Why you can’t afford to ignore the apprenticeship levy

Go on, check again. Yes, it really is a Conservative government in power!

It may seem surprising that a Tory government, which is traditionally associated with a free market ethos and limited public-sector intervention, has introduced two huge labour market interventions since it was elected in May. These are the introduction of the National Living Wage and, more recently, proposals for an apprenticeship levy.

Both announcements are liable to add significant costs to businesses. We’ve already explored the impact the National Living Wage could have on hospitality and retail businesses in a recent blog post, but what are the potential implications of the apprenticeship levy?

The government stresses that the levy will help to address the need to increase businesses’ investment in training.  In fact, the number of businesses training their staff increased by two per cent in hospitality, and four per cent in the retail and travel industries between 2011 and 2013.

However, if raising employer investment were the government’s sole aim, it would introduce a broader training levy and not limit it to apprenticeships. Most people accept that the levy is a means to fund the government’s target of creating three million apprenticeships by the end of this Parliament.

Let’s get the ‘three million’ figure out of the way:

• It does not equate to any labour force projections for the types of jobs suitable for apprenticeships
• It is likely to be met – but achieved in some areas where apprentices are not the most appropriate skills solution
• It is driving most decisions about apprenticeships across government.

Why is the government so focused on apprenticeships? Put simply, it sees a clear equation between an increase in apprenticeships and an increase in productivity, and  believes that apprenticeships provide a greater return on government investment than full-time further education.

The danger is that the policy around the levy could not only undermine this (fairly simplistic)argument, but damage it in a similar way to the Labour government’s Train to Gain initiative, which had limited to no impact on productivity before 2010. 

At the same time, hospitality, passenger transport, travel and retail employers have invested a considerable amount of time in developing new apprenticeship standards - stretching standards that create clear career progression routes.

Businesses working on the trailblazers (the groups of employers that have developed the standards and assessment plans) see real value in them providing a route to attract, develop and progress talent in their businesses.

The focus on quality apprenticeships has been at the heart of the reform process to date, which is why so many businesses see them as an important solution.

Their concern is that, if the levy is poorly implemented, it could undermine this quality, provide poor or no returns for businesses and not address the productivity challenge that is central to the government’s economic strategy.

Here are a few of the potential pitfalls that businesses need to be aware of:

• The proposal is for all large businesses to pay the levy and it assumes that, if businesses are investing in apprenticeships, they will see a return. Currently, not all businesses have a stable workforce that suits apprenticeships. Do these businesses re-engineer their workforce to be able to offer apprenticeships or stay as they, not employ apprentices and pay a levy they will not benefit from?
•  The CBI has suggested that the levy could be 0.5% on PAYE. For some businesses this will mean a lot of apprentices – many more than they need and could benefit from. If the system isn’t flexible, it could result in some people doing an apprenticeship that will not benefit them or their business.
• There is a real danger that some employers who invest heavily in training and development may shift their training expenditure to apprenticeships because of the levy. This would mean less meaningful and effective training and development to meet their other business needs and could hamper productivity, not increase it.
• The scope of the levy is so tight that it fails to support the critical progression onto apprenticeships, such as selection and pre-employment programmes, as well as the management infrastructure needed to support, develop and progress apprentices within a business.

As more information emerges, there will be other issues that business will need to consider. It is early days, and information is currently sketchy as the government consults with businesses and training providers.

But most worryingly, because the announcement was made in the summer, too few businesses are aware of the levy and are not even considering what it could mean for their operations.

Given the visitor economy’s size with 5.4m employees, it is critical that businesses start thinking about the levy’s impact and respond collectively to government. People 1st is currently collecting employers’ views and has already provided some recommendations to government – you can add your thoughts here.

It is also critical that the government avoids a 'one size fits all’ approach, and takes into account the different ways apprenticeships work in each sector. It should work with existing trailblazers to look at how the levy can be implemented to help our industries which, in turn, will help it achieve its aims to raise productivity.

The 21st Century chef

Chefs continue to be a critical recruitment challenge for many hospitality businesses. Currently, 42% of chef vacancies are considered hard-to-fill with research from People 1st indicating that by 2022 the industry will need to recruit an additional 11,000 chefs.

Just as with the entire hospitality industry, the chef world has a recruitment and retention challenge. The growth in more informal, casual dining has seen the UK branded pub and restaurant market attracting an extra 47 million visits each year compared to five years ago.

This, allied to a refocus on locality, seasonality and authenticity, has arguably fragmented the chef job description and increased the number of people who work under the job title of ‘chef’ but carry out wildly varying tasks, using different skills.

This industry sea change, begs a number of questions for kitchens of the future: namely, how will we come to properly define the role of a 21st century chef? What skills will people looking to join the brigade of the future require? And how best to recruit, develop andmost importantly, retain, the best candidates?

People 1st is about to embark upon a large-scale body of research with chefs, chef organisations, hospitality businesses, industry commentators, recruitment agencies and suppliers to get a better understanding of the types of skills the industry will need in the next five to ten years.

In undertaking the research, we will seek to formulate a breakdown, by skillset, of chefs working in the hospitality industry and where they are typically found, while getting a greater sense of the proportion of different types of chefs working in the industry.

Allied to this, People 1st will examine how businesses recruit for different chefs, how they train and develop existing staff and the extent to which they are finding it difficult to fill vacancies.

Finally, we will look to examine the impact of immigration restrictions on bringing chefs into the UK from outside of the EU.

If you work in hospitality and care about the future of this fantastic industry we want to hear from you.

To have your say, email me now at martin-christian.kent@people1st.co.uk 

The government’s long-awaited productivity plan: why it raises more questions for employers

So at last we know the government’s take on the so-called ‘productivity puzzle’ of a growing economy and stagnant productivity. Even more critically, we know what it proposes to do to tackle it.

The new ‘productivity plan’ is no five-year Stalinist economic plan, pinpointing the number of tractors to be produced by 2020 in Scunthorpe. Instead, it outlines a range of (mostly existing) government policies that align with key productivity driver and highlights 15 areas for action.

This includes a modern transport system, planning freedom and more houses to buy, resurgent cities and a trading nation open to international investment.   

After reading the plan’s 82 pages, what strikes you is the government’s limitation in tackling productivity. The most revealing aspect is a throwaway comment in George Osborne’s introduction that confidently states that “the drivers of productivity are well understood“. 

While the drivers are commonly agreed upon, successive studies show that it’s the way these drivers interact that have the impact, and that different circumstances require different interactions. This plan makes no reference to this, which is understandable on one level, as it’s a complex issue.

However, the plan’s proposals are like throwing all the right ingredients into a bowl and expecting to make a cake. It needs someone to mix and prepare the ingredients; and that’s where employers come in.

The plan announces that Sir Charlie Mayfield, chairman of the John Lewis Partnership, will lead a business-led action group to identify practical, direct action to enhance productivity in different sectors. This will report by the end of the year, so we’ll have to wait and see to what extent this addresses the plan’s fundamental weakness.

The actions around one of the areas – ‘a highly skilled workforce, with employers in the driving seat’ underline its limitations. In so many ways, it’s reminiscent of ‘The Learning Age’, the Labour government’s first skills strategy in 1998.

It’s highly utopian – “faced with a growing global competition the UK workforce needs to raise their skills base and so more people need to undertake higher level qualifications”. The fact that this strategy largely failed before doesn’t seem to have prevented the current government from adopting the same approach.

Many people in front-facing, operational roles in the hospitality and retail industries have higher level qualifications. But, as we see time and time again, that doesn’t mean that their qualifications are relevant to what they are doing, that they have the skills to do the job or that businesses are maximising their skills to make them more productive.

Similarly, just because more employers have more money as a result of a ‘more competitive tax system’ it doesn’t mean that they will use it to invest in long-term infrastructure as the government intends.

The plan also includes actions that are unlikely to raise productivity. This includes getting more long-term jobseekers into work - yet France, with its high unemployment and restrictive labour market laws, has higher productivity than the UK.

This is largely because businesses are reticent to recruit staff, as it’s difficult to get rid of them. As a consequence, they are forced to maximise the use of their existing staff. Growth can happen on the back of greater employment but, in reality, productivity is unlikely to increase without unemployment rising – something which is not mentioned in the plan.

So, what does this mean for businesses in our industries?

The plan aims to create the conditions for businesses to think and invest more in the long-term - but the choice to do so, and therefore whether or not productivity will increase, still rests with individual businesses and whether they choose to think differently about how they optimise their staff.

As People 1^st has outlined in its recent Skills and Productivity Problem report, there is a strong case for hospitality businesses to think differently – a productivity increase of just one percent would mean an extra £1.43 billion for the economy.  However, the government’s plan alone is unlikely have a significant impact on encouraging a more long-term approach.

We now await the work of Sir Charlie Mayfield and his team of employers to see how they believe businesses should react.

The National Living Wage – what does it mean for hospitality and retail?

The government’s introduction of a National Living Wage is likely to have significant implications for the way hospitality and retail businesses recruit and retain their staff

The announcement on Wednesday came as a surprise, perhaps because few expected a Conservative government to interfere in the labour market. But, in reality, their focus on work rather than welfare is consistent with their policies over the last five years, whilst in coalition.

Despite the severity of the economic turndown in 2008, UK unemployment has bounced back much more quickly than in other EU countries. One of the reasons for this has been that many of these newly-created jobs have been in low-paid sectors like hospitality, retail, care and cleaning.

As a result there has been an increase in so-called ‘in-work poverty,’ with more people receiving tax credits in employment than those unemployed. The large proportion of these jobs has also been seen as an underlying factor in the UK’s stagnant productivity levels.

The phased introduction of a £9-per-hour wage by 2020, whilst falling short of a true living wage, is still a significant step up from the average hourly pay for many operational jobs roles in hospitality and retail. For example: chefs (£8.62); waiting staff (£6.75); bar staff (£6.74); retail assistants (£7.91) and cashiers (£7.68).

So what might hospitality and retail businesses do as a response?

There are two likely scenarios when it comes to people management. Some businesses are likely to place even more emphasis on a young workforce (aged 16-24), as they will be exempt from the new National Living Wage. Already, 34% of the hospitality industry’s workforce is aged 16-24.

The first problem with this approach is that the UK’s ageing population means it will gradually become harder to recruit. The second is that by recruiting students in such large numbers they are, by their very nature, largely transient. This has a negative impact on staff retention making it difficult to develop a skilled workforce. Ultimately, performance suffers.

The other approach is an increased focus on engaging and retaining staff. Businesses will want to ensure they are getting greater returns from their staff.

This means seeing bigger productivity increases, which can only come about by having a stable, engaged and skilled workforce, whose skills are used much more effectively. This is likely to sit alongside a greater use of technology.

For many businesses, this means a different HR approach to dealing with high levels of labour turnover, and the constant recruitment that has become the norm for many hospitality and retail businesses. However, as research from the likes of MIT in the United States shows, the benefits for those businesses that have adopted this approach speak for themselves.

Whichever way businesses choose to deal with the National Living Wage, we’re likely to see greater polarisation in the way they recruit, retain and develop their staff on the back of this announcement. Hopefully more employers will be persuaded to see the returns of a more stable, productive workforce.

What does falling youth employment mean for the tourism and visitor economy?

Youth unemployment has fallen to its lowest level in nearly six years. While on the face of it this is good news for the economy, what are the implications for the tourism and visitor economy sector given its reliance on a young workforce?

Young people are popular with sector employers because they are often keen to learn, happy to work flexible hours and can handle a physically demanding job. Currently, 33% of the tourism and visitor economy’s workforce is under 25, which is three times the rate across the population as a whole. This dependence on young people not only poses current challenges given falling rates of youth unemployment, but demographic changes also mean that there will be fewer young people in the UK population to target in the future. Recent research from the European Commission suggests the UK’s workforce growth will turn negative by 2023.¹

With the sector’s main recruitment pool shrinking can we realistically meet our future recruitment needs? In all likelihood we can’t; by 2020, the tourism and visitor economy is projected to recruit a further 843,000 employees. Sector employers are already reporting hard-to-fill-vacancies for front facing, operational roles that young people typically fill and if it weren’t for migrant workers (see August’s Research Insight report), we would likely have a major recruitment problem.

Tourism and visitor economy businesses need to broaden their recruitment pools – older workers and women returning to work being two good starting points. Yet we need to focus much more on retaining the young people we attract in the first place. Most employers have a good story to tell about a young person that fell into the sector after working casually in their business, yet it is surprising that more businesses don’t promote the career pathways and broader opportunities that can be found in the sector to those working casually for them.

With falling youth unemployment, some social commentators have expressed concern about the quality of jobs that young people are filling and whether this is beneficial for the economy as a whole. In reality, many of these jobs, which are lower paid, part-time work, are found in our sector. However, at the same time, we need to fill a significant number of skilled and management positions. If filled these types of roles would be likely to lift productivity, which would benefit individual businesses and the economy as a whole. So there is a real incentive to retain young people.

Falling unemployment is not necessarily bad news for the sector and while it would be tempting to call for a renewed careers assault, I think it would pay greater dividends to look afresh at whether we are doing all we can to retain the young people we attract in the first place.

[1] Growth potential of EU human resources and policy implications for future economic growth, (2013), European Commission

The emerging disruption on the back of the sharing economy

We are at the forefront of major economic and social change, which has the power not only to disrupt a company’s business model, but also that of an entire industry.

The retail and travel industries have had to respond to the way the internet has changed how consumers buy and make purchasing decisions. The rise of 3D printing makes it look like manufacturing will face similar challenges and it’s clear that sites like Napster altered the way we listen to and buy music. It literally changed the business model and operating assumptions in the music industry.

Yet Napster is just one example of the growing sharing or collaborative consumption economy, which is also making its presence felt in the tourism and visitor economy. The rise of bike and car sharing is reducing the dependence on public transport and, similarly, the growth of accommodation sharing sites such as Airbnb and Couchsurfing are rivalling traditional accommodation providers.

According to Jeremy Rifkin in his thought-provoking book, ‘Zero Marginal Cost Society’, this year Airbnb will surpass Hilton and InterContinental by filling more rooms globally. To date, 3m guests have booked 10 million nights in 33,000 cities across 192 countries using this site.

If you’re thinking that this phenomena is limited to a dedicated group of ‘liberal, communitarians’, think again! Rifkin points out that this trend is part of a move away from people wanting to own a product to having the opportunity to just access it instead. He believes that young people in particular, who have grown up with free access to the likes of Google and Facebook, have a very different perspective to their parents and grandparents when it comes to the need to purchase things.

So what does it mean for operators? Well, first of all, it doesn’t look like this trend is going away and so it should not be ignored. Sites such as ParkatmyHouse for people renting and buying garage or drive space or Thredup, which provides a platform for recycling clothes, highlight the range of opportunities for consumers.

At the heart of this move is the power of peer-to-peer reviews and the influence this has on buying decisions, rather than the traditional weapon of slick marketing.

Some operators have woken up to the potential threat this new model poses, making the case that the likes of Airbnb are not subject to the same legislation that they have to follow. In response, Airbnb has argued that it is opening up the market rather than taking away existing business.

As the sharing or collaborative consumption economy grows, these arguments will no doubt become more common. It is likely to become more commonplace and has the power that other trends have shown before to disrupt the business models we currently take for granted.

The fight back in the travel industry: harnessing, not competing with, technology

The Institute of Travel and Tourism conference earlier this month had an impressive array of speakers, including Lord Adonis, Mary Portas and – controversially – Nigel Farage. However, it was two separate speakers from TUI and Thomas Cook talking about integrating technology and skills that left the biggest impression with me.

Johan Lungren, Deputy CEO, TUI UK & Ireland talked about how TUI had been trialling their new ‘Generation Centres’; travel shops where digital technology has been fully integrated, and John Straw, Head of Digital, Thomas Cook, talked about how they are maximising the best from the web with their agent’s knowledge and customer service through their new digital approach.

It really highlighted the cutting edge of travel and technology, and the importance of having a skilled workforce.

There were some interesting stats flying around:

• 20% of Thomas Cook bookings are made on  tablets
•  Tesco sold 450,0000 of its low-cost tablets over Christmas, meaning that they are becoming much more common
•  44% of people search for travel in an average month. They do it over 17 research sessions and start 73 days before booking
•  The closing ratio in Thomas Cook’s shop was 50% and on the website it was less than one percent.

While the web offers choice, its problem is that it offers too much choice. How does a consumer really pin down their choice? How do they trust what they are seeing and reading?

Both companies talked about how, in their different ways, they were using the power of their agents to help clients cut through the choice by fully integrating the advice and guidance in a travel shop with the information on the web. It’s had a real impact on business and, of course, on customer satisfaction.

Bringing out agents’ skills and knowledge has been critical; as has ensuring that they can use and harness the technology. It all helps to explain the huge changes we’re seeing in travel. Investment in training and development has increased by 54% in travel agencies and 234% in tour operations and, as a result, the number of employers reporting that staff are not proficient to work in their business has fallen. No wonder then that productivity levels have increased significantly year on year since 2008, which isn’t bad given this was during the economic downturn.

After a difficult period of contraction the travel industry is on the up and its workforce is now set to grow to 94,145 by 2020. The emphasis on having skilled staff is critical, as is the ability to get the most out of them. As another presenter, David Speakman, Group Chairman, Traveller Councillors, summed it up as the move from a transactional relationship with the client to one that’s relational. It’s also about skills and good people!

You can find more travel figures in our recent research insight report at http://bit.ly/T75o5t