Payroll tax an opportunity to upskill workers
A new payroll tax to pay for expanded apprenticeship programmes comes into force on April 1, 2017. All employers will pay 0.5% of their payroll costs to HMRC. Employers who have a pay-bill of less than £3m a year will be exempt.
The way in which the extra tax revenue will be used is still to be decided.
The Northern Ireland Executive will get a regional share of this extra tax revenue through the Block Grant based on the Barnett formula. The extra tax payments from or attributed to Northern Ireland employers will be about £57m per year.
Mark Huddleston, the Northern Ireland member of the UK Commission for Employment and Skills, has been monitoring the preparations for this change. In principle, he sees it as a "great opportunity to do more to upskill" the local labour force. In line with the motivation of the Government, he hopes that this is an opportunity to create "a more productive and competitive economy".
For Northern Ireland, since employment and training (and apprenticeships) are devolved, there are questions to be answered by local ministers. Will the extra government revenue be earmarked for an increase in apprenticeship activity?
Ministers in the Executive will need to choose from a range of options. At one extreme, the additional Stormont revenue might be added to local revenue and considered simply as a contribution to the current training budget, now transferred to the Department for the Economy. That would, indirectly release these funds for other Stormont priorities and ease the general pressure on the Stormont budget.
That approach would attract criticism. The extra payroll tax to increase apprenticeships should at least be hypothecated to do just that and make an extra contribution to further reduce the acknowledged large training backlog which has been a disadvantage for Northern Ireland.
That principle is more easily accepted than implemented. With an extra sum added to the Block Grant to be spent on beneficial additional training, how should it be allocated? Northern Ireland does not have a comprehensive apprenticeship programme ready to expand. In the recent past, the efforts to upskill the local labour force have been more selective than general. Efforts have been made to focus more on the raising of skill levels (up to degree equivalent levels) in the STEM subjects. The numbers have been modest: in hundreds, not thousands.
There are choices to make, and priorities to select, to get best value from the new funding. The extra revenue is coming from both the public and private sectors. The health and education sectors will be significant contributors and would have legitimate claims that some new funding should also benefit their public sector services.
For the private sector, one criterion to influence the allocation of funding might be that large private sector employers, prepared to commit to formal and better apprenticeship programmes, should be allowed to claim back from Government the approved spending related to their contributions to the extra taxation. In this way, the scheme might become similar to the former Industrial Training Board levies from around 50 years ago.
Critically, for advanced higher skill apprenticeships, the return of funds to more ambitious employers might be well in excess of their extra tax bill. Local ministers must consider how extra funding for apprenticeship training could be used to enhance private sector investment. If this funding is targeted more to make employment costs (relatively) lower than in other regions, this might attract new investment.
Local employers organisations should urgently submit their proposals on how Stormont should use this unexpected opportunity, even though it is also an unwelcome extra form of taxation. At an early stage, local representatives should look at the decisions of the Scottish Government which will incorporate this opportunity into an interesting Fair Work Framework which is a more comprehensive restatement of jobs policy in Scotland.
For the Executive, this is a welcome new option.