Business groups sound alarm bells as Treasury cannot rule out apprenticeship levy hike
The government is refusing to rule out a hike in the controversial apprenticeship levy beyond 2017, prompting a volley of fresh criticism from business groups who have already branded it a “payroll tax”.
With George Osborne increasingly unlikely to hit his deficit-reduction targets, economists are warning that the chancellor could – yet again – target businesses with extra revenue-raising measures such as a levy hike.
When asked by Labour in a parliamentary question what the rate and threshold will be after its first year, Greg Hands, chief secretary to the Treasury, said: “The government will keep the apprenticeship levy under review.”
Read more: Everything you need to know about the apprenticeship levy
Business organisations said yesterday that a potential hike added to their mounting concerns over the levy and demanded greater certainty and clarity on the scheme.
The levy is scheduled to come in next April, and will initially be charged at a rate of 0.5 per cent on an employer’s total payroll over £3m.
“There seems to be a very real danger that the government will increase the apprenticeship levy,” said the Institute of Economic Affairs. Gordon Marsden, the shadow minister for apprenticeships agreed, saying “it seems inevitable that the government will end up raising the levy.”
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The failure to explicitly rule out a levy increase sparked outrage among the UK’s leading business groups.
The CBI, which has called for a “radical review” into the policy, said it would be “unjustified to raise rates”.
Adam Marshall, acting director general at the BCC said: “Ministers of all political parties have form when it comes to creating new up front taxes on business and then raising them. A refusal to give firms some certainty over [the levy’s] medium-term path would be very worrying.”
Read more: The apprenticeship levy is a bad policy
“The government has so far failed to give employers the certainty they need on how the apprenticeship levy will work and how much it is going to cost,” said Seamus Nevin of the IoD.
Tim Thomas from manufacturers' organisation EEF, which has called for the scheme to be delayed, predicted: “If the pot comes under strain, the finishing line will move. Government will increase the tax rate.”
“As weaker economic growth is likely to leave the chancellor missing his deficit reduction targets by a wider margin, revenue-raising measures could take the form of new types of business taxes, such as the apprenticeship levy,” Scott Corfe, director at the CEBR think tank, told City PM
Government sources said they were not aware of any plans to increase the rate after its first year.