Apprenticeships levy brings tough choices
Treasury decisions on the forthcoming apprenticeship levy have created a financial squeeze and a policy dilemma for the devolved administrations in Northern Ireland, Scotland and Wales.
In 2017-18, employers in Northern Ireland will pay an extra £76m as a levy of 0.5% on their pay-bill. Only employers with an annual pay-bill of less than £3m will be exempt.
This extra taxation goes to the Treasury and is then re-allocated under the Barnet formula.
However, the consequences are more complicated and far-reaching than creating an apparent revenue question for Stormont (and Holyrood).
The Northern Ireland allocation is not necessarily tied to an increase in local apprenticeship or skills training. The Executive must decide whether, in the local scale of priorities, any extra spending on skills is a priority.
The Executive could decide that extra money in Northern Ireland would simply maintain existing spending on various forms of apprenticeship and any extra revenue (possibly of £24m pa net) might fund other deserving public services.
There are two complicating features. First, Stormont will not receive an extra £76m as first thought. The Treasury will also deduct from Stormont revenue (as a Barnet consequential) £52m because of the withdrawal of other forms of apprenticeship training spending in England. Stormont will have a net financial gain of £24m in year one. That constrains the scope of new local skills training ideas or schemes.
Second, since all larger employers will pay the levy, Stormont departments and services will separately have to find £29m out of their existing spending approvals. To spend an extra £24m, the net levy income, government departments must find £29m to pay the levy. As local ministers have revealed, this is surprisingly a net cost arising from a new form of taxation.
Nevertheless, the expectation is that local ministers will focus on some steps to enhance targeted spending on the level of apprenticeships. The Northern Ireland budget will have to meet the (net) cost of the levy, even when it falls on government departments.
However, local initiatives might be devised to ensure that the extra £24m pa in taxation can be used more flexibly than in England.
There is also a major piece of unfinished business. Local construction companies already pay a levy to the NI Construction Industry Training Board. Can, or should, ministers remove this form of double taxation?