Apprenticeships

APP 29

Written evidence submitted by Richard Jenking

1.0 Summary:

1.01 This memorandum will highlight an anomaly within the benefit system and seeks to describe a course of action that will (a) save the taxpayer money (b) encourage more SMEs to take on apprentices and (c) increase the household incomes of low income households.

2.0 Submitter’s background.

2.01 I owe my first job to the now defunct Youth Training Scheme (YTS), and since then I have owned and managed several companies within the construction and property development sector with varying degrees of success and have taken on and worked with apprentices.

2.02 I have also helped set up and run a local youth club; organised a youth drama club; chaired my children’s school’s PTA; organised a games club; set up a not-for-profit company promoting young artists and volunteered for the CAB.

2.03 My middle child is leaving school this year and wishes to be a plumber, a bricklayer or an electrician. This memorandum is submitted from a father’s perspective.

3.0 Factual Information:

3.01 During my visits to college open days with my son, it became apparent that building trade apprentices are being taught alongside students that have not been able to get taken on by an employer. They are taught the same skills in the same classrooms and workshops but that is where the similarity ends.

3.02 The apprentices receive at least the National Minimum Wage (NMW) for attending; paid for by their employer. They receive recognisable qualifications and they practice their skills in the workplace when they are not at college.

3.03 The non-apprentices receive qualifications that one lecturer described as being ‘not worth the paper they are written on’. They receive no wages and they don’t get the opportunity to hone their skills in the workplace.

3.04 But the biggest difference is that the taxpayer could be contributing as much as £4,290.60 per year more towards the non-apprentice than the apprentice.

3.05 If a student is the only qualifying child of a family earning less than £15,860.00 per year his/her family will receive a Child Tax Credit (CTC) award of £3,235.00 and Child Benefit of £1,055.60. The family of the apprentice is not entitled to these benefits.

3.06 If the government did more to support a potential employer by giving them a grant of say £52.00 per week to take on a young person as an apprentice the state would save £1,586.60 per year. (Benefit saving of £4,290.60 per year less cost of subsidizing apprentices wages £2,704.00 (52wks @ £52.00) = £1,586.60).

3.07 The household would gain at least £1,117.40 per year based on the apprentice receiving only the NMW; 52 wks @ £104.00/wk = £5,408.00 less the reduction in benefit. These figures are based on the NMW for apprentices. The average household gain is likely to be in region of £4,549.40 based on average apprentice wages. 1

3.08 The savings to the taxpayer diminish as the apprentice’s parents’ income rises. This is because higher earners are paid less CTC due to the taper effect. Once the parents’ income rises above £19,729.75 the tax payer stops making a saving and starts contributing instead; up to a maximum of £1,648.40 per year. This is only £148.40 above the current small employer incentive scheme currently in operation.

3.09 The following graph shows the government saving (cost) and family gain for various incomes.

3.10 The taxpayer makes less of a saving when the family have at least one other qualifying child. This is because the Child Benefit saving of £1,055.60 is reduced to a saving of £696.60 as the second child now becomes eligible for the higher rate.

3.11 The following graph shows the government saving (cost) and family gain for various incomes where the family have at least one other qualifying child

3.12 Using household income data from HMRC tax credit dept it should be possible to gauge if the overall financial impact on the treasury is positive or negative.

3.13 Other factors to be taken into account are:

(a) The Small Employers Initiative could be scraped

(b) The Treasury could save on other benefits that entitlement to CTC passport parents to.

(c) The Treasury could raise additional taxation from the apprentices’ earnings and from the employers’ increase profits.

(d) The scheme fulfils the Government’s aspiration of making work pay.

3.14 Even in the situations where the taxpayer has to spend money there is a boosting effect, with every £1 spent resulting in £2.84 of extra household income.

3.15 These savings only apply to additional apprentices. Giving employers who have already engaged apprentices a subsidy would cost the taxpayer an additional £2,704.00 per year per apprentice and make the scheme cost prohibitive.

3.16 One way of implementing this scheme to ensure maximum revenue saving is as follows:-

(1) Find out from every college how many students are studying alongside apprentices but are not engaged by an employer. Give each of these students a certificate which they can present to potential employers stating that a subsidy of £52.00 per week is available if they take them on.

(2) At the same time form a not-for-profit ‘Apprentice Agency’ company and website which matches would be apprentices with potential employers. Employers can hire the apprentices as and when required rather than making a long term commitment. There will be no red tape. Employers already have a duty to comply with H&S regulations and no additional burden or checks will be necessary. The agency will organise any PAYE, holiday entitlement etc and the employers will just pay a subsidised hourly rate. They will, of course, be encouraged to take an apprentice on directly with the £52.00 per week subsidy. It is hoped that these short term engagements will help the apprentices get their foot in the door.

(3) Employers and apprentices will arrange the work placements between themselves via an open social network type website.

(4) Apprentices that do not try hard enough to find placements or do not attend college may be removed from the courses.

(5) Householders who require work doing such as a leaky tap or a garden wall could also engage these apprentices.

(6) Employers who can not predict if they have work themselves next year, or even next month are more likely to engage an apprentice on a temporary basis rather than making a longer term commitment.

(7) It is acknowledged that this does not meet the ‘Gold Standard’ of a full apprenticeship, but it will result in some young people being taken on full time and others gaining valuable on-site experience.

4.0 Recommendations for action:

4.01 Scrap the Small Employers Incentive scheme saving around £60m plus administration costs. (40,000 x £1,500)

4.02 Offer potential employers a subsidy of £52.00 per week if they engage a qualifying young person. This could save the taxpayer money, increase household incomes and encourage more apprenticeships.

4.03 Present every young person studying alongside apprentices a certificate detailing the subsidy so that they can hand these to potential employers.

4.04 Ensure that current apprentices’ families are not also claiming Child Tax Credits and Child Benefit. I assume the system already picks this up, but it is worth checking.

4.05 Form a not-for-profit company to act as the Apprentice Agency and develop a social network type website to match apprentices with potential employers.

4.06 The Apprentice Agency will have the sole role of finding temporary placement – the existing arrangements for everything else will not alter.

1 February 2012