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A closer look: What would the apprenticeship levy cost contractors?

George Osborne has announced that his new apprenticeship levy will be set at a rate of 0.5 per cent of an employer’s wage bill – but what does that amount to for a construction firm?

The apprenticeship levy, announced in today’s Spending Review, is expected to raise £3bn a year for the government by 2019/20, amounting to £11.6bn over the course of the parliament, according to the Office for Budget Responsibility.

All employers will receive an allowance of £15,000 to offset against their levy payment, meaning that it will effectively only be paid by employers with a wage bill in excess of £3m – a bracket that includes many of the UK’s largest construction firms.

Firms would pay the levy on any wages above the £3m threshold.

So for a typical top tier firm, what will it cost?

Taking data from this year’s CN100 and using four firms of varying sizes, operating in the UK, the impact of the levy can be seen across the supply chain.

For a major main contractor like Skanska UK, with a turnover of £1.2bn, the levy would be expected to cost £1.12m, based on a wage bill of £227.4m from the firm’s accounts for the year to 31 December 2014. The firm was ranked as the 12th largest by turnover in this year’s CN100.

Apprenticeship levy CN100 example Nov 2015

Looking at a major specialist – in this instance demolition firm Keltbray – the company would have to stump up £190,000 for the levy, on a turnover of £216.9m and a wage bill of £41.1m, based on accounts for the year to 31 October 2014.

Sir Robert McAlpine, with a turnover of £862.8m and a wage bill of £111.8m as of 31 October 2014, would have to pay £540,000. Meanwhile, Clugston would pay levy costs of £98,000 on a wage bill of £22.6m and a turnover of £160m for the year to 31 January 2015.

Several of the UK’s largest construction firms - including Balfour Beatty and Laing O’Rourke - do not break down employment costs by the countries they work in, making it difficult to ascertain how much the levy would cost, as it only applies to UK staff.

Construction already has a levy system in place, administered by the CITB.

The Treasury said it is “working with the relevant industry training boards to consult with their members ahead of the introduction of the apprenticeship levy on how their existing arrangements will be affected and whether any changes are required”.

The new levy payments will not hit firms with a wage bill under £3m, meaning that many SMEs will not be affected.

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