and concerns. There is currently no consensus among employers in Semta’s footprint as to whether the introduction of a levy would improve investment in skills which actually improve productivity and competitiveness.  Across the sub-sectors, and between companies of different sizes and locations, there is no consensus that a levy is the solution to their skill shortages.  The reasoning behind the opposed / support divide is explained as follows:

Reasons for opposition to a levy:
Both large and small firms are concerned that the issues behind the original abandonment of the engineering levy (bureaucracy, ‘fairness’, deadweight and ‘training for training’s sake’) would not be addressed by the introduction of a new levy system.
- Small firms in some sub-sectors are currently very concerned about day-to-day cash flow management and simply could not spare the money to fund a levy.
- Large firms are concerned that they would contribute more than they would benefit from.
- Companies are increasingly concerned about national government intervention in their training activity (the recent Time to Train consultation in England drew strong criticism), particularly at such an economically sensitive time, when employers are more concerned with creating and maintaining wealth.

Reasons for support for a levy:
- The engineering industry benefited greatly from the geographical coverage of providers supported by the levy.  Companies have commented that colleges and providers have reduced engineering provision since the levy was abolished and it is increasingly difficult to access provision locally.
- Small firms believe that it would enable larger firms to invest in the training system and SMEs / supply chain companies would benefit.
- Large firms believe that their existing training activities could be ‘offset’ against a levy obligation, enabling them to effectively invest.

• A few elements of training which took place under the old levy were particularly valued, such as the elite graduate training sponsorship programmes and the network of providers who were sustained by the reliable funding.
• Levies are generally viewed as a “step back” in terms of the training relationship between employers, individuals, training providers, and the government.

What is Semta doing?

• Semta continues to lobby against the introduction of an old-style compulsory levy system.
• Semta will continue to take the issue of levies under advisement from our employers, and will only make recommendations regarding their introductions based on the views of the clear majority of companies.
• Semta continues to lobby the government and policy-makers against the introduction of compulsion in terms of training funding without the full support of, and consultation with, employers. 

What else needs to be done?

• The government should continue to explore voluntary forms of training funding, such as Train to Gain, sector-based Compacts and partnership arrangements between companies and their employees.

The evidence and facts

• Levies are run on a system of voluntary / statutory contributions from employers, which are then used to finance training.  Companies who do the training themselves can therefore usually claim some / all of their levy contribution back.  Providers can also bid for funding to train individuals.
• Levies are currently in operation in a few sectors – construction, engineering construction, and film production.  These sectors recognise that the nature of their work (largely project and contract-based) means that company-managed training can be difficult.  The levy therefore provides funding for the training of apprentices and other training which would otherwise be difficult to arrange and manage in a short-term contract-based business.  The film production levy has only recently become compulsory (having been voluntary previously) and some concerns have been raised as to its potential negative impact.[1]
• The engineering sector in the UK did once have a levy, which was abolished in the 1980s.  Employers in the sector felt that the system was too bureaucratic, and that the re-distribution of funding was not always fair.  In particular, large companies felt that they did not see an appropriate return for their level of contribution to the levy “pot”.  There were also concerns about the appropriateness of the type of training which the levy funded, and the general service which was provided.
• Reasons for termination of engineering levy
  The engineering sector used to have a levy system, which was abandoned for a number of reasons:
  - The bureaucracy involved meant that employers were unconvinced that the levy was the most economical way of addressing skill needs.
  - Many companies felt that they ‘put more in’ than they received in return and the perceived unfairness of redistribution of resources created problems.
  - Employers felt that a compulsory system did not allow them to respond flexibly to the needs of the business and the industry.  This led to a growing perception of ‘training for training’s sake’, which did not contribute to the productivity and competitiveness of companies or the sector.
• Sector Skills Councils cannot be levy-setting organisations, where a new levy has been introduced, the relevant SSC has been involved in the creation of a separate body for this purpose.

More information

Leitch Review of Skills - Prosperity for all in the global economy: world class skills

World Class Skills - government response to the Leitch Review (England)

UK Commission for Employment and Skills - organisation tasked with considering collective measures across the UK

Download this Policy View in Word here.

 

Back to Views on Policy Issues

9 November 2008

 

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Sources

[1] Lights, camera - pay up, Guardian 26 Feb 2006