New clause 2—Review of the Apprenticeship Levy—
‘The provisions of this Act relating to the Apprenticeship Levy shall not come into force until the Chancellor of the Exchequer has laid before Parliament a report on how the levy will be implemented, including but not limited to information on how equitable treatment of the different parts of the UK will be assured in its implementation
I hope hon. Members will forgive me if I go through the various clauses and amendments. I hope they will take some consolation from the fact that this group will advance us some way down the amendment paper—I get the feeling that is the most popular thing I have said for some time.
I was just warning the Committee that I had quite a bit to say on this group, and I am afraid we can no longer put back the moment when I have to say it.
The Government believe in apprenticeships because they are one of the most powerful motors of social mobility and productivity growth. There has been a rapid decline in the amount and quality of training undertaken by employers over the past 20 years. We must reverse that trend of under-investment in training, and that is what the apprenticeship levy seeks to achieve. The apprenticeship levy will be paid by larger employers across all sectors to fund the step change needed to improve the quality of apprenticeships and achieve 3 million starts by 2020. My remarks will cover clauses 87 to 110. I appreciate that they may be quite lengthy, but I hope that hon. Members will bear with me.
“responsible for the collection and management of apprenticeship levy.”
Clause 88 sets out the conditions under which the apprenticeship levy will be charged. Where an employer has a pay bill for a tax year, the levy will be charged at a rate of 0.5% of the total pay bill. Employers will have a £15,000 annual levy allowance, which means that in practice only employers with an annual pay bill that exceeds £3 million will pay the levy. However, as hon. Members will be aware, the Government’s amendments to allow companies and charities to share the levy allowance within a group, which I will turn to later, make consequential amendments to clause 88 that allow the annual levy allowance to be less than £15,000 where a group of companies or charities decides to split the allowance across the group.
Clause 89 sets out which earnings will make up an employer’s pay bill for the purposes of the apprenticeship levy. Pay bill comprises earnings that are subject to secondary class 1 national insurance contributions—NICs—including earnings below the NICs secondary threshold. That effectively means that pay bill is comprised of the gross cash earnings of all employees and will exclude any employer-provided benefits. Clauses 88 and 89 provide that the person liable to pay the apprenticeship levy is the secondary contributor; that is, the person who incurs the secondary class 1 NICs liability on an individual’s earnings.
Clauses 90 and 91 provide rules for connected companies and connected charities respectively. The rules will determine whether two or more companies or charities are considered to be connected for the purposes of the apprenticeship levy at the start of each tax year. The rules will prevent connected companies from claiming multiple levy allowances. The Finance Bill, as introduced, provides that, where companies or charities are deemed to be connected with one another, only one company or charity in the group will be entitled to the annual levy allowance. However, the Government have tabled amendments to allow connected companies and connected charities to share the allowance within their group as they choose. I will outline the effects of the amendments after addressing the remaining clauses.
The rules for determining whether companies are connected for the purposes of the apprenticeship levy will be the same as the rules set out in part 1 of schedule 1 to the National Insurance Contributions Act 2014 for determining whether companies are connected for the purposes of the employment allowance—the employment allowance allows employers to reduce their total national insurance liability by up to £3,000 a year. The connection rules for the apprenticeship levy have been adapted from provisions in existing tax legislation. The employment allowance connected companies rules are similar to the associated companies rules in sections 25 and 27 to 30 of the Corporation Tax Act 2010.
The meaning of “connected charities” for the purposes of the apprenticeship levy allowance is set out in clauses 107 and 108. The rules for determining whether charities are connected will be the same as the rules set out in part 2 of schedule 1 to the NICs Act. The employment allowance connected charities rules are similar to the connected charities provisions in section 5 of the Small Charitable Donations Act 2012. The advantage of following the employment allowance rules is that where companies and charities know that they are connected for the purposes of the employment allowance, they will also know that they are connected for the purposes of the apprenticeship levy.
The anti-avoidance provisions for the levy are addressed by clauses 92 and 93. Clause 92 sets out that where an employer stands to gain a tax advantage as a result of avoidance arrangements relating to the levy allowance, it will not be entitled to the allowance for the tax year in question. That includes any attempt to bring forward or delay an employee’s earnings to alter the tax year in which those earnings are paid. The term “avoidance arrangements” is given a wide meaning and includes any arrangements where the main purpose, or one of the main purposes, is to secure a benefit in relation to liability for the levy.
Clause 93 extends the existing anti-avoidance legislation applying to PAYE and NICs so that it can be applied to the apprenticeship levy. That includes HMRC’s rules on the disclosure of tax-avoidance schemes, the general anti-abuse rule, HMRC’s system of accelerated payments in relation to avoidance schemes and HMRC’s rules on the formation of tax avoidance schemes.
Clauses 94 to 99 relate to the administration of the apprenticeship levy. Clause 94 gives HMRC powers to provide, through regulations, for the assessment, payment, collection and recovery of the levy. Employers will be required to pay the levy with their PAYE and class 1 NICs, which will allow us to apply the £15,000 levy allowance on a monthly and cumulative basis. Applying the allowance on such a basis will ensure an even flow of payments into employers’ digital apprenticeship accounts, which levy-paying employers will be able to use to pay for training and assessment of apprenticeships, thereby enabling them to start employing apprentices. The clause also provides the power to make regulations to provide for reporting the levy and making returns as part of HMRC’s real-time information system.
There are also regulation-making powers to prescribe how HMRC may make assessments where employers have failed to make an apprenticeship levy return or where there is an underpayment. Regulations may also provide for the repayment of the apprenticeship levy in circumstances where the levy is paid in error or where there needs to be repayment or remission of interest. The clause also provides that regulations may set out the appeal process for any matters arising under the assessment, payment and collection regulations.
In keeping with the collection and recovery of the levy, clause 95 gives HMRC the power, through regulations, to provide for the transfer of the apprenticeship levy liability to others if the employer liable for paying the levy does not do so and the funds are irrecoverable. The power will enable regulations to allow treatment of apprenticeship levy debt to be in line with the treatment of debt relating to income tax and national insurance.
Clause 96 provides the power to make regulations for the apprenticeship levy, which mirror those for PAYE and NICs, for supplying information to HMRC from relevant service providers, such as payroll administrators.
Clause 97 sets out the time limits for assessment to be made on an employer’s apprenticeship levy payments, and provides that no assessment may be made on an employer’s apprenticeship levy payments more than four years after the end of the tax year in question. There are, however, two exceptions to that rule. The limit can be extended to six years when the loss of payment has been brought about through the carelessness of the employer. The limit can be extended to 20 years when the employer has deliberately arranged that. Again, the intention is to align the apprenticeship levy position with that of PAYE as far as possible.
It is important to protect the earnings of individuals so that employers do not pass the direct costs of the levy on to employees. Clause 98 addresses that, meaning that it will not be possible for employers to make deductions from the earnings of their employees or seek to recover some or all of the levy’s cost through the earnings of their employees.
Although the Scottish National party supports clause 98, we feel that its definition is a little loose. We have concerns that it might not prohibit employers from recouping the cost of the apprenticeship levy as intended. The lowering of salaries for any new positions advertised is an example. Does the Minister agree?
Clause 98 goes as far as is practical. It seeks to address the matter. No doubt the hon. Gentleman will raise that point during the debate, and I will be happy to respond with further details, but we believe that clause 98 strikes the right balance.
Clause 99 makes provision for HMRC to recover underpayment of the apprenticeship levy. HMRC will be able to recover unpaid apprenticeship levy from employers and may undertake court proceedings to facilitate that. That will work in the same way that it does for income tax under the relevant section of the Taxes Management Act 1970.
Moving on to the information and penalties clauses, clause 100 gives HMRC the power to prescribe in regulations which records need to be retained by employers in connection with the apprenticeship levy. Clause 101 extends HMRC’s information and inspection powers under schedule 36 of the Finance Act 2008 to the apprenticeship levy. Clause 102 gives HMRC permission to charge penalties for errors on returns, late payments and failures to return payments in relation to the apprenticeship levy. The intention is to ensure, as far as possible, that the apprenticeship levy position is aligned with that of PAYE and NICs. Clause 103 sets out that an employer may appeal against an HMRC assessment of the apprenticeship levy or other amounts. It specifies the notice period and process for dealing with such appeals, which follows part 5 of the Taxes Management Act 1970.
The final group of clauses deals with more general matters. Clause 104 applies HMRC’s information and inspection powers for tax agents who engage in dishonest conduct to the apprenticeship levy, as set out under schedule 38 to the Finance Act 2012. Clause 105 amend the Provisional Collection of Taxes Act 1968 to facilitate future changes to the apprenticeship levy. Clause 106 sets out that:
“This Part binds the Crown.”
Clauses 107 and 108, which relate to clause 91, respectively set out the rules for determining whether two or more charities are connected. Those rules are the same as those set out for the employment allowance, so they will be familiar to employers. Clause 109 defines expressions used in relation to the apprenticeship levy.
Finally, clause 110 sets out the process for making regulations relating to the apprenticeship levy. Regulations will be by statutory instrument and subject to the negative procedure in the House of Commons, with the exception of the Treasury commencement order to bring into force penalties for errors in relation to the levy.
I now turn to the apprenticeship levy amendments. Amendments 22 to 25 and amendment 27 all concern the rules relating to connected companies and charities and the levy allowance of £15,000. As I mentioned earlier when outlining clauses 88, 90 and 91, the Government have tabled amendments to enable groups of connected companies or charities to share the £15,000 levy allowance. The original proposal was that, if a group of companies or charities were connected, any one of them could apply the allowance. That followed the approach of the employment allowance, which has worked well. However, in response to representations, we have considered the matter further and have concluded that that would lead to a significant increase in the employer population subject to the levy, which was never the intention.
The amendments to clauses 90 and 91 and the consequential amendment to clause 88 will, therefore, allow a group of connected employers to decide what proportion of the levy allowance each of them will apply. The group must decide the allowance split at the beginning of the tax year and it will be fixed for that year unless a correction is necessary because the total amount of the levy allowance exceeds £15,000. Connected employers must notify HMRC of the amount of allowance to be applied for their PAYE schemes, and where that does not occur, or where the total notified does not equal £15,000, the amendments allow for the levy allowance to be determined by HMRC if the employer fails to take corrective action. Employers and their representatives have welcomed our decision to bring forward the amendments and I hope that Committee members will join in supporting the change.
Amendments 26 and 28 are technical amendments that seek to clarify the definition of “company” in clauses 90 and 109 to avoid any uncertainty and to ensure that the provisions are clear. I will also address new clause 2, tabled by SNP Members. The new clause seeks to delay the implementation of the apprenticeship levy until a report has been laid before Parliament on how different parts of the UK are equitably treated when the levy is eventually implemented.
I acknowledge that it is in everyone’s interest to ensure that the levy works for employers wherever they may operate. However, SNP Members will be pleased to know that we have already published employer guidance, which explains how the levy will work for employers right across the UK. Publishing another report will not, therefore, reveal new information to help employers, and delaying implementation of the levy would be unfair on employers who have been working hard to prepare for it as well as on potential apprentices who will benefit. I am sure that Members on both sides of the Committee will agree that the vocational skills system urgently needs investment and it is only fair that employers play their part if they want better-quality apprenticeships, which I believe they do. I also believe that they will engage with the levy to make it work for them.
The clauses on the apprenticeship levy will enable the Government to deliver their objective of increasing the quality and quantity of apprenticeships and to meet their target to deliver 3 million apprenticeship starts by 2020.
The Minister mentioned the quality of the apprenticeship scheme and I want to put down a marker that some employers, such as Brompton Bikes, which employs many people in my constituency—it was, until a few weeks ago, based there—have to pay into the levy, by the looks of it, because of the size of their operation, but are not able to benefit from the national apprenticeship scheme for the key subsection of their young staff who will be skilled braziers. That is because brazing is a specialist skill and there are too few people doing it for there to be national accreditation. However, brazing is an essential part of building Brompton bikes and giving them the quality they have. Such employers have to pay the levy without getting the benefit for at least half of their eligible workforce. They have to fund that training themselves, on top of the levy. Will the Minister take that point back to his Department?
I am grateful to the hon. Lady for raising that issue. Our discussions this afternoon are focused on the raising of expenditure, and the Department for Business, Innovation and Skills is leading on how that money can be spent. However, it is perfectly reasonable for her to make that point. I encourage businesses to engage with BIS on how the apprenticeship levy can be spent to ensure that it goes to the right places and creates a more highly skilled workforce. The Minister for Skills, my hon. Friend Nick Boles, is engaging with businesses in many sectors up and down the country to ensure that we have the right set of rules in place. I hope that hon. Members will recognise that the Government amendments are sensible revisions, and that they will accept that the SNP amendment is not needed, as we have already published detailed guidance on how the levy will operate for employers across the UK.
I want to reiterate the importance of investing in apprenticeships, which are a powerful tool for enabling social mobility and driving productivity growth. They equip people with the skills they need to compete in the labour market, and enable employers to grow their businesses. The apprenticeship levy will put employers in control and give them an even greater say in the quality, value for money and relevance of the training that their apprentices receive.
I rise to speak to new clause 2. I commend the Minister for mentioning the importance of productivity and of generating much more investment. I am sure everyone in the Committee agrees wholeheartedly. However, the problem of productivity relates to particular strata of apprenticeships—for example, higher-skilled apprentices are needed. Fundamental questions are being asked in the different jurisdictions of the UK about how best to address that. Although one levy system is being imposed in the UK, different forms of apprenticeships are being created. There is some anxiety among employers and different Government agencies about whether the Government should be moving at this pace before these matters are clarified.
This is a probing new clause. I simply ask the Minister to address a few short questions to assist our further thinking. First, in the designing of the levy system, was account taken of the fact that different apprenticeship systems operate with different funding levels in different parts of the United Kingdom?
Secondly, we know that some of the systems and administrative arrangements that are being put in place vary considerably from one part of the UK to another. To what extent does the Minister accept that the levy may be top-sliced to fund some of those systems? For example, as he is aware, the digital voucher system that is planned for England will not operate in Scotland. Is it to be funded separately, or will the funding come out of the levy costs?
Thirdly, who has to pay this levy? It makes a lot of sense, and the Minister talked eloquently about businesses, but it is not merely traditional businesses that are expected to pay the levy. In Scotland, further education colleges are the biggest provider of the education that supports the apprenticeship system. On the latest calculation, they will collectively have to pay approximately £1.9 million for the apprenticeship levy, when we expect them to be the main providers of education training. I would like to hear the Government explain why colleges and some large training providers are expected to pay the levy. Will that not dilute their resources for investment in quality apprenticeships?
With those questions, I would like to hear some of the Government’s further reasoning. I think that there is a case, which has been made to us by many employers and agencies, for the Government to take their time and be careful about implementing the levy.
I fully support the comments of my hon. Friend the Member for Kirkcaldy and Cowdenbeath. I rise to speak to a different issue relating to the clause. I have concerns about the apprenticeship levy and its application and implementation in the devolved Administrations. Skills policy is devolved, so the design and implementation of the apprenticeship programme in Scotland are devolved to Holyrood. Such programmes are also devolved to the Welsh and Northern Irish Assemblies.
The UK Government stated previously that £500 million will be allocated to the devolved Administrations from the receipts related to the apprenticeship levy. I understand that there have been discussions between the UK and Scottish Governments about how much money will be allocated to Scotland from those receipts, through Barnett consequentials. Nevertheless, I am concerned that if the Bill goes through as drafted, the Scottish Government will not get back what Scottish businesses pay into the levy, which will not be the case in England.
Just last week I received an answer to written question 41015, in which I asked what assessment had been made of how much Scottish businesses would pay under the apprenticeship levy. The Government responded:
“Regional level estimates of those likely to pay the Apprenticeship Levy are not available.”
That answer is insufficient. Prior to implementation of the apprenticeship levy, will the Minister consult on determining how much businesses in devolved regions will pay under the levy? Furthermore, the Scottish Government’s Employability Minister, Jamie Hepburn, stated that the UK Government’s apprenticeship levy
“undermines our uniquely Scottish approach” to modern apprenticeships. Given that skills policy is devolved, does the Minister intend to do further work with the Scottish Government to ensure that the implementation of the levy does not impede the Scottish approach to apprenticeships? I commend new clause 2 to the Committee.
I understand that guidance on the apprenticeship levy has been released. The information I was able to find online said that further guidance on things such as provisional bands would be released in June 2016, but I cannot find any. Perhaps it is just that I have been unable to find it, but it would be useful if that guidance was provided.
I draw attention to the issue with employee-owned companies. I was approached by such a company that pays its employees their share of the profits through PAYE, so that share of the profits will be subject to the apprenticeship levy. Had the company been set up to pay dividends to shareholders, it would not have to pay the levy. The staff there have come to me with a specific issue that is unique to them, because they would not have to pay the levy if their company was structured differently. Will the Minister comment on such employee-owned companies?
As we have heard, this substantial group of clauses introduces the apprenticeship levy that was announced in the summer Budget and autumn statement in 2015. I shall address my remarks to clauses 87 to 110 as a group, touching on new clause 2, tabled by the hon. Member for Kirkcaldy and Cowdenbeath, and Government amendments 22 to 28.
The apprenticeship levy was announced in 2015 and will come into force in April 2017 as part of the Government’s commitment to reaching 3 million apprenticeships by 2020. The levy will be charged on large employers with annual pay bills in excess of £3 million. According to the HMRC policy paper, that means that less than 2% of employers will pay the levy. It will be charged at 0.5% of an employer’s pay bill through PAYE. Each employer will receive one annual allowance of £15,000 to offset against its levy payment. Employers operating multiple payrolls will be able to claim only one allowance. As we have heard, levy funds will be retained as electronic vouchers in a digital apprenticeship service account. The employer can spend these vouchers on training and end-point assessment from accredited apprenticeship providers, but not on associated costs such as administration of apprenticeships, pay or allowances.
According to the Government’s costings, the levy is expected to raise £2.7 billion in its first financial year, rising to just over £3 billion by 2020-21. HMRC’s policy paper states specifically:
“It is expected that the levy will support productivity growth through the increase in training. It may have a near-term impact in reducing earnings growth, although by supporting increased productivity, it is expected that the levy will lead to increased profitability for businesses, and increased wages over the long-term.”
The paper also assesses the impact on business, stating:
“For employers paying the levy, the measure is expected to have some impact on administration costs and the impact will vary by employer, depending on the size of their pay bill. The policy intention is that they will calculate and pay the levy on a monthly basis. HM Revenue and Customs (HMRC) will engage with employers to discuss and assess the impacts on them.”
Business representatives have broadly welcomed the levy as a commitment to delivering increased apprenticeship places. However, they have widely expressed concern at the short timeframe for implementation, the lack of guidance to date ahead of the introduction and the limitations that the proposals place on expenditure. Indeed, the Confederation of British Industry has called for a “realistic lead-in time” and for
“taking the time to get this right”, while EEF, the Manufacturers Organisation, has specifically called for a delay to the levy’s introduction full stop.
In addition, the high target of 3 million apprenticeship starters by 2020 has caused concern that there could be a race to the bottom in terms of the quality of apprenticeships. Mark Beatson, chief economist at the Chartered Institute of Personnel and Development, has said:
“We’d argue that the three million target should not be sacrosanct, and that quantity should not trump quality.”
Can the Minister therefore outline what regulatory framework or safeguards are in place to ensure that the quality of apprenticeships is up to scratch?
The Charity Finance Group is particularly concerned that the charitable sector does not have highly developed human resources departments or accredited apprenticeship training schemes. The sector remains reliant on volunteers whose expenses cannot be remunerated via the apprenticeship levy. The CFG is also concerned that significant charity resources are tied up in public sector contracts or that charitable donors will seek confirmation that their donations will fund a charity’s specific cause.
Indeed, public sector employers themselves have expressed concern that, first, the levy is being introduced at a time of severe funding cuts and, secondly, that it is accompanied by a new requirement in the sector to ensure that 2.3% of workers are apprentices. The Local Government Association has urged that local authorities be exempted from payment but given authority to oversee administration of levy funds locally. Can the Minister confirm that the Government have considered that approach?
There may be scope for local authorities to co-ordinate. For instance, councils could take up a commissioning role in the Digital Apprenticeship Service, or unallocated levy funding could be reallocated to contributing areas and commissioned locally rather than being retained centrally.
Another issue that I would like the Minister to shine some light on today is agency workers and large recruitment agencies. In particular, the largest recruitment agencies have expressed concern to me that they will be liable to make large levy payments for placing employees in other companies, including for periods that would not qualify for a quality apprenticeship—over 12 months.
The Recruitment and Employment Confederation has raised concerns that large recruitment agencies will have to pay the levy on their pay bill when they place employees in temporary employment in different workplaces, so that those employees are paid by the agency but not working for it. Indeed, the TUC has expressed concern that agency contracts may be used by employers to lower their PAYE bill and reduce their levy requirement. Opposition Members are really concerned about that, so can the Minister say what steps are in place to ensure that it does not happen?
Finally, I have some concerns about how the levy will work under a devolved Administration, and I think that the hon. Member for Kirkcaldy and Cowdenbeath shares those concerns, as do his colleagues. That is reflected in new clause 2, where they have requested a review addressing how equitable treatment of the different parts of the UK will be assured in its implementation. Throughout their submissions they have asked some very pertinent questions, and I look forward to hearing the Minister’s responses to them.
The levy will be UK-wide, so employers operating across the devolved nations will pay their contribution based on all their UK employees, irrespective of where they live or work. However, the vouchers that levy-paying employers will be allocated—they can spend them on apprenticeship training—will be based only on the portion of the levy that they pay on the pay bill for their English employees. Funds available for training in devolved Administrations are provided through the block grant, and allocation will be decided upon by the Administration.
There appears to be very little guidance on how the apprenticeship levy will work in the devolved Administrations, so I would be grateful if the Minister could provide more detail today. For example, will the funds levied from a company’s UK operations based in devolved nations be identifiable in the grants made to devolved Administrations? We will support new clause 2 if it is pushed to a vote today.
I turn now to Government amendments 22 to 28, which relate to clauses 88, 90, 91 and 109. Clause 90, as drafted, states that where there is an aggregate pay bill of a group of connected companies that will qualify to pay the apprenticeship levy and each would be entitled to a levy allowance, only one will in fact be entitled to the allowance. The connected companies must nominate which company will qualify. Similarly, clause 91 sets out that at the beginning of the tax year, where two or more qualified charities are connected with one another, only one will be entitled to the levy allowance to be offset against the apprenticeship levy.
Government amendments to those two clauses allow companies and charities that are connected for the purposes of the apprenticeship levy to share their annual levy allowance of £15,000 between them, instead of only one company or charity being entitled to the allowance. There is also a consequential amendment to clause 88, which, according to the Minister’s letter,
“allows for the levy allowance not being the full £15,000, if a group of connected employers choose to split it under sections 90 or 91.”
The Government have stated that these changes are in response to representations they have received, and the Opposition are also aware of concerns from stakeholders about the legislation as currently drafted. We therefore fully support these amendments.
Amendments 26 and 28 are technical amendments that clarify that the definition of a company in clause 90 applies to the whole of part 6 of the Bill relating to the apprenticeship levy. Again, we are happy to support these Government amendments.
In conclusion, the Opposition have long called for Government action to drive growth in productivity. That is the underlying problem that the Chancellor has failed to deal with time and again. Supporting apprenticeships is certainly an important factor in doing so, and we are therefore supportive of these measures in the Bill. However, we have some serious concerns about the machinery of the specific clauses, as I have outlined, and I hope that the Minister can address them in his response.
Let me see if I can address the points that have been raised in the debate. It has been argued that business organisations are calling for a delay in implementation. We recognise that employers have concerns about the development and planned implementation of the levy, but we urgently need to address the skills shortage in our economy and improve the quality of vocational training, which employers are calling for. We are holding regular working groups with various employers and employer groups in order to keep them updated on progress and the timing of announcements, and we will shortly be publishing draft funding rates and rules to provide further information to help them plan for the introduction of the levy. The hon. Member for Aberdeen North is not wrong: there is still further information that needs to be published. That information will be published shortly.
Our focus is on ensuring that the levy works for businesses of all sizes as they adapt and seize opportunities in the coming months. In April we set out how the operational model for the apprenticeship levy and the new digital apprenticeship service will work, and how the funding of apprenticeship training will change. We continue to work with employers to design the apprenticeship levy around their needs, and we will publish further details of the draft rates and rules shortly.
Picking up on the point raised by the hon. Member for Brentford and Isleworth about Brompton Bikes and the particular concern about niche areas such as braziers, a key part of reform to apprenticeships is the trailblazer programme, which invites employers to create their own standards. It needs 10 employers, but in exceptional cases the Department for Business, Innovation and Skills is happy to accept smaller, more niche specialisms, such as braziers. I encourage all employers in such circumstances to enter into dialogue with BIS.
Points have been made about the devolution aspects and how the measures will work in Scotland in particular. Skills policy is of course devolved, and it is right that the devolved nations should get their fair share of the levy. For that reason, it is fair that the UK Government should allocate only the levy paid in respect of employees in England. We know that some employers have cross-border operations and training activity. We are working with the devolved Administrations to make the measures work while ensuring that they continue to have complete flexibility in how they support employers through training and by taking on apprentices.
We are committed to doing all we can to make the system work for employers wherever they are in the UK. As part of that, the Government are helping employers across the UK by abolishing employers’ NICs for apprentices under the age of 25, making it about £1,000 cheaper to employ an apprentice under 25 on a salary of £16,000. We are also abolishing employer NICs for employees under the age of 21. We will continue to work with the devolved authorities on this matter.
On the point raised by the hon. Member for Kirkcaldy and Cowdenbeath about the application to FE establishments, there will be no carve-outs from the levy. It is a charge across all employees in all sectors—public, private and charitable. We have tried to be as fair as possible in coming to a decision. Given the number and range of apprenticeship standards and frameworks, there is no reason why employers across all sectors should not be able to take advantage of the funds that they pay in levy and take on apprentices. We ask employers to think about opportunities or develop a new apprenticeship standard to meet their needs.
Similar arguments apply to charities. It is sometimes argued that charities are not well placed to use the levy funds that they may have to pay. Of course, any charities with annual pay bills greater than £3 million will have to pay the levy. Like any other employer, charities can use the levy payment to fund apprenticeships. The Government strongly encourage the charity sector to engage with the levy and consider where it might benefit from apprenticeships or be able to turn in-house training into a formal apprenticeship scheme. A range of apprenticeships are available in areas such as business administration, finance and legal work. If there are currently no apprenticeships available in occupations in which employers would like to employ apprentices, employers should consider applying to develop apprenticeship standards for those occupations.
The hon. Member for Aberdeen North raised the issue of bonus payments and the fact that they will incur the apprenticeship levy. We wanted to ensure that the levy would be as simple and fair as possible for employers. The Government have therefore decided to use the existing definition of “earnings” used for employer NICs, which includes bonus payments. This avoids adding unnecessary complexity to the system, as there is already a suitable definition with which employers are already familiar. This point was repeatedly made to us when consulting on the design of the levy last summer. We recognise the significant contribution that employee ownerships make to the economy, which is why we introduced tax reliefs around employee ownership trusts.
A number of people have got in touch on this point. I would appreciate it if the Government could keep it in mind going forward, and consider making changes. Employee ownership is really important, and going forward we will have more and more employee-owned companies. I do not want people to be discouraged from taking that route because they will have to structure their pay bills differently as a result of the apprenticeship levy.
I note the point the hon. Lady makes. The difficulty is that carving out bonuses that are distributed to employees of owner-managed businesses from the definition of earnings would increase the incentive to remunerate employees via bonuses rather than regular salary. That could create adverse incentives, and would also have a damaging impact on public finances. I understand why the hon. Lady raises this point, but I hope that she appreciates why we have not gone down that particular route.
On the point made by the hon. Member for Salford and Eccles about employment agencies, the apprenticeship levy will be payable by employers who pay earnings subject to class 1 secondary NICs. Where an employment agency supplies labour to a client and is the NICs secondary contributor for those workers, the agency will, like any other employer, be liable to pay the apprenticeship levy, provided that its annual pay bill is in excess of £3 million.
Apprenticeships are now the cornerstone of the skills system and provide opportunities for all sectors and all levels. Everyone stands to benefit from the better-skilled workforce that the apprenticeship levy will help to deliver. It is right that everyone plays their part and contributes to that. There is no reason why an agency could not take advantage of the drawdown from its levy account, if it satisfied the relevant criteria. We are introducing a number of flexibilities in funding for apprenticeships, such as the ability to use funding for equivalent and lower-level apprenticeships where the training is materially different from the learner’s existing qualification or leads to training in a new profession.
On the point raised by the hon. Member for Kirkcaldy and Cowdenbeath about top-slicing for England-only programmes, let me reassure him that we will not top-slice levy accounts to fund administration costs. To answer his question about what regulatory framework will ensure appropriate quality, the levy is just part of the Government’s reforms designed to improve the quality of apprenticeships. We are creating a new institute for apprenticeships to monitor quality standards, and employer-led trailblazer groups, which I touched upon a moment ago, and which allow employers to design new training standards. There are also funding rules; they require 20% off-the-job training and that apprenticeships must last one year. The Ofsted inspection regime applies to English training providers in order to guarantee quality, and there is the levy itself, which fosters employee ownership.
On the devolved authority funding mechanism, we are committed to doing all we can to make the system work for employers, wherever they are in the UK. I am pleased to see that the Scottish Government will shortly consult on how the apprenticeship levy could enhance productivity and growth in Scotland, and I would encourage other devolved nations to do the same. It will not be possible to identify individual employer contributions in the block grant; I wanted to provide that point of clarity. On the wider issue of productivity, the Government remain committed to improving productivity by increasing the quantity and quality of apprenticeships. The apprenticeship levy will enable us to do that. That is why I am pleased that we have these clauses in front of us, and I hope that they will have the support of the Committee.