BLOG: UK-wide levy drives coach and horses through devolution

The Westminster government’s ongoing failure to grasp the principles of devolution has just created a big financial hit for Welsh businesses and the public sector in Wales.

In 2016, the UK government imposed a new levy on the payroll of all UK companies and public sector bodies, money which it is using in England to fund apprentices, a policy area which is devolved in Wales. Despite the fact that apprenticeships are devolved, there is no way for Welsh companies and public sector bodies to escape this new “apprenticeships levy” which will come into effect in a few weeks.

The levy applies to Welsh businesses and public sector bodies in the same way as to businesses and the public sector outside Wales. In fact it is even more of a burden in Wales – the wage bills of local authority schools count against the local authority payroll here for calculating the levy, when the payroll of an academy school in England wouldn’t count towards the local authority payroll and could often fall beneath the threshold for the levy to apply anyway.

So you have a UK-wide levy being raised to fund a devolved area, and applying more harshly in Wales than in England.

Unfair. But what does it mean in practice?

Well last week, the Welsh Government published its new Apprenticeship plan which shows a very different approach to supporting apprentices from the UK government (or the English government, in effect). Apprenticeship policy in Wales has long commanded a good deal of support from businesses, apprentices and training providers. In many ways they prefer it to the English system. It is a much better deal if you are a smaller business – which is the overwhelming majority of employers in Wales.

In Wales, the government provides funding for apprenticeships, which give apprentices recognised and respected qualifications. The skills required in the economy are projected and the government focuses its support on the sectors and skills levels needed to meet that demand. In England, businesses that pay the levy will now offset the levy payments against digital training vouchers for staff (so offsetting their training budgets).

In Wales, the system has worked well. But if you are a sector, for example retail, which generally tended to run in-house employer-specific training schemes rather than accredited apprenticeships, you didn’t need to worry previously – but now that the UK government is charging you an “apprenticeship levy” you are likely to be keener on apprenticeships – you are paying in to the system now (to the UK Government, though, not the Welsh Government) so you’d rather like something out. And you may find that harder if the kind of training you want to buy is not in line with the skills priorities of the Welsh economy as a whole.

So, solely as a result of this new tax levied by the UK government, this has created a pressure in Wales to change a well-regarded, fit for purpose Welsh policy to something like the new English policy. The UK government is driving a coach and horses through the devolution settlement.

Apprenticeships are a comparatively small (albeit important) area of Welsh Government policy. Health and care are another matter.

In England there has long been a debate about hypothecating health spending so that money raised through additional national insurance is dedicated to spending on health, or a particular healthcare initiative. This could happen to social care as well – it already happens in places like Japan. If the UK government decided to go down this road, it could easily unleash in health and social care – which is a massive part of what the National Assembly and Welsh Government do – the same kind of pressure and conflict of priorities as we have seen with apprenticeships – pressure to replace good policy which works in Wales with a weak policy.

This is fundamentally at odds with the principles of devolution.

In future, the Welsh Assembly should have the power to consent or withhold consent to the application in Wales of any proposed UK-wide charge which is being levied specifically to fund services and schemes in England which are devolved in Wales. Brexit is going to mean that we are once again around the table with the UK government arguing over funding formulae and powers – this should be on the table.

A consenting power like this would enable us to better protect Welsh businesses and public sector bodies – and the devolution settlement which the Welsh people have voted for.