The Institute for Fiscal Studies has also warned that the Government’s plans could result in fewer jobs.
The new system of funding, which comprises an apprenticeship levy for large employers and a system of up front mandatory cash contributions for smaller ones, comes into force in April.
The levy, which is effectively a payroll tax on businesses with a minimum annual paybill of £3m, does not take into account pension contributions and NICs. In effect this incentivises employers to find ways to lower the levy bill, the report said.
With childcare already a low-wage sector, the report’s prediction that ‘this could lead to employers decreasing employees’ wages and increasing pension contributions in exchange’ will be of concern.
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