Apprenticeships

APP 96

Written evidence submitted by the UK Commission for Employment and Skills

Executive Summary

· There has been real progress in raising skill levels in the past decade including significant expansion of Apprenticeships. Since its creation in 2009, the National Apprenticeship Service (NAS) has overseen unprecedented growth in Apprenticeships, including a significant increase in Advanced Apprenticeships.

· Apprenticeships bring considerable benefits to businesses, individuals and the economy. For businesses they ensure a supply of ‘home grown’ skilled people and are linked to increased productivity and improved retention. For individuals they are valuable training opportunities with employment, progression and higher wage returns.

· It is critical that Government is now able to strengthen and sustain this momentum of expansion. The UK Commission believes that key to this is for employers to take greater ownership of the skills agenda, including Apprenticeships and be empowered to develop their staff in the way that most closely responds to business need. As outlined in the UK Commission’s recent paper Employer Ownership of Skills: Securing a Sustainable Partnership for the Long Term, we need to shift from a government-owned apprenticeship strategy to an employer-owned one, and from a provider-driven system, to an employer-led one [1] .

· Working in partnership with colleges and providers, employees and trade unions, employers need to be driving the design and delivery of skills, including Apprenticeships so that they best meet the needs of business and employees. In the current economic climate, it is more important than ever to secure co-commitment to the Apprenticeship ‘brand promise’ and to achieve clarity and transparency about who contributes what amongst employers, individuals and Government. This is vital to strengthening the Apprenticeship experience and maximising its contribution to developing an internationally competitive skills base.

· The UK Commission’s view is that placing employers at the centre of the vocational training system, including Apprenticeships, will deliver skills which are best aligned to meet the needs of business and support economic growth. It will also support the more effective use of public funding by encouraging greater investment from employers. For this reason, we welcome the £250 million over two years that Government is investing in the Employer Ownership pilot to test out principles for reform set out in the Commission’s paper.

· Employers should have the space to own the skills agenda. Instead of employers joining government-led initiatives, or participating in provider led programmes, employers need the space to step up and develop their own training solutions working in partnership with employees, trade unions, colleges and training providers.

· Skills solutions should be designed by employer-led partnerships to reach more people and businesses. Decision-making needs to be closer to the ground, among employer-led partnerships working through sectors, supply chains, local networks and clusters. Employers need to be integral to validating and assessing the experience and quality of Apprenticeships.

· Public contributions for vocational training should move to employer incentives and investments which flow directly through employers and leverage greater co-investment. This increases employer ownership and responsibility, makes public money work harder and leverages greater employer investment. Establishing a sustainable investment model is vital to ensuring the future strength of Apprenticeships. In the Employer Ownership vision paper, the UK Commission proposed funding employers directly for 16-18 Apprenticeships, for example through the tax system, and for adult Apprenticeships, moving from qualification-based provider funding to employer investments and loans to leverage greater co-investment.

· Public contributions should be transparent. Employers and individuals need to be aware of public contributions to their training so they can make considered decisions based on quality and value for money. All apprentices should individually know the value of the public contribution being invested in them, as should their employer. Transparency empowers choice, demonstrates Government commitment and equips individuals and employers to drive quality and value for money.

It is against these aims that the UK Commission has responded to the following questions and submitted this evidence to the Select Committee Inquiry on Apprenticeships grouped under the following questions:

· How successful has the National Apprenticeship Service been since it was created in April 2009? Has it helped bridge the gap between the two funding Departments? (BIS and Department for Education)

· Is the extra funding promised by the Coalition Government necessary for apprenticeships? How can this funding best be spent?

· Are Apprenticeships of a high enough quality to benefit apprentices and their employers? Should there be more Level 3 Apprenticeships?

· Apprenticeship bonuses – how should they function? Will they encourage the involvement of more small and medium sized businesses to take on apprentices? If not what will?

· Is the current funding arrangement for training of apprentices of 100% for 16-18 year olds and 50% for 19-24 year olds appropriate?

Brief Introduction

The UK Commission for Employment and Skills is a Non-Departmental Public Body providing strategic leadership on skills and employment issues in the four nations of the UK.  We are led by a team of Commissioners, who make up a social partnership that includes CEOs of large and small employers across a wide range of sectors; trade unions and representatives from the Devolved Administrations. Our mission is to work with and through our partners to secure a greater commitment to invest in the skills of people to drive, enterprise, jobs and growth.

Our strategic objectives are:

· To provide world-class labour market intelligence which helps businesses and people make the best choices for them

· To work with sectors and business leaders to develop and deliver the best solutions to generate greater employer investment in skills

· To maximise the impact of changed employment and skills policies and employer behaviour to help drive jobs, growth and an internationally competitive skills base

Factual Information and Recommendations

Question 1) How successful has the National Apprenticeship Service been since it was created in April 2009? Has it helped bridge the gap between the two funding Departments? (BIS and Department for Education)

1. The National Apprenticeship Service (NAS) has the following remit:

"... to support, fund and co-ordinate the delivery of Apprenticeships throughout England. It is responsible for increasing the number of Apprenticeship opportunities and providing a dedicated, responsive service for both employers and learners" (NAS website, 2012)

2. A number of other bodies contribute to Apprenticeships: Sector Skills Councils (SSCs) issue Apprenticeship frameworks; the Apprenticeship Unit (made up of the two funding Departments and overseen by the Minister) determines policy and legislates; the Skills Funding Agency (SFA) applies and tracks funding; and Ofsted inspects quality of provision. Since it was created the relationship between SFA and NAS has been amended to help clarify roles and responsibilities, but NAS does not have a role in bridging any gap between the two funding bodies (BIS and DfE) and should not be assessed on that basis. The Apprenticeship Unit was set up to do this.

3. Based on this remit, NAS is measuring its success on expansion and accessibility of Apprenticeships, using information about patterns in the take up of Apprenticeships and levels of employer engagement and involvement within the programme.

Expansion

4. NAS has overseen significant expansion in Apprenticeships since it was established in April 2009. The total number of Apprenticeships starts increased by 63% from 2009/11 to 2010/11, in line with and beyond Government’s ambitions [2] . Also, completion rates remain strong 74% for 16 – 18 year olds and 78.2% for 19 and over [3] .

5. To sustain the current momentum in Apprenticeships, it is important that we define the ‘brand promise’ of Apprenticeships. It is the UK Commission’s view that this should be defined by employers and employees. It is important that the rapid expansion of the Apprenticeship programme does not lead to the brand being defined by provider opportunity. It must be defined by employer demand and individual aspiration.

6. The recent expansion of Apprenticeships has been more concentrated among certain age groups, levels and frameworks which has focused attention on ‘brand stretch’ and quality’ [4] . For example, there has been growth in Apprenticeships at all levels over many years but the last year has seen a specific concentration of growth in adults over 25, and in some cases in short duration apprenticeships (less than six months). The majority of starts have also been at Intermediate Level (Level 2) [5] and in a very limited subset of frameworks [6] . It is important that the drivers behind the nature of this growth are fully understood and transparent so that it is clear whether it is being driven by employer and individual demand or by providers. This matters because ultimately, growth in Apprenticeships must be driven by economic opportunity and individual aspiration in order to deliver valuable training experiences that lead to skills and employment outcomes.

7. Government and NAS have recognised these issues and are introducing measures to address them, for example the minimum duration of twelve months to tackle short duration Apprenticeships for 16-18 [7] . We also welcome the employer-led review into the quality and standards of Apprenticeships which will address some of these issues.

Levels of employer engagement

8. Despite recent growth, there are still low proportions of employers offering Apprenticeships in England compared to international counterparts. Although this has increased, the proportion of employers is still only 5% [8] . Australia, Austria, Germany and Switzerland have between three and four times as many apprentices as England and Ireland and the majority are at Level 3 [9] .

9. The UK Commission’s 2010 Employer Perspectives Survey identifies a number of barriers to employer engagement with Apprenticeships, the top reason being that businesses do not consider Apprenticeship as relevant or suited to their type of work. International reviews have also highlighted the elusive problem of employer engagement in Apprenticeships in England and Wales, concluding that employers in England are not at the centre of the Apprenticeship system [10] .

10. As outlined in the vision paper on Employer Ownership, the UK Commission’s view is that employers need the space to take more ownership over Apprenticeships, with government stepping back. We need to create the right conditions for employers to step up, to work with key partners in their sectors, local areas and supply chains to develop the skills they really need. To this end, we value the opportunity to test out new ways of working through the Employer Ownership pilots.

11. The economy-wide picture of employer investment in skills and workforce development also presents some challenges. Whilst the majority of employers in England do invest in training, there is evidence of weakness in demand. There are substantial variations between different types of employers and levels of investment are uneven in their reach, varying significantly between different sectors and size of employers and excluding key parts of the workforce [11] . This has implications for engagement with Apprenticeships. In comparison to other nations, limited employer commitment to Apprenticeships in England reflects low levels of demand from employers for the types of skills developed through long-duration employment-based training [12] .

12. This reinforces the importance of Apprenticeship growth within the context of a wider industrial or sectoral growth strategy. Apprenticeships are ultimately a derived demand. The expansion of Apprenticeships will be determined by the ambitions of businesses within their sectors. As apprentices are employed by businesses, growth in numbers not underpinned by more permanent jobs available in the sector is not likely to be sustainable. It is therefore important that employers are supported to be more ambitious and that they have sufficient ownership over the Apprenticeship programme to be able to use it to deliver on those ambitions.

Question 2) Is the extra funding promised by the Coalition Government necessary for apprenticeships? How can this funding best be spent?

13. The UK Commission welcomes the Coalition Government’s commitment to Apprenticeships reflected in the levels of public investment that have been allocated to the programme.

14. To sustain the momentum of the Apprenticeships programme at a time of limited public expenditure, an investment strategy based on economic opportunity and individual aspiration is needed. This must include a sufficient balance of private and public investment. As outlined in its vision paper, the UK Commission believes that a long-term shift is needed in the funding of Apprenticeships, away from government funding and towards government investment and incentives which flow directly through employers and leverage greater co-investment. We proposed funding employers directly for 16-18 Apprenticeships, for example through the tax system, and for adult Apprenticeships, moving from qualification-based provider funding to employer investments and loans to leverage greater co-investment.

15. Transferring funding to employers places purchasing power in their hands, increasing employer ownership and placing the reward and responsibility for training more firmly with employers. This makes for a more responsive provider community and better aligns public investment with employer need and employer investment.

16. The UK Commission’s view is that public investment in Apprenticeships should be based on a number of considerations which are not always evident in the current funding methodology, for example:

16.1. Outcomes for employers and individuals - Public funding needs to be based on outcomes in terms of employer performance and individual development, rather than simply completion rates. This ensures that public investment leverages real economic benefits for employers and apprentices. It also enables a better understanding of the additionality of Apprenticeships.

16.2. Additionality and value for money – There is evidence of the strong returns on investment for Apprenticeships to employers and individuals. However, these do vary by sector and level and greater clarity is needed on what is additional [13] . If making additional resources available is encouraging providers to ‘sell’ certain Apprenticeships to employers inappropriately, then economic benefits and value for money to the public purse are likely to be low.

16.3. Employer co-investment – There is evidence that employer contributions are not being ‘collected’ for adult Apprenticeships and contributions are often ‘in-kind’ [14] . This can impact on quality as providers may be incentivised to deliver provision at lower cost. Funding mechanisms need to secure appropriate levels of co-investment from employers for adult Apprenticeships. The current funding methodology is not sufficiently sensitive to the actual cost for delivery or geared towards leveraging co-investment.

16.4. Transparency - There needs to be clear visibility and transparency underpinning any funding mechanism to allow genuine assessments of value for money to be made and to enable informed public and private decisions on training. A lack of transparency about actual costs of Apprenticeships, and who pays for what, makes it difficult to judge whether public resources have been well spent or whether businesses should have contributed more.

16.5. Impact on economic growth - Ideally the expansion in Apprenticeship numbers supplied should align with demand in sectors and occupations with current skills needs and/or in those areas likely to grow in future [15] . Apprenticeships have the potential to support industrial policies to stimulate growth by helping to provide a platform for future innovation and expansion of key sectors and a ready supply of high quality talent. The recent NAO report highlighted a need to assess this more systematically for adult Apprenticeships.

17. Better consideration of these principles would, in the UK Commission’s view, lead to high quality Apprenticeships as they would be more firmly linked to outcomes for the individual and the employer.

18. The UK Commission also advocates the greater use of employer loans in Apprenticeship funding for those aged over 24. Relative to other areas of public services skills funding remains complicated in its administration and lacks innovation in how it is deployed. Public money needs to work harder, giving a better return for the tax payer and the economy. In Employer ownership of skills we advocate the use of innovative employer loans and investments for adult workforce development, including adult Apprenticeships.

19. To this end, we support in principle the current policy of moving from grant funding to loans for Apprenticeships for those aged over 24 for Level 3 +. However, in line with the UK Commission’s response to the consultation on further education loans, we recommend that Apprenticeships for 24+ Level 3/4 should be financed through employer loans rather than individual income-contingent loans [16] . Employer loans would extend employer ownership over adult Apprenticeships since the purchasing power, and the liability attached to taking out a loan would be firmly linked to the employer.

Question 3) Are Apprenticeships of a high enough quality to benefit apprentices and their employers? Should there be more Level 3 Apprenticeships?

20. In forming assessments about the value and standard of Apprenticeships and whether they are meeting needs, there is a need to differentiate between quality and level:

· Quality - based on outcomes (and benefits) delivered by the Apprenticeships. These will vary for the apprentice (competence in a job role with transferable skills) and the employer (whether the training is well-suited to business needs)

· Level - based on qualifications attained within the Apprenticeship training programme.

Quality

21. Although the Apprenticeships Skills Children and Learning Act has introduced a new standard Specification of Apprenticeship Standards for England (SASE) to define quality, there are still differences in interpretation of what Apprenticeships are, and how they can be delivered to a consistent standard across different occupations and sectors. There are no measures in place to monitor whether parts of the Act (such as 280 guided learning hours) are being implemented. The implementation of the SASE has subsequently led to confusion between compliance with the new standard and what a high quality Apprenticeship is.

22. Quality issues associated with ‘brand stretch’ arising from the recent expansion in Apprenticeships have been previously discussed (see question one). The UK Commission’s general view is that greater employer ownership of Apprenticeships will improve quality as it will more closely align Apprenticeship programmes with business need, leading to more relevant training opportunities. For the apprentice this would be improved competence in a job role with transferable skills and for the employer, training that is better-suited to business needs.

23. We have reviewed international best practice to draw insights on what should be the key components of a high quality Apprenticeships offer and hope to explore some of these features through the Employer Ownership pilots:

23.1. Sustainable investment model – A balanced programme of reasonable duration that allows the employer to recuperate his/her investment, the individual to develop the necessary depth and breadth of skills, including general education, and the state to have an educated and well trained workforce. There needs to be a sufficiently balanced co-investment approach, supported by private (from individuals and/or employers) as well as public investment. This will ensure there is an appropriate rate of return for the employer, and sustainable career options for the individual.

23.2. Clear content - The programme of learning has to provide a balance of vocational and specific training to meet current employer needs and generic education, providing underpinning knowledge and transferable skills to prepare the ground for new learning and to support progression. Competence cannot simply be defined with reference to current employer demand for skill but should recognise the longer term needs of the individual, business, and the economy

23.3. Social partnership - Employer leadership needs to be supported by a social partnership incorporating strong employee engagement and a shared responsibility for workforce development. A social partnership also provides a vehicle to develop a common understanding, transparency and act as an inherent quality check on the Apprenticeship. It is a way to ensure that design and delivery provides a breadth as well as depth of learning.

23.4. Appropriately balanced delivery model - Provision must be employer-led in terms of skills needs; with providers and other partners able to work with employers to plan the on and off-the-job experience and input in line with the business strategy and needs. The focus of the time spent on-the-job must be the learning for, and delivery of, skilled work, to develop the skills of the individual, to provide genuine stretch, and to ensure that the role is integrated into the business strategy and provides a productive contribution to the firm.

23.5. Clear progression - The Apprenticeship needs to serve as a base for sustainable employment and progression generally as well as in the host employer and sector. It should offer a clear pathway to other parts of further or higher education as well as into other areas of work. This does not mean the Apprenticeship offer in a particular sector has to be developed to cross all levels from Level 1 to 4+, but that entry requirements and achievements have to be clear.

23.6. Information and evaluation - Critically, good quality information has a role to improve perceptions of the value of Apprenticeship by both employers and individuals. It will necessitate improved ability to assess quality and value, and to communicate it well. Overarching systems may also be required from time to time to evaluate the Apprenticeship programme as a whole to review trends in take up and aggregate performance so that necessary improvements can be made.

24. We also welcome the employer-led review into Apprenticeships standards and have identified some issues that may need further examination:

24.1. How far Apprenticeships should be used to recognise skills of people already in work. It is important that there are pathways into Apprenticeships from a variety of routes and that apprentices can have their prior skills recognised. However Apprenticeships at all levels should primarily be about the acquisition of new skills and learning.

24.2. The degree of occupational specificity required by apprentices particularly in the current economic climate. Although the Apprenticeship covers the competence needed to be competent in a job and the knowledge to support it, this needs to be ‘future-proofed’ by including more emphasis on a general understanding of the sector, and more emphasis on general education to support progression to other jobs or back into full time education.

24.3. Apprenticeship frameworks are designed around an occupation, and this can make them too inflexible for businesses to use where staff need to multi-skill, and this particularly applies to SMEs. The new option of adding a business unit might help to address this without diluting the overall standard.

24.4. The current emphasis on Intermediate Apprenticeships, and whether most of these do represent competence and knowledge in an occupation, or whether they are really short skills refreshment courses or preparatory courses for Apprenticeship rather than part of the occupational requirement.

24.5. The time and cost of putting in place all the different components of an Apprenticeship, with all the different organisations involved, and whether there is scope to streamline this. When there has been quality issues raised, the tendency has been to add another step into the process, rather than rethink how best to design, deliver and assess skills in work. More needs to be done to simplify quality assurance processes, for both providers and employers which will hopefully be tested in the Employer Ownership pilots.

Benefits

25. There is a large body of evidence about the benefits that current Apprenticeships can offer for both employers and individuals. For employers, key benefits include:

· Increased productivity and business performance: Apprenticeships have been linked to increased productivity and employers’ report that they lead to a more motivated and satisfied workforce. Employers have also reported that Apprenticeships have made them more competitive in their industry than they would be without it [17] .

· Recruitment and retention: Businesses report that training apprentices is more cost effective than hiring skilled staff, leading to lower overall training and recruitment costs. Loyalty of apprentices to the firm increases retention and there is also evidence of a positive impact on the morale and productivity of other workers [18] . A high proportion of apprentices also go on to management positions within the company [19] . ‘Home grown’ talent through Apprenticeships also means that a business is able to create the skilled workers it requires for success.

· Strong financial returns: Business investment is normally fully recouped in monetary terms within 2-3 years, even in high cost sectors like Construction and Engineering [20] .

26. Key benefits for individuals include:

· Employment: Employment rates for apprentices are high. A 2009 survey for the Learning and Skills Council (LSC) found that 90% of Apprentices were in employment immediately after their Apprenticeship ended [21] .

· Progression: The same survey found that between a third and a half of apprentices had achieved progression in their jobs (promotion or upgrade) on completion of the Apprenticeship; around a third were already undertaking further learning; and job satisfaction following the Apprenticeship was high at 89% [22] .

· Wage returns: The latest estimated wage returns to individuals for Apprenticeships have been estimated at 18% for Advanced Apprenticeships (Level 3) and 11% for Intermediate Apprenticeships (Level 2) although there is some evidence that wage returns at Level 2 have declined since 2004-5 [23] .

· Personal benefits have also been identified by many apprentices including greater confidence, more enthusiasm for learning, greater sense of direction, and better social skills [24] .

27. However assessing whether Apprenticeships are ‘high enough’ quality to benefit apprentices and employers will depend on the motivation and expectation of the employer and individual. If expectations are low, they will be easier to meet. There is also the issue that many employers do not get as far as engaging with Apprenticeships as they are perceived not to be relevant or appropriate to meet their needs.

28. There is also evidence that understanding and awareness of the benefits of Apprenticeships to employers, beyond the productive contribution of the apprentice, plays a key role in the decision about whether to train [25] . This raises questions about how widely and effectively benefits are currently being promoted to convince businesses to invest in Apprenticeships in specific sectors and jobs. Arguably, more could be done to improve the evidence around benefits of Apprenticeships and to communicate that evidence to employers, building on the success of campaigns to date.

Levels

29. Although there are a large number of Advanced Apprenticeships (Level 3) frameworks available, the balance of the delivery is at Intermediate level (Level 2). Competence in many occupations is at Advanced or Higher Levels.

30. Intermediate Apprenticeships can be used as a talent pipeline into the Advanced Apprenticeship, but it is important that Level 2 Apprenticeships are being driven by individual and employer demand not provider opportunity.

31. There is evidence of need for greater take up of Apprenticeships at Level 3 and 4 in relation to employer need and occupational opportunity. The fastest growth in skills needs over the next decade will be in Science, Technology, Engineering and Maths (STEM) subjects at Level 3, 4 and above and Advanced and Higher Apprenticeships could, potentially, deliver some of these [26] . The Technician’s Council is about to launch its new professional technician’s status to reinforce and give visibility of the frameworks that deliver these skills.

32. Ultimately, as outlined previously, Apprenticeships are a derived demand. Therefore the exact number and balance of levels of Apprenticeships will vary across sectors according to different business needs. This is a separate issue to quality as high quality Apprenticeships can be at any level. This also reiterates the point made earlier that Apprenticeships cannot be separated from wider economic and industrial strategy.

Question 4) Apprenticeship bonuses – how should they function? Will they encourage the involvement of more small and medium sized (SME) businesses to take on apprentices? If not what will?

33. The success of an employer facing programme such as Apprenticeships hinges on securing strong employer leadership and ownership, including from SMEs. Small businesses dominate the business population in number, and provide a significant engine in job creation and growth. There is real potential to expand the Apprenticeship programme among SMEs and it is important that SMEs have ownership over vocational skills, including Apprenticeships.

34. The UK Commission’s research shows that despite the fact that SMEs, in general, invest less in the skills of their staff, they actually offer more Apprenticeships per head of workforce than large companies. That said, as reflected in the overall investment picture, SMEs face particular barriers to investment. It is important that these are fully understood, especially in the context of Apprenticeships. These include:

· No need to train (workforce fully proficient, staff learn by experience, size of establishment). The perception that there is no need to train is higher among small firms than larger firms.

· Expense or training (external courses too expensive, lack of budget/funding for training)

· Lack of time (managers and employees)

· Training supply issues (courses not available locally, quality of courses available locally not satisfactory, start dates and times inconvenient) [27]

35. Other barriers to SMEs taking on apprentices have also been highlighted. In the 2010 Employer Perspectives Survey a third of SMEs said apprentices were not suited to their kind of work [28] . Further issues identified from various sources include uncertainty over the likelihood of recouping returns; adequacy of careers guidance and the employability skills of those who come forward; paperwork associated with recruiting an apprentice; and mismatch between the Apprenticeship frameworks and the skills needs of SMEs [29] . There is also some evidence that SMEs are less inclined now to employ an apprentice due to the impact of the current economic climate.

36. Solutions to some of these issues are under development, such as the expansion of Group Training Associations (GTAs) and Apprenticeship Training Associations (ATAs) to support SMEs through the recruitment processes and Apprenticeship programme, and the possibility of adding a general business unit to the curriculum offer to encourage apprentices in SMEs to multi-skill.

37. Financial incentives to attract small businesses to engage in government initiatives have been used in the past. There are a range of potential risks that need to be borne in mind around offering bonuses to SMEs, such as:

37.1. Importance of SMEs having the internal capacity to offer apprentices high quality work-based learning and mentoring, and a full spread of skills development, although in some locations Group Training Associations are in place to support this.

37.2. Risk that eligibility criteria and processes will act as a barrier to engagement for SMEs, and remove some of the incentive of the bonus payment by adding to administrative and tracking costs.

37.3. Some businesses would not see £1,500 as an adequate incentive for the start-up costs of adding an apprentice to their business, unless they were struggling to recruit and considered Apprenticeships a low risk approach to tackling recruitment issues.

38. The UK Commission believes there is a role for Government investment to work alongside private investment to secure joint commitment to Apprenticeships among SMEs and to leverage greater action. But the introduction of a bonus scheme alone is unlikely to address all of the barriers or risks identified above.

39. Therefore, the UK Commission recommends that any bonus scheme be part of a more integrated package, supporting wider changes that enable small employers to step up and take ownership of Apprenticeships over the longer-term. These include:

39.1. Using the tax system to reach SMEs. We proposed that bonuses or financial incentives be administered through the tax system to give small employers greater purchasing power in the training market to control over the skills they really need. Tax incentives to SMEs could directly reach more small businesses, more easily, and have the potential to bring about a longer term shift in ownership.

39.2. SMEs working in collaboration with larger companies as part of a supply chain. Large companies have an interest in developing the skills of their suppliers. Large and small employers in supply chains could work together to develop Apprenticeship programmes and places.

39.3. Strong working relationships in the region between local partners including networks of SMEs. Networks of small businesses could work together in clusters to develop Apprenticeship schemes, for example through Group Training Associations, Apprenticeship Training Agencies and Local Enterprise Partnerships.

39.4. Access to clear information to SMEs about the courses available and their costs and promotion of the benefits of Apprenticeships to small businesses. As identified earlier information on the benefits of Apprenticeships is key to the decision about whether to invest in training.

39.5. Simplifying processes and making them more transparent and flexible. This would particularly benefit SMEs that do not have administrative functions to organise workforce development programmes.

39.6. Greater emphasis on leadership and management within SMEs, and making the case for the contribution apprentices can make to business growth by working more closely with intermediaries.

40. Through the Employer Ownership pilot, we hope to test some of these collaborative models as a way of engaging more SMEs in vocational training and Apprenticeships. As outlined in the prospectus, the Investment Board welcomes collaborative bids from groups of small employers [30] .

41. Investors in People is another useful tool for small businesses to help deliver improved performance and growth by developing people to meet business objectives. Investors in People offers SMEs a structure within which to think about staff development including through Apprenticeships.

Question 5) Is the current funding arrangement for training of apprentices of 100% for 16-18 year olds and 50% for 19-24 year olds appropriate?

42. We support full funding to train apprentices in the 16 – 18 age range and lower levels of funding for 19 – 24 year olds. However, as stated earlier, we believe that funding for Apprenticeships should be paid directly to employers. This will extend employer ownership over publicly funded Apprenticeships placing purchasing power in their hands. We welcome the Coalition Government’s decision to test out this approach through a two year pilot of Employer Ownership.

43. Over the long term, the UK Commission would recommend that direct payments to employers for Apprenticeships be administered through the tax system. This way funding goes directly to employers, giving them greater purchasing power in the training market to work with colleges and providers to get the skills they need, delivered in ways that are centre around the employer and individual.

44. In terms of employer contributions to adult Apprenticeships, we know that a sizeable proportion of the 50% contribution is not currently being collected. Providers keep no systematic records on levels of co-investment, and a small survey in 2009 for Apprenticeships for those aged 19 and above, found that around 20% of training providers did not charge any fee to the employers for whom they provided training [31] . Likewise the college sector only collected around £75m of the resources it was due from employers [32] . This failure to collect the remaining contribution from employers risks leaving providers poorly resourced to offer high quality provision, although some employers do invest significantly ‘in kind’.

45. The fact that training providers are not charging a fee also demonstrates that employers may not be aware of the original contribution from Government towards the cost of Apprenticeships or that they are expected to pay an additional 50%. This makes it difficult for employers to make decisions based on quality and value for money. All apprentices, employers and the wider public should be aware of the Government contribution towards Apprenticeships. This will improve general awareness of the Apprenticeship programme, helping to raise its profile and popularity.

46. As mentioned earlier, there is also insufficient sensitivity in the current funding methodology for the actual costs of delivery of different Apprenticeships. Lack of information on both contributions and costs makes it difficult to assess whether the current

funding arrangement for 16-18 and 19-24 year olds is appropriate. The UK Commission recommends greater transparency in Apprenticeship funding arrangements and more market testing of actual costs of delivery.

10 February 2012