31 July 2017
BIS/DfE Joint Apprenticeships Unit
Department for Business Innovation and Skills
Orchard 1
1 Victoria Street
London
SW1H 0ET
Dear Sir / Madam,
The Future of Apprenticeships in England: Funding Reform Technical Consultation
With reference to the above consultation, we are pleased to make our submission below.
The North East Chamber of Commerce (NECC) is the North East’s leading business membership organisation and the
only regional Chamber of Commerce in the country. We represent more than 4,000 businesses located in
Northumberland, Tyne and Wear, Durham and Tees Valley, covering both local enterprise partnership areas in the
North East. Our members are drawn from all sizes of business across all sectors and employ about 30% of the region’s
workforce. NECC are one of the largest independent training providers within the region, at the end of the contract
year 2012/13, there were 1174 apprentices placed by the NECC across various sectors in the North East. We also
represent other training organisations as part of our wider membership.
Last year the North East saw the greatest leap in apprenticeship applications with a 60% increase on the previous year.
NECC have a keen interest in helping businesses in our region develop a skilled workforce to drive economic growth and
recognise the role apprenticeships can play in this. In the latest labour market figures the North East has once again
improved on all measures between December 2013 and February 2014, we have seen a significant number of jobs
created in the past twelve months of which apprenticeships have been critical to this. As ever the North East still ranks
high for both unemployment and claimant count figures when compared to other regions which shows why training
and developing a skilled workforce is vital to our regions economy.
In general we support the principles set out in the proposed reforms but not categorically. The reforms impact will
differ depending on the size of business involved. For larger businesses the changes are welcomed as they will see real
benefit over being able to have agreater say on the apprenticeship delivery to suit their business needs and choice over
the training providers they use however for smaller businesses these reforms will add further administration burden
and potential cash flow issues when all they want to do is develop a skilled workforce. Furthermore there is real
nervousness for training providers over the challenges these changes will mean for their business with the potential
thinning of the market which may make it difficult for employers to engage due to lack of providers operating in their
local area. There is a concern over communication of apprenticeships and the benefits this can bring to businesses and
young people with the absence of anyone ‘making the market’. Businesses have a clear preference for an
apprenticeship credit model which will make it clearer to employers how much funding is being allocated per
apprentice and will provide an upfront government contribution in comparison to the overly complicated PAYE option.
Funding Principles
Whilst the principles of the new funding system are now firm, please detail any issues relating to their
implementation that you believe need to be taken into account and, if so, how?
A real issue following the reforms implementation for businesses will be being able to budget accordingly for an
apprentice. The current system is considered good and easy to follow with employers knowing from the start the cost
associated to having an apprentice. The new system with the uncertain one off payments for 16 – 18 year olds and the
different levels of co investment seems overly complicated. Before making the decision to take on an apprentice
employers would have to work out the full financial breakdown of the process, what the government / employee
investment needs to be and then could be faced with forming multi supplier relationships for – recruitment, education
provision, assessment and end testing which would be cumbersome negotiating with each over the share of notional
funding. This will be an additional financial/time burden to employers simply wishing to train apprentices/employees.
The current model often provides employers a complete end to end service. The admin burden for businesses to offer
apprenticeships has to be light and should be no longer than recruiting a normal member of staff. Transparency over
the costs of the whole process needs to be clear from the start with clearly defined standards of associated cost for the
different elements involved in the process so businesses can use that as a base for quotes they receive to ensure
competitiveness and quality.
There is a strong feeling from businesses that these reforms will split the current apprenticeship provision in two. On
the whole employers will be happy to invest in technical, skills shortage specific apprenticeships where the business has
identified a clear area they need to develop people into to fill gaps in their workforce. In comparison there is a
potential risk that employers could turn away from recruiting and training less technical / job specific roles such as
business admin when having to coinvest more of their own funds, choosing instead to absorb that role to existing
members of staff’s workloads or look to recruit at entry level. As a result of this there will be a rise in NEETS as it is
unclear what will happen to those young people, often they are not able to get a similar role at entry level as they
currently don’t have the correct attitudes and skills. Businesses have stated when employing roles such as this at entry
level they would choose a candidate who is the best fit for the company and often that would be someone older with
more experience. Taking this into account, the government need to offer an extra incentive to employers to get them
involved in these less technical apprenticeships similar to the added incentive availaible for 16 – 18 year old provision of
a one off additional payment to employers.
The government believe these reforms will drive up quality by allowing employers to shop around for the most
competitive training delivery as well as being able to tailor apprenticeship training to their specific business needs. In
reality this will only be true for large companies as they can guarantee numbers of apprentices and so will gain
bargaining power. Smaller companies looking to place one or two apprentices will not see any benefit here and will
have to invest more effort in the recruitment of apprentices and the selection of a potentially multiple suppliers to
deliver provision or seek the services of a broker to negotiate good rates and help recruit candidates which will add
extra costs to the programme and delivery. Conversely, employer co-investment should help to increase the value
which employers place on engaging with Apprenticeships, potentially encouraging sustainable investment in the
training programme. It can be argued that this mentality has not been fostered within employers through the current
grant and incentive system. Whilst grants including the Apprenticeship Grant for Employers (AGE) have offered a
positive incentive to take on young people, the goal of Apprenticeships should be to provide sustainable employment
for young people which needs to survive beyond the lifetime of a one-off payment. The contribution required by
employers, along with reviewing the incentive structure, should increase the value employers place on engaging with
Apprenticeships and has the potential to improve sustainable investment in training.
The reforms are of particular concern for training providers as it will become increasingly difficult for these businesses
to forecast year on year their income as well as having to deal with significant cash flow and credit issues. If exisiting
training providers cease trading as a result of these reforms there is strong concern that there will be less choice and
availability of provision that will be relevant to business needs. Also currently providers actively canvass and encourage
employers to commit to apprenticeship training as part of the broader recruitment support activity and this level of
support will diminish reducing apprenticeship uptake.
It is clear there has been some poor experiences with training providers in the past so for some businesses by putting
the funding direct to the employer there is a feeling this will ensure better standards from providers. Businesses
welcome the transparency over the breakdown of costs that the reforms will implement. Additionally, with employers
holding the funding and expected to make a cash contribution to training, there should be an impact on the quality of
training provision as employers are likely to shop around to find the right value and quality offer. However, if training
were to become a price sensitive product the risk is that employers could seek to minimise costs and decisions become
based on price and not quality, which will drive quality down.
Payment mechanism options – eligibility and registration
What sort of information would you need at the outset from a new employer website for Apprenticeship registration
and funding, to give you the certainty to employ an apprentice?
The current NAS website is far too complicated with no clear guidance on the different levels, frameworks and training
providers available. Essentially the new employer website needs to be a one stop shop for businesses interested in
apprenticeships. The website should firstly offer a simple definition of what an apprentice is and what can be expected
of them, as often employers seem confused over what to expect from an apprentice. Following this the website needs
to ask if an employer is interested and then break down the different options available and the funding and
coinvestment levels of each. At this point the website should explain in simple terms the processes the business will
need to go through if participating and highlight the benefits of apprentices to the workplace.
When, relative to recruiting an apprentice, would you want to know how much funding you would be eligible for?
Employers would need to know from the outset how much funding they would be eligible for, have clarity on services
this can be used to purchase and how much coinvestment they will have to commit to before being able to consider
taking on an apprentice. All costs need to be clear at the initial stages so businesses can budget whether taking on an
apprentice or a more skilled person is best to help them develop a skilled workforce.
Payment mechanism options - PAYE model
The PAYE model would prove difficult for employers to negotiate and understand how much contribution they are
receiving per apprentice. Under this model further burden would be placed on employers to register candidates, apply
for funding, pay for training, work out the reimbursement to come off their PAYE and then to monitor whether this has
in fact come off and if not to claim the money back. For employers who will already be taking on huge additional
administration burdens in these reforms this seems far too complicated and yet more beuracraucy for employers who
are simply wanting to recruit and train staff through apprenticeships.
Employers also take on the risk of funding the training up front which will have cash flow implications, especially for
SMEs. This financial risk also includes early leavers, with the final payment being withheld until the learner completes.
The PAYE model would be cumbersome for mirco businesses and smaller SMEs whose PAYE returns are not sufficient to
cover the training draw-down and as a result of this they may experience real cash flow issues. The PAYE proposal
means no physical transfer of cash from Government to employer therefore businesses may not see themselves as
being funded for training an apprentice but rather getting a discount on cost of labour. This therefore may not be
sufficient to encourage greater investment in apprenticeships. This model needs further clarity to ensure that it would
not create new complexities for business within the funding system, if this model was to be pushed as the favourite by
government then employers need a way to clarify exactly what is for the apprenticeship provision and this should be
done in a similar way to how pension deductions are managed through payroll at present.
For businesses with multiple apprentices it will be even more difficult to calculate the PAYE deductions as these may be
under different rates due to age of candidates or the apprenticeship being delivered. There is also a strong concern
that it will be difficult to reclaim money back if they do not make sufficient PAYE payments, this will especially affect
micro and SME’s where the day to day cash flow has much more significance.
Payment mechanism options - Apprenticeship Credit model:
Apprenticeship Credit is the clear preference for businesses as this would be the clearest way to identify what the
government is funding towards the apprentice. Many businesses already use online accounts to manage various other
aspects of their businesses so as long as this system was set up in a very easy to use structure with simplicity and
security being at its core businesses would welcome this.
Employers welcome the increasing control gained through the apprenticeship credit payment model which would make
steps towards creating a more demand led system with employers having a greater awareness of the value of training.
The apprenticeship credit account should be set up before negotiating training costs so the reforms have the positive
impacts the government for see allowing employers to cost up the different elements and decide notional funding to
help businesses ensure quality. All costs would need to be known well in advance of what the government would be
investing and also how many businesses are expected to invest per apprentice to be able to evaluate if this is the best
method of recruiting employees for their workforce.
Routing funding via the Apprenticeship credit model would counter the complex PAYE system proposed and provide
certainty to employers over what the governments contribution is per apprentice.
Assurances
What factors need to be taken into account in the development of an approved register?
When developing an approved register of training providers for employers a simple and easily recognised system needs
to be implemented. Confirmed quality of provision via external assessment ie OFSTED would be needed for assurance,
these findings should then be incorporated into a system along the lines of travel supermarket and tripadviser would
work well, an easy resource where employers can compare providers and the services they offer in their local area with
a rating system attached.
How can burdens on employers be minimised whilst providing assurance for the funding systems and enabling good
budget management?
Clearly defined standards of associated cost for the different elements involved in the process need to be available so
businesses can use that as a base for their budgeting of the funds and use it to compare quotes they receive to ensure
competitiveness and quality.
What support should government provide to help employers manage the relationship with their training providers to
protect their investment and that of the government?
Key to businesses is how the delivery is mitigated and that quality assurances of accreditation of training providers and
apprenticeships being offered is rigorous. This should be broken down into three priorities;
1.
Self evaluations by employer
2.
Some form of accreditation
3.
Some external checking to make it robust
With this structure in place systems checks will be robust enough to guarantee quality of the learning without being too
heavy to stop businesses engaging. Clear rules are needed on how apprenticeships are monitored and what types of
roles employers can actually recruit through the scheme, there needs to be a clear pathway and map of development
done by the businesses to warrant the apprentice and this should be part of the accreditation of the businesses
involved.
Helping employers, providers and other stakeholders prepare for full implementation
What needs to be included in a sector readiness programme for all employers, providers and other stakeholders to
support full implementation of reformed Apprenticeships?
The management of any funding system reform will be an issue. The guidance and communications given to providers
and employers will be important to ensuring a smooth transition so organisations can respond accordingly. Many
businesses currently rely on training providers for information, which may not be so readily available in a more marketbased system. Additional guidance will be needed for SMEs to ensure they are aware of any changes to the system and
their practices. Lessons need to be learned from the Youth Contract which was not clearly communicated to business,
and a comprehensive communication plan with supporting guidance will be required for any change.
Additional Issues
The funding principles should in theory raise the quality and relevance of local training provision to meet local business
requirements. Employers holding greater ownership over the system should hopefully encourage providers to meet
their needs closely due to increased competition to attract central funding via employers.
Placing public funding in the hands of employers would help to support the demand led system for skills and should
help to match local providers to the needs of local businesses. The current skills system is to demand led with providers
only able to deliver an Apprenticeship where employer demand exists with providers encouraging demand from
employers. If providers are unable to recoup the costs of stimulating employer demand through pricing, then there is a
real risk that demand for Apprentices could reduce as there would be no organisations ‘making the market’.
In terms of employer input into programme content, mechanisms already exist through Sector Skills Councils for
employers to directly feed in to qualifications. Through the reforms learning will become less prescriptive and
employers will be able to prioritise the learning that delivers the most value for their business, this would mean
learning can tie more directly into the workplace by tailoring modules / courses depending on project work of the
business which is welcomed by businesses. However we must be mindful that an objective of achieving qualifications
specific to an employer’s workplace needs to be avoided. If programmes become too specific, learners do not gain the
transferrable skills which can translate into long term value for the labout market.
Additional provider concerns need to be taken into account during any transition to a new funding model. Concerns
exist around the levels of funding for 19-24 year olds compared to 16-18 year olds. The existing funding allocations for
16-18 year olds and 19-24 year olds need adjustments to better reflect the age of the majority of learners accessing
Apprenticeships. This harmonisation of funding has not been addressed within any of the proposed models and would
need to be taken into account when making the transition to a new funding system. Whilst 16-18 year olds will need
greater investment and support as they are likely to have little employment experience, the funding levels need to
accurately reflect the age groups of those young people undertaking an Apprenticeship and so harmonisation between
16-18 year olds and 19-24 year olds needs to be addressed. Furthermore retraining over 25s and upskilling those in this
bracket is also crucial to ensuring economic development as this age range will remain a substantial part of the future
workforce and at present there is a lack of funding to help businesses develop people in this category.
If you require any further information, please do not hesitate to contact me.
Yours faithfully,
Lucy Humphreys
Policy Adviser
[email protected]
07912 478 938