Business, Innovation and Skills Committee - Minutes of EvidenceHC 83-II

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Oral Evidence

Taken before the Business, Innovation and Skills Committee

on Thursday 26 April 2012

Members present:

Mr Adrian Bailey (Chair)

Paul Blomfield

Julie Elliott

Rebecca Harris

Margot James

Ann McKechin

Nadhim Zahawi


Examination of Witnesses

Witnesses: David Way, Interim Chief Executive, National Apprenticeship Service, and Geoff Russell, Chief Executive, Skills Funding Agency, gave evidence.

Q538 Chair: Good morning. Thank you for coming before us today. For voice transcription purposes, perhaps you would introduce yourselves.

David Way: I am David Way, interim chief executive of the National Apprenticeship Service.

Geoff Russell: I am Geoff Russell, chief executive of the Skills Funding Agency.

Q539 Chair: Some of the questions will be person-specific; on others you may wish to complement each other, but please do not feel both of you are obliged to answer every question if you do not feel there is realistically anything you can add to it. My first question is person-specific. Mr Way, NAS was launched in 2009. Could you summarise what you think the main achievements have been so far?

David Way: When the National Apprenticeship Service was created it had the specific task to support the then Government’s ambitions to expand apprenticeships, which were then being taken over by the current Government. It was very clear that the blockages to the growth of apprenticeships were employer opportunities, so the biggest achievement we have been able to bring to apprenticeships has been to expand the number of work places now offering apprenticeships compared with a few years ago. About 700 new work places a week are coming on stream, so the main achievement of the National Apprenticeship Service, working with colleges, providers and employers up and down the country, has been to create more high-quality opportunities for young people and adults. The growth in apprenticeships through having more employers is, I think, the greatest achievement over recent years, and I am pleased that the National Apprenticeship Service has played a part in leading that.

Q540 Chair: You have recently taken the position as interim chief executive. Will you be making change? Where do you think the services need to be improved?

David Way: As my submission to the Committee said, while we are very pleased with the progress that has been made and can point to quite a long list of achievements over the last few years, there are some important issues still to address. Those change over time, but clearly quality is the most urgent and pressing issue with which we have been dealing in the last year. We have been getting to the bottom of quality issues and addressing them; we have made recommendations to Ministers, particularly about duration, which the Minister has announced, and we are now implementing those minimum durations, so quality and ensuring that everybody can have confidence in apprenticeships is the top priority for us at the moment.

Q541 Chair: Perhaps I may direct the next question to Mr Russell. In your annual report, one of the key measures of performance was the number of apprenticeships. How do you measure the success of the programme?

Geoff Russell: I am happy to answer that question, although David may have comments as well because that is really a question for which NAS is responsible. In my view, it would be around employer uptake because that is one of the key issues and barriers, and, to the extent you can persuade employers to make positions available for apprenticeships, that suggests quite strongly it is a product they want to buy. Other measures of quality are: Ofsted inspections of providers; value for money that is generated for an apprentice from the point of view of the public purse, because value for money is not just about cost but what you are getting for it; and also the satisfaction of employers and apprenticeships themselves in terms of the experience they get. The mechanistic measure we use to try to drive quality improvements-but it is only one dimension of it-is around success rates, i.e. of those who started, how many completed. I think that by all of those measures quality has continued to improve since NAS was created.

Q542 Chair: I suppose there are inevitable tensions between the role of job creation, upskilling if you like, and the NEETs programme, because value for money is not just measured in positive contributions but the avoidance of a negative contribution. What do you regard as the most important priorities?

David Way: The issue is an important one. In the work we did in the NAO, the early discussions were about whether there was a danger that apprenticeships could be the solution to every problem, and therefore end up not being the solution to one. We have always seen the heart of apprenticeships as being an effective bridge between school, college and the world of work, to give people that foundation on which they can succeed in work and go on to further learning and development. With changing demographics and the fact that people will be working much longer these days, enabling people who are a bit older than 16, indeed 24 and into their 30s and 40s, to get broad-based training which will develop them for the future becomes much more relevant.

When we look at the benefits of apprenticeships we do so particularly from the perspective of the learner and the employer. We know that from a taxpayer perspective the NAO report was very positive about the return on public investment, and that was great. Our learner surveys show-and there is consistency across a number of surveys-that the vast majority of learners feel they get a great experience out of apprenticeships, but about 10% believe they are not getting the learning journey they are looking for. That is where from a quality perspective we need to focus more and more, not trying to raise the minimum standards that have been described but to understand why it is some people do not get the experience they want.

Q543 Chair: To interrupt, to what cohort does that 10% apply? Are these people in existing employment who are being upskilled, young people being trained for a job, or what?

David Way: It goes across the whole piece. One of the things the Committee will be able to see before it sees the Minister is a learner survey that is about to be published. I think you will find that interesting. You can delve into that. A lot of the analysis that we get shows there are variations from sector to sector. There are lots of sectors, such as engineering, where the experience of young people and adults is a very good one; there are other sectors where the experience is not as good.

Q544 Chair: Could you name them?

David Way: If you take the hairdressing sector as an example, over the years there have been issues about pay and the treatment of tips. There are other sectors.

Q545 Chair: That is interesting, because pay as an issue is not quite the same as the training provision.

David Way: No, but they interrelate. When we have the survey, people are judging from their whole experience. You asked whether these were young people or people who were employed. What is very clear is that the people who are least satisfied are those who are undertaking short duration apprenticeships, which is why removing those, as we and the Government are doing, is so important, but where employers effectively tell a young adult, typically, that they are going to do an apprenticeship, as opposed to the individual opting to do it, there is not ownership of that journey by the individual, and that is reflected in their satisfaction. Therefore, satisfaction rates are highest among those who feel they get the best experience, not surprisingly, and that usually equates with a longer duration of training.

Q546 Chair: I am intrigued by employers telling people that they will have apprenticeships. That seems to me to be a contradiction to the whole principle. In what particular areas does this happen?

David Way: Thankfully, it is a minority. Remember, that this is what learners are telling us. It has been categorised by the researchers as "telling". I suspect in reality that it is individuals who feel employers have made it pretty clear that they want them to be upskilling themselves to ensure they have a big part to play in the future employment of that company, and the individuals are translating that as being not completely voluntary. I think that is the point they are making.

Q547 Chair: Basically, these are people in employment who, presumably, are likely to be post-24. Any particular sectors?

David Way: Not particularly. To put it in perspective, we are looking at a range. We are saying that of the 10% who are saying they do not have a very good experience there are characteristics of those who say they have a poor experience; some are to do with pay; some are to do with their perception of off-the-job training; some say it is because when they do their one day a week at a college they get lost in the college. They feel there is not an individual there who is picking them up, so they feel a bit lost. There is a whole host of reasons. You follow through on one aspect of that. I think that demonstrates why we need a pretty forensic approach to all of the issues that come out, but my main point is that in terms of quality not only do we want to concentrate on the things Geoff has outlined about success rates but really understand why it is people are not completing their apprenticeships and what more we can do to take away their concerns about their experiences.

Q548 Julie Elliott: Have you come across any evidence of employers who are telling people to do apprenticeships and it is not entirely voluntary using it as a way to pay those individuals less money?

David Way: I have not come across examples of that. I suppose this is a little bit of the downside of talking about surveys that are just on the point of being published. It enables us to follow through on those on what it is telling us, so we do not have any evidence of employers doing that at the moment. The researchers are telling us there is a perception by individuals that they are being encouraged to take it on. If you take the vast majority of apprenticeships, what happens is that people are given the opportunity. I know you went to see Morrisons and you spoke to Morrisons. They pride themselves very much on saying that when they look at the individuals in front of them, they give them a choice between doing an apprenticeship or a narrower form of training. That is the way the vast majority of employers would be working, but this is a finding that we need to look into further.

Q549 Chair: We will be discussing the Morrisons/Elmfield issue later. In 2010-11 there were 457,200 apprenticeship starts. Can you give some sort of breakdown? How many of those were NEET, in education prior to that, or existing employees?

David Way: As far as concerns existing employees, our survey information tell us that about one third of those were recruited and two thirds were employed.

Q550 Chair: Of those recruited, do you have any idea how many were NEETs?

David Way: Not by the strict definition. Of course, they were all non-employed before by definition.

Q551 Chair: We talked about the role of NAS in selling apprenticeships, which you have highlighted in the evidence you have given, yet a lot of employers do not seem either to know about or use NAS in recruitment. This was the evidence submitted to us by the Forum of Private Business. Why do you think that is?

David Way: Is the question about why they do not take on apprentices, or why they do not use the National Apprenticeship Service?

Q552 Chair: First, I think there is an issue of awareness. In effect, what are you doing to get to the hard-to-reach companies? Even those that do know of your existence and role are not using you. Why do you think that is? There are two areas.

David Way: I start by saying that if employers are adopting apprenticeships without coming through the National Apprenticeship Service, that is not particularly an issue for me. Our main concern is that employers are investing in training, and if they find apprenticeship training solutions by going directly to colleges and training providers, with whom they have well-established relationships, that is a very good outcome.

Within the National Apprenticeship Service, the biggest proportion of our staff are working on sales; they are approaching employers all the time. Typically, they are approaching those employers who have no history of apprenticeships in the past. The number of expansions in the work places-the figures I quoted earlier-are indications of success, but there are lots of other things we do as well. For example, we have been leading the so-called "100 in 100" campaigns. One of the biggest successes we had in the past year was in the north-east-it is being repeated-where we had over 1,000 apprentices responding to campaigns, typically run by local newspapers. We try to recruit 100 new apprenticeships in 100 days. That has been an enormously successful marketing campaign.

You have also heard from the ALP and others about the value they place on the marketing we have been doing. Why are we doing that? In part, we are trying to create a positive environment in which to sell apprenticeships, whether it be the National Apprenticeship Service or training providers up and down the country. There is no doubt we have raised awareness of apprenticeships.

The other critical point is that, since we now have about 700,000 apprenticeships, those are 700,000 apprentices with family, friends, and employers who are talking about apprenticeships and spreading the word about them. There is something about the critical mass of the number of apprenticeships there are now, so all these things reinforce messages.

When it comes to employer engagement, the truth is that employers come to the National Apprenticeship Service, because they do not entirely understand the way to engage with apprenticeships. Most of the queries that come to us are, "We are interested in an apprenticeship. We’re not quite sure what to do. Can you help us?" In most cases, we give them basic information about an apprenticeship, and as quickly as possible put them in touch with a local training provider or college because we think that is the most efficient, effective and right thing to do. There is no doubt that employers often need that little bit of extra help. We point them towards the website quite a bit. Since you have asked that question directly, one of the issues we are discussing at the moment is that we have not promoted the National Apprenticeship Service anywhere near as much as we have promoted apprenticeships, because we think it is the product-the training service-which is more important than us as an organisation. What some small employers are saying now is that they get a lot of information about apprenticeships by Googling it and going on to the website. If you go on to the website, you see a lot of people if you put in "apprenticeships". We may well be trying to raise the profile of the National Apprenticeship Service with employers, because they want to go to somebody they feel they can trust.

It is also relevant that, if you are a local employer, you might not know where to go. The vast majority of apprenticeships are delivered by training providers rather than the local college. The local college is a good place to go-I would always recommend that-but in the context of apprenticeships, you might not know the training providers available in your locality. We can help put you in touch with those.

The principal obstacle from employers who come through our website and phone lines is that a high proportion expect apprenticeships to be free. They want to take on an apprentice and expect the public purse to pay wages as well as the training costs. When we explain to them that that is not the case, though at the moment there is an incentive scheme to cover wages for the first few months, often that deters people. Pricing and costing all these things is often a determinant of whether or not people proceed with apprenticeships.

Q553 Chair: I understand there has to be a marketing role, but with marketing, the criteria for success often depend on the number who buy the product. Do you not think there is a danger, given the pressure you are under, to sell this product sometimes to companies that do not need it, or they really cannot utilise the training to its full potential?

David Way: Selling products to people who do not need it is a hard sell. As there are so many employers out there who currently do not use apprenticeships, we assess the employer market according to whether or not we think they would be interested in apprenticeships. In order to get the best return on the investment we make in sales, we do market research initially to work out whether or not there is any prospect of selling. If they are not interested in taking apprenticeships we go to other employers.

Q554 Chair: Do you make any assessment of future skill needs in the areas you are looking at?

David Way: At an individual level, the discussion we have with employers is not to go through the door and try to sell them an apprenticeship; it would be very much to talk to them initially about their own assessment of their skills needs to see whether apprenticeship is the right answer. I sit down with lots of employers and have a discussion and at the end of it they conclude that the answer is something other than apprenticeships. That is entirely their decision; they are making an informed choice.

Q555 Chair: In their evidence to us, City & Guilds cited bureaucracy as the main barrier to hiring apprentices. Do you agree that there are still barriers to overcome in terms of the private sector working with Government agencies on their training needs?

David Way: Absolutely. Geoff and I are both committed to reducing bureaucracy wherever we find it, and we are running pilots to try to do that at the moment. The direct answer to your first question about whether I agree with City & Guilds that bureaucracy is the main barrier to taking on apprentices is that I do not, because we record all the barriers people bring to us as the reasons why they may or may not take on apprenticeships. Although bureaucracy is in the first five, it is not the first barrier.

Q556 Chair: What bureaucratic barriers have been cited?

David Way: I think bureaucracy becomes a bit of a catch-all for a whole range of things.

Q557 Chair: I understand that. That is why I am trying to find out exactly what it means.

David Way: Usually, it comes back to the point I was making. When people say they are interested in apprenticeships, there is a journey from the first contact they make when, say, they phone us, or somebody at one of the helplines. There are a lot of steps to go through. The first thing we do is explain to them how an apprenticeship works; the fact they need a training provider; that it is about a job, not training, so there are lots of things we need to explain. What we try to do is cut out the bureaucracy by getting them very quickly to a training provider. The training provider will help them through this particular process, take the bureaucracy away from them and simply focus on their needs. How can we put in front of them, if they are recruiting, some people who we think will make great apprentices? How can we set out for them what a training programme would look like in as simple a way as we can? One of the key reasons employers do not take on apprentices is that they cannot provide a suitable training provider. That feeds into bureaucracy. If they can find an excellent training provider and college, of which there are many, who can explain to them very simply what the process is, bureaucracy disappears for them.

Q558 Paul Blomfield: I want to come to a specific issue related to accountability. One of the merits or founding principles of NAS was providing an end-to-end service. That means you have a lot of different roles, one of which is generating sales, if you like, and a lot of your success is measured by the numbers you generate. At the same time, you have responsibility for quality and audit of provision. Do you think there is a potential conflict of interest there?

David Way: I am sure Geoff will want to come in on part of this. What you have described is the life of running the National Apprenticeship Service; i.e. you are trying to get across to employers the great experience they can have through having an apprenticeship and the benefits they get. At the same time, you are trying to deal with issues of quality. During the period we have been talking about we have grown the total quantum. As Geoff indicated earlier, all the quality indicators have been moving in the right direction as well.

Where we have had quality issues-we come straight to the issue of short duration-what did we do? We worked with the Skills Funding Agency. The Skills Funding Agency has picked up the 87 providers with whom there were sets of issues; we have worked our way through it together to solutions for nearly all of those. We have been able to push the numbers and address quality at the same time. I do not see that there is any tension in practice. What we are trying to do is promote high-quality apprenticeships, yet the volume of apprenticeships we now have, which is almost 500,000, is broadly the level we are expected to achieve over the next few years.

To me, it is not about any sales. My sales teams are focused on 16-to-24 apprenticeships and on the employers who are hardest to reach-the new employers and new sectors-and on higher-level apprenticeships. All of those are qualitative issues as far as I am concerned, but Geoff might want to comment on the way we dovetail on quality. He is responsible for ensuring that the quality delivered through our provider base is strong.

Q559 Paul Blomfield: I would welcome that further observation from Mr Russell, but I wonder whether I may press you a little further? At our last session, we had witnesses from the Association of Colleges and the TUC. On this specific issue, they expressed some concerns. On this issue they both agreed-they did not agree on everything-that they wanted to see clear accountabilities. Who is responsible for quality and audit? Who is responsible for generating business in the first place? How do you manage that internally?

David Way: I have a different team for sales and for quality. As chief executive, I manage those particular tensions in the way any other business would. I did read the story. We saw Martin yesterday and I was intrigued by that and thought it a very interesting set of questions on which I reflected. Maybe it is something we want to pursue further with Martin. Having reflected on it, my answer to you is that I recognise there can be tensions. I probably saw that best when the apprenticeship system first came under some scrutiny in respect of the short-duration apprenticeships. It would be very tempting to become very defensive about that, or sweep it under the carpet. What we have tried to do is the exact opposite. Only last month, we held an AoC/ALP quality conference, at which the Minister spoke, in which we tried to expose all the quality issues and explain what we were doing about it. I think that helped.

There has been a bit of a learning journey on this, but my conclusion was that reconciling growth and sales with quality issues was no different for me as the chief executive of NAS from what it would be for the chief executive of many other organisations, because ultimately my sales, or the growth of apprenticeships, depends on people having confidence in the quality of the product. They do go together. I thought it was an interesting question, but I do not think they are incapable of being handled within a single organisation.

Geoff Russell: I will just add that it would scare me if NAS was responsible only for sales and somebody else was responsible for production because of the necessary tension in that relationship.

Q560 Paul Blomfield: But that is a relationship we have in other areas of our education system, is it not?

Geoff Russell: Indeed, which in my view often does not work that well.

Q561 Paul Blomfield: And often do.

Geoff Russell: I look at some of the stuff the Education Committee is looking at. I think there are as many issues, if not more, there. As David says, he has to balance quantity with quality; the two are inextricably bound, but he does it and he is accountable for both. What would be dangerous is if all he had to worry about was pushing the numbers and somebody else had to say, "Wait a second. That’s not of adequate quality", because then you get into all sorts of interesting questions about what levers one has over the other, conflict and what the measures are. Those are discussions that David has to have with himself, but the whole world gets to see the outcome. It is no different from Apple selling iPhones.

David Way: I thought the NAO report was quite interesting. It said that when there is an expansion of quality there is a danger that there will be quality issues, and the key concern is to ensure those quality issues are exposed and the risks managed. The NAO concluded that we were managing those risks. Indeed, certainly through the governance arrangements under both BIS and DfE I can assure you those risks are being managed effectively. Only yesterday I had to go through all the primary risks concerned with apprenticeships with both Departments to ensure they were being managed effectively. I think the governance arrangements we have in place are an important safeguard.

Q562 Julie Elliott: How important is the apprenticeship brand when you are promoting the programme to both employers and employees?

David Way: I will come to that directly. I think the brand of apprenticeships is hugely important in this area, because we have a rich heritage on which we rely heavily. We have many chief executives of businesses who used to be apprentices and can be ambassadors to promote apprenticeships up and down the country. With so many people prepared to be advocates of apprenticeships it is very important that they remain and have full confidence in the brand.

The issue-your question goes to the heart of it-is that people’s perception of apprenticeships and those being delivered today are different. I worry if people’s perception of a brand is different from what is actually delivered. I say that because mostly people think about apprenticeships as being only for young people rather than young people and adults. They probably think of them as primarily for people who are being recruited, as opposed to those who are in the work force, mainly in the industrial rather than service sectors. There is a series of subtle but important differences that we need to reconcile.

Brand is important, and I have not had any issues from those people in the work force who are being called apprentices, but I often ask them because I think that particularly older workers might have a problem with that. What I have found with branding in recent weeks and months is that people, realising that an apprenticeship in engineering is different from, say, an apprenticeship in retail, have been suggesting to us that we might rebrand the apprenticeships a bit to have more emphasis on occupations, so you could be an apprentice in retail as opposed to an apprentice in engineering. They think that the subtle differences would help make the relevance to particular sets of occupations more secure. We are always looking at branding, not least to keep it modern and relevant to those mostly young people who come into apprenticeships.

Q563 Julie Elliott: We have had some conflicting written evidence on this. For example, CITB-ConstructionSkills said, "NAS had promoted apprenticeship volumes, irrespective of age and length, but this could potentially damage the apprenticeship brand in the long term". We have also had evidence from the Shropshire Training Provider Network that "NAS has provided a national profile of the apprenticeship brand which has been successful". How do you think the recent rapid increase in apprenticeship numbers has affected the brand value?

David Way: I think the brand value remains strong. If 90% of people say they have a very positive experience of apprenticeships and there is a growing number of apprenticeships, that only helps reinforce the brand. I do not accept that we have been on the front foot by promoting the brand through numbers, though there has been some brand messaging on that. What we have tended to focus on-certainly the new marketing campaign-is the experiences of young people, or real apprentices. All the branding material at the moment features people who are three-dimensional, in the sense that you have pictures showing the pride and value they get out of those, and there are case stories by people who were apprentices. You can get behind them, talk to them and feel their experiences and stories.

If it was about numbers-I can see that there was some numbering used in the branding-today it is absolutely about the benefits young people get out of apprenticeships, the fact they are about real people and the range of occupations. We have talked about the growth of apprenticeships; the reality is that that is partly because we have opened up brand new sectors. One of the big brand challenges for me is not particularly to take the whole range of occupations but areas like IT, accountancy, child care and the new areas of big employment with which people do not naturally associate apprenticeships. That is one of the challenges for us.

Q564 Julie Elliott: You have talked about the research you have done on people who have apprenticeships and companies that are working with apprentices. Have you done any research on the brand with the people you have not reached?

David Way: We do not talk only to apprentices; we talk to the population at large about their perception of apprenticeships, whether that is positive or negative, and how detailed that knowledge can be. Over years, the knowledge and recognition of apprenticeships has increased, but it has not increased to the levels we would want where everybody in the population understands what an apprenticeship is and that it is a high-class vocational route. We still have progress to make in that area.

Q565 Chair: Julie quoted CITB as an example of a slightly negative concern about NAS. Given the fact it is a highly reputable body, what have you done to address these concerns? Have you had any conversations with them?

David Way: We have regular discussions. Within the National Apprenticeship Service I have a lead person who is, if you like, the relationship manager for each of the sector skills councils, including construction. We have been having a lot of discussions with construction recently, though interestingly not about that particular issue as far as I am aware. What we have been having particular issues with about construction, as we have over recent years, is that it is part of the economy that is particularly subject to fluctuations in the labour market.

Two years ago, we spent a lot of time and money-from memory, we put in about £100 million, but I will have to check the figure1-on ensuring that apprentices in construction, who were not finishing their apprenticeships, were able to finish them. We worked together with Construction Skills on that. At the moment, we are working with them to try to get a better understanding of what is happening to construction apprentices and what we can do to encourage growth. In the discussions we have been having I notice that they have introduced their own version of what we would otherwise call ATAs-the apprenticeship training associations-so they are giving apprentices in construction a greater opportunity to complete their training by going to different construction companies. I think they have about seven of those. The sort of thing we talk to them about mostly is how we can ensure that in the construction sector, which is subject to fluctuations in demand for labour, we can keep high-skilled apprenticeship training coming through. I have not spoken to them about branding; I cannot be certain one of my colleagues has not done so, but I certainly would do.

Q566 Chair: You seem to be speaking to them, but on other issues. I would accept up to a point that if they had an issue on that they should raise it.

David Way: I can understand why they might be a bit concerned about the brand. I had not really thought about it in quite this way, because what we are trying to get across to the public at large, and employers in particular, is that these days, apprenticeships are not just about construction and engineering. For the vast majority of the employer work force, that is a positive, but I can well see that if you are in construction, for example, you might see that they could do with some additional help in promoting this as absolutely being in construction, but our view is that most people who would want to go into construction know that the apprenticeship route is the route to go into, which is why we have widened our branding. I will certainly talk to Mark and ConstructionSkills about that, if that is an issue for them. It is a vital sector for us, and if we can do more to support construction we absolutely will.

Q567 Margot James: Mr Way, in your written evidence, you talk about now being the right time for "a new era for apprenticeships". I just wonder whether you could expand on that.

David Way: If I was to try to describe the new era, it is very much about some of the things we have already talked about. It is about ensuring that all apprenticeships are of high quality. I think that within that it is about new ways of working. Last time, we talked a bit about ATAs, and that is an important part of the future. It is absolutely about holding on to some of the traditional heartland of apprenticeships, particularly 16 to 24. I am not suggesting that we move away from that. It is about the new sectors. It is also about encouraging higher levels of apprenticeships. That is probably one of the most exciting areas for me, because the way to get more people to take apprenticeships at level 2 or level 3 is to offer them an opportunity at level 4 and at university, so that is important. Similarly, because we are concerned with the whole area of preapprenticeships, we are very interested in working with the UTCs to ensure that in all the great work they are doing, concentrating on boosting technical skills, there is within that a section about ensuring that apprenticeships are part of that offer.

What we are saying is that having got half a million apprentices is not where this Government and the National Apprenticeship Service want to rest. We want to make sure they are high quality and provide lots of opportunities and that the vocational route is seen by parents and young people as being as great a route as going to university. Although we are making strides, we are not there yet. It is really a future ambition. We are very pleased with the progress we have made, but there is more to do. It is a matter of trying to capture the essence of that, but the higher-level skills are a key part of it.

Q568 Margot James: On the question of quality, when you were responding to Panorama on BBC you stated that you were concerned for those apprentices who appeared to have been misled by training providers. What have you done to ensure that all training providers are of good quality?

Geoff Russell: Not all training providers are of good quality, and they never will be, but the vast majority of them are. We put them through a due diligence process before they can be eligible for funding that looks at their financial health and whatever track record they have. There is a series of other factors, but primarily it goes to the question asked by the Chair earlier to do with the forces that maintain quality. We can say that this training provider has the capability and track record to deliver an apprenticeship. Whether or not they actually do is going to be determined properly and impacted by Ofsted inspections and, ultimately, whether employers are happy with the training their employees get. It will be impacted by the funding audits my people do to ensure that the money they get from us is being used properly. We audit the providers they (employers) use to deliver the training.

There are various forces, but at the end of the day, we have to balance the bureaucracy issue. I can double the number of people I have and the amount of effort I make to peer over the shoulders of the several thousand providers we have in the country. That would cost money and generate much more bureaucracy, and I am not sure it would be a good return on investment given that the number of providers who are bad apples is, happily, relatively low, although the Panorama experience illustrates one of them.

Q569 Margot James: Do you have a feel for how many poor-quality providers there are? Do you have a measure of how long they can remain in business before they are rooted out? I accept there will always be a variation in quality, but I was a little disturbed when you said there would always be poor quality providers.

Geoff Russell: What I meant by that is that there will always be people who take advantage of the system. These are effectively fraudulent people. There are also providers who are not fraudulent and are trying to do a good job, but they do not do a good enough job. The main way we capture that is through measuring the number of people they take on who complete the programme. There are minimum levels and if you do not meet them your funding disappears immediately; you just will not get any more the following year. It is that simple.

David Way: It might be worth saying, since you picked up on the Panorama programme, that a lot of that focused on short-duration apprenticeships. Our analysis of that showed there were 87 out of over 1,000 apprenticeship providers who were delivering short- duration apprenticeships. Geoff and colleagues of mine have been working our way through that. By and large, what we found in those training providers was not fraudulent training, though at least one of those featured in the Panorama programme is now in administration, so that has followed its course.

We found there were people who did not always understand what an apprenticeship was. I know this Committee has spent quite a lot of time looking at what an apprenticeship is. At the heart of that for us is employment and skills development in the workplace. Some of these short duration apprenticeships and the reviews we have done show that some training providers saw apprenticeships as largely a training course. As soon as you were capable of passing the various tests, you were assessed and got your apprenticeship. That is not our view of an apprenticeship and it is not what Geoff and I define as an apprenticeship. We are applying, through the new descriptions of apprenticeships, new funding rules and so on.

At the heart of it were people who were doing things which were beneficial to those young people, but it was not an apprenticeship. What we have done is take them through what an apprenticeship would mean, crucially having an employer for the apprenticeship occupation in which that young person thinks they are getting an apprenticeship. If you start from the basis of having an employer and a framework in the occupation of your own choice, you have a very solid foundation. We have been revamping and reorienting these training providers to do bona fide apprenticeships instead of training courses. That was probably the fundamental thing we found.

Q570 Margot James: What checks do you carry out with new training providers before you approve them for funding?

Geoff Russell: Some of the things I mentioned before: their track record in terms of delivering training, if not necessarily for us then possibly for other organisations like the DWP, for example. We check the directors; we do basic checks through Companies House; we check their financial health, i.e. whether they have the financial capacity and capability to be able to deliver against the funding levels they are seeking. The important point is that, just because they have come through our due diligence gateway, does not mean they automatically get money. They have to go and persuade an employer that they are fit to deliver the apprenticeship training for their employees. I view that as a very important part of the quality control process.

Employers are pretty demanding, in that they will want the best-quality training for their employees because they have to pay their wages; they have to invest quite a bit of their own time and money to deliver apprentices. In a sense, it is the market that is the main quality control, although there is a lot of other paraphernalia, like Ofsted, our minimum levels of performance, my funding auditors, etc. But the thing that ultimately drives a provider out of business is if employers just do not want to use them.

David Way: Can I just add an anecdote that I think may be helpful? I was recently with an employer, the Southern Co-operative. I may as well name them because it is a good story. These days it is quite typical for employers to want to three or four training providers and talk to them about what they are going to offer them as an employer. This particular employer was telling me that one of the training providers came along and basically said, "You could have this training for free." This employer sent them packing and said, "I can’t possibly conceive of a useful training apprenticeship programme in which I do not have to invest my time, money and effort. I want value for money, but I don’t buy the idea that you will come along and give me something for free."

That underlines Geoff’s point about quality and ensuring value for money. We have thousands of pretty savvy employers out there working with training providers. Nobody is forcing their arm up their backs to say, "We need some more for Government targets." This is about trying to ensure that that employer gets a high-quality service. We cannot look over their shoulder, but it is encouraging to hear stories like that. People see that they have to invest in apprenticeships if they want the quality we are all looking for.

Q571 Julie Elliott: Mr Russell, you said that one of the things you check is how many people start on a programme and how many do not end up finishing it. Can you expand a little on that? What account do you take of the skills base of people who are coming in at the beginning, for instance, compared with somebody coming into a high-level apprenticeship or a NEET? How do you adjust that calculation, because not all people are coming in with the same level of ability, skills and commitment to get through the programme? Or do you not?

Geoff Russell: It is an interesting question. Broadly, the answer is that we do not, other than by setting the minimum level of performance, as it is called-the success rate of starts versus finishes-at something less than 100%. We set a minimum, but on average the sector is providing above that minimum. At the moment, I think it is about 75%. In effect, if one quarter of learners do not pass, we will still give them funding for 100% of the learners they take on. That allows, to some degree, for people who just drop out. It gives them room to take on higher-risk learners.

There is another mechanism for recognising the costs of higher-risk learners, in that we provide learner support and learning support for people who have special needs, or need assistance in travelling to learning. There is a range of things we do to try to recognise that there are some customers who will be more difficult.

Q572 Julie Elliott: Do you check what package of support is there before you allocate funding?

Geoff Russell: We set the rules for the support packages; the providers draw it down based on their assessment of the potential learner.

Q573 Julie Elliott: But do you check that that is happening and it is adequate?

Geoff Russell: In a sense we do. Are you asking me whether it is a sufficient package? I think I understand your question. If the provider did not create a suitable package of support for that learner it would negatively impact their minimum level of performance statistics and they would lose funding. They have a pretty powerful incentive to take on people they think will complete. There is always a risk that they may say, "That person’s too difficult and might harm my statistics." So we do specific procurements directed at very hard-to-reach people to try to mitigate some of that. We throw quite a bit of money at providers to allow them almost, in some cases, one-on-one support for people who are very far from the labour market. That is quite expensive, but I still think it is a good return on the Government’s money.

Q574 Chair: Earlier, Mr Way remarked that there was evidence of employers basically interviewing training providers and one had been rejected because they said they were doing it for free, so it could not have been of the right quality. Have you followed it up to investigate exactly what is on offer from that provider?

David Way: I have not personally. I must say I was very happy that the message would get round the system that the way to secure business with employers is not to pitch up and say, "I can do it the cheapest." Presumably, that provider will have learned their lesson and when they next try to get business-it was a pretty major contract-they would be taking a very different approach. I have used the anecdote effectively, I hope. These messages do go round the sector pretty quickly. I have not followed it up with that specific provider. I do not think I was told who it was.

Q575 Chair: It might not be a bad idea to find out. It seems to me to be a somewhat passive approach, given the fact there might be employers who would respond positively to that message. It could be possible to waste money on what might well be-I am not in a position to make a judgment from here-poor-quality training provision.

David Way: One of the things we want to do in the coming year is more messaging to employers about quite what an apprenticeship is all about and what they can expect from providers, so I would wrap it into that.

Geoff Russell: It is important to recognise that, even though the provider said it was free, it is not free; we pay for it. It was free to the employer, although the employer was meant to make a contribution. That was really what the provider was saying, "You don’t need to make a contribution."

Q576 Chair: I quite understand that. It would appear from the reaction of that employer that they were very suspicious of the package offered. I thought that would be quite a reasonable basis for any sort of regulatory organisation to identify and carry out some investigation.

David Way: You make a good point. Although the NAO report was very complimentary about the fact we had learned lessons from Train to Gain in the apprenticeship programme, one of the lessons from it was that nobody gains an advantage from going around promoting free training. We will look to see whether there is more that can be done with that particular messaging.

Chair: I certainly think any examples like that should be followed up pretty rigorously.

Q577 Julie Elliott: Do you think the apprenticeship brand has been put at risk because employers are losing confidence in the system?

David Way: I think it is easy to generalise. I do not think that generally employers are losing confidence in the system. To give an example, some of the criticism of apprenticeships has focused on retail. You have already signalled that you want to talk about that. I was talking to a big employer in retail, but not grocery retail, for whom those issues made not a jot of difference. They were committed to apprenticeships; they knew about the history of it; and they knew what they wanted out of high-quality apprenticeships.

We are always monitoring anything that would damage the brand, so if people are talking about the sort of issues they have been talking about we need to ensure that that does not become so toxic that it spreads across the whole brand. That is why I am always very anxious to try to deal with the issues of poor quality where they arise, but try to avoid people always generalising about them, which is why the employer and learner surveys are so positive. There are some experiences of which the short-duration apprenticeships are a good example. According to our learner survey, less than 8% of all learners think they have a short duration apprenticeship. We have to remember that 92% of learners think they get a much longer duration apprenticeship. We have to deal with the issues and make sure they do not filter out and contaminate the whole ground. Part of that is dealing with the issue itself but also by putting it in its proper context the scale of any problems that have been identified.

Geoff Russell: Some of the media attention on apprenticeships has lost perspective entirely. The vast majority of apprenticeships are of high quality and well delivered. Both the employer and employee are very satisfied, and they go directly to a need this country has. There are some instances where it needs to be better, but, as ever, the media will focus on those. The risk is that people will say, "Oh, there’s something wrong with apprenticeships in this country." As David said, in the vast majority of cases that is not true.

Q578 Chair: We have to be careful not to put this down just to some media conspiracy. We have had plenty of evidence from the training providers that there is a concern.

Geoff Russell: I have said to the various individuals involved that it is important that the media do challenge things, because they do uncover some stuff we need to deal with. As David said, we do deal with it. I am not suggesting that the media should stop doing that. What I said was that I think they need to keep it in perspective, in the sense that there are some instances of bad behaviour. We are happy to have them brought to our attention and we will deal with them, but everyone-businesses and mothers-have to understand that apprenticeships in the greatest majority of cases are very, very good and well delivered.

David Way: I thought what was happening here was that quality issues had been exposed. We are dealing with them. I thought the evidence you had suggests that people think we are dealing with them. That is good. What I am therefore anxious to do is make sure that people deal with the reality of where we are now and do not let the sort of "image" issues you are talking about, which we are dealing with, contaminate the brand as a whole. There have been problems of short duration that we have been dealing with. They are not as bad as has been portrayed, and I can give you illustrations of why that is the case if you want me to. We need to make sure that the 90% or so of apprentices who are having great experiences don’t go home to their families and friends at the end of the week and say they are proud of their achievements as apprentices while the general public turn round and say, "Well, they’re not what they used to be." I am sure we are all trying to grapple with that particular problem. We are trying to deal with the root causes of these problems, but keep it in perspective.

Q579 Margot James: Mr Way, you mentioned earlier that the National Audit Office had reported favourably on the apprenticeship scheme, in terms of value for money and return on investment. It also reported that the standard of skill and breadth of apprenticeships in this country was lower than in other countries. Do you believe that is a failure of our programme in comparison with other countries?

David Way: It is clearly a fact that apprenticeships in this country are typically at lower levels. We have the fifth largest apprenticeship programme in the world but lower levels than many countries in Europe. Most European countries are at level 3 rather than level 2, which is why one of our quality measures and aspirations is to increase the number of apprentices at level 3.

It is not quite as simple as that, because often people have to go through level 2 to get to level 3. There are also some important sectors in this country where level 2 is, if you like, the unit of currency of employment. Retail would be a good example. When you get to level 3, typically you are talking about either some specialism in trade or supervision. The ratio of people who need to have product and customer knowledge and so on and who work the floor in retail to the number of supervisors is quite high. Therefore, the retail industry, as an example-to some extent the construction industry is the same-says it needs lot of people at level 2. I do not think we should criticise ourselves too much for level 2s, but it is absolutely our intention to get more level 3s and level 4s and move people through.

For example, when we talk to providers, and providers talk to employers, about when somebody has completed a level 2, we are very keen to make sure they do not see that as the end of their journey. If you stand back from this, we are talking about international competitiveness. We will not achieve international competitiveness at level 2; we know that will be level 3 and level 4, and more people going through. You are right to say that, compared with other countries, we have more level 2s and they have more level 3s, and that is why we are trying to tackle that issue. You mentioned the new era for apprenticeships. Part of my answer was to try to move us in that direction. I think we learn a lot from other countries, and we might come on to that.

Q580 Margot James: You might already have answered this. Who is responsible for the quality of the programme?

David Way: The overall programme rests with the National Apprenticeship Service, but it is part of this end-to-end responsibility. The real drivers of quality will be the providers and employers at the local level who are ensuring they get the best possible experience they can. There are lots of other people involved in the process of apprenticeship, starting with the sector skills councils who set the standards, the awarding bodies who ensure that some of the issues raised in Panorama are adequately addressed, down to training providers, Ofsted and so on. There are a number of people working on this to ensure that quality is achieved, but overall I have to report to the Minister.

Q581 Margot James: Is there anything to add to what you are doing to try to raise the quality of UK apprenticeships versus international comparisons? Is there anything more than getting more people up to level 3? You did say that you were focused more on the higher-end quality apprenticeships. I gather that 33% of apprenticeships are at advanced level in England compared with 66% in France. Do you have a target in mind? Will just getting people up to level 3 make the difference, or is there something more you are doing?

David Way: Our internal target is that we would like to ensure that as many advanced apprenticeships as intermediate apprenticeships are successful. At the moment, it is roughly 40/60 and we want to move that to about 50/50, but it is always a difficult measure. You want to have more people come in at level 2 in order to stoke level 3 and then level 4. What we will see, I think, is a big improvement in the number of people going to level 3, because we are expanding the number of higher apprenticeships and working with universities so people can progress.

Why is that important? When I talk to parents about whether their children would want to become apprentices, one of the questions they always ask is, "Is this a cul-de-sac?" It is often going to work for somebody locally on an apprenticeship. They can be seen as, not a job for life, but a job. What you need to say is, "No. If you succeed in that you can go on to higher levels, and, if you want to, you can go on to university later." That is a very powerful signal to parents and potential apprentices to raise the quality. That is one thing we need to do.

I think the international comparisons are useful in a number of respects. We hold an international conference each year. We had the third one this year, and it was oversubscribed. People are interested in the UK system as well. They come to us because they like our flexibility; they are interested in the fact that we work with adults as well as young people. Typically, they work with young people. What do we learn from them? I think we learn about the high level of skills.

There is also almost a different culture. Perhaps I may describe it in two ways. In Austria, if you complete an apprenticeship you can choose any university to go to. I thought that was quite an interesting challenge to the way we think about our education system. Crucially, when you look at the international experience, a lot of young people know that they are going to be apprentices at 16. In this country, a lot of people at 14 and 15 do not know that they are going to be apprentices. That matters because you start to collect evidence towards your apprenticeship at an early age. You might do volunteering; you might do work experience; you might do a whole range of things. You tackle your English and maths because you know that to become an apprentice you need those sorts of skills. That is one of the other things we learn from overseas: that lots of young people know they will be apprentices at 16 and start preparing for it much younger. We learn things from overseas, and, thankfully, they come to us and learn some things. We also import things. The ATAs are an example of where we have imported something from Australia.

Q582 Rebecca Harris: I want to ask about the issue of perception. The Committee has had written evidence that apprenticeships are still seen by employers and some students as of low-quality or a poor relation to the traditional academic route. How much do you think apprenticeships are seen as a credible alternative to A-levels, and what work are you doing on that?

David Way: I think the answer is: increasingly. The more we can tackle the sort of issues that Margot was talking about in relation to higher-level apprenticeships the better. As a generalisation, we see a lot of very capable people wanting to take an apprenticeship. That is why we need to offer them more level 3s and level 4s.

I often say to people who doubt the quality of those who go through the apprenticeship route compared with the university route-it is important both are there and are of high quality-that they should meet some of the apprentices who go through those routes. The calibre of most of the apprentices I meet is really good. With 500,000 apprentices-admittedly, the biggest growth is adults-we have got more and more people who can attest to that. Even in our own organisation and Geoff’s, taking on apprentices is almost the best way of becoming an advocate for the quality of apprenticeships and the vocational route, because they bring so much. If we have, say, 700 extra work places a week taking on apprentices, those are 700 extra work places that can attest to the quality and contribution of people who come through the apprenticeship route. We have a way to go before people see the vocational route and apprenticeships as being right for their children, but I think we are heading in the right direction.

Q583 Rebecca Harris: I was very interested when you talked about how in some other countries people are preparing from the age of 14. That means they are thinking about this when they are still in school. How much work do you do to promote apprenticeships in schools with teachers? We have had some suggestion that the funding system incentivises schools to promote courses which traditionally are delivered in the sixth form rather than vocational education. It is there we need to be getting the message through. What is your view on that, and what work are you doing on it?

David Way: The statutory responsibility rests with school heads, and we are working with them to give them the facilities and resources they need to understand apprenticeships, and to be able to steer people towards apprenticeship information, including our own website. We have a resource pack that is available to all schools. The single thing we try to do is to make available to heads employers who go into those schools to talk about apprenticeships and, critically, apprentices who go into those schools. My own observation is that the single most powerful motivator for young people to be interested in schools, other than knowing somebody in their own family, is to meet an apprentice. Through our ambassadors network and a range of initiatives out there at the moment we try to ensure that speakers go into schools, and we are supporting those. If you can get employers and their apprentices into the schools to meet young people then, my goodness me, their eyes open. I did explain previously the impact of going with Jaguar Land Rover with one of their apprentices into a school in Birmingham. Every single person in that class wrote down the details of that apprenticeship when they saw a role model for the future. Giving people role models is a key consideration here.

Q584 Rebecca Harris: Can you say what proportion of your promotional work is with schools?

David Way: It is relatively small in relation to, say, the work we do with employers. The primary responsibility for this rests with the schools themselves, so we try to be responsive to schools rather than go into schools. If we were to go out into schools and take that responsibility, it would be a huge resource commitment. I think we have taken the view that, rather than fall between two stools, we would try to use our website and enabling measures to get employers and people out there and make resources available, and that that is really the limit of what we would be able to do.

Q585 Rebecca Harris: You do not think it should be a clearer part of your remit to work with the Department for Education on that.

David Way: I think it is a clear part of our remit, but the challenge we face is that it almost feels like an all-or-nothing responsibility. There are so many schools we feel that, rather than invest, say, another 50 people in doing that, what we need to do is make sure we can get the materials out to the schools who can facilitate the provision of IAG, rather than try to substitute ourselves to do that role. It is a support rather than lead role, but it is very important.

Geoff Russell: One of the more effective ways we have of getting to school kids is through competitions. We had the WorldSkills competition here last autumn when 80,000 school kids went to see the competitors. They were able to try it themselves. Just around the corner there was an information, advice and guidance booth. That competition occurs somewhere in the world every two years, but, as a result of the success of London hosting it last year, between us, we have agreed to put in quite a bit of money to mount an annual skills competition in this country. It has already kicked off; it will be held in Birmingham in November.

We will replicate that model where, as with the Olympics, there will be a build-up of competitions to get to the national team. School children will be invited, as we did last year for the WorldSkills competition, to come and see it. I do not know about you, but watching a craftsperson, whether it is building a garden or a robot, fascinates me. I think it is true for young people as well. I saw so many kids at that event whose eyes were opened. In a sense I think that is even more powerful than the pamphlets to head teachers which say, "Tell your kids."

David Way: We have 100,000 people expecting to come to the skills show in Birmingham. I know that very many of you supported National Apprenticeship Week. If you could get to see the skills show I think it would leave an indelible impression. We are inviting all the schools to come. One of the features of WorldSkills in London was the coach after coach of school children who came for that experience. That will be part of our armoury as well.

Geoff Russell: we also launched the National Careers Service this very month. That is open to young people as well through the website and telephone service. Of course, they have to go to it, but the website is already getting a huge number of hits and is designed to appeal to young people as well as adults.

David Way: I did not cover that and should have done so. We have an online system of apprenticeship vacancies and recruitment. If you visited it today you would see 9,000 or 10,000 apprenticeship opportunities. One of the things we try to do is drive interest in business to our website and to those lists of vacancies. That is very popular with 16 to 18 year-olds and younger people. There are all sorts of types of data to suit them. That is something we do to give them the information but, importantly, they can see on there that they can apply for this apprenticeship with this employer in this location and at this wage, so it just gives them a clear line of sight to apprenticeship opportunities.

Geoff Russell: It is one of the most used Government websites; it got 5 million hits last year, pushing at about 100,000 a week.

Q586 Nadhim Zahawi: Mr Way, both your predecessor Simon Waugh and Mr Russell appeared before the Public Accounts Committee last month. During that session Mr Russell said, "Simon is the salesman and I am the accountant." Do you agree with that summary of the respective roles of both your organisations?

David Way: I think the roles and accountabilities of our respective organisations are well documented in the letter of direction from the Secretary of State. It makes it clear that I am responsible for performance, the development of programmes and the money, and Geoff is responsible for a much wider skills budget. Geoff does the work in contract management with the providers, so it is a simpler system for providers. You asked me to comment on that specific quote. What I would say is that that is the distribution of accountabilities. I report to Ministers on performance and development of the programme and the money, and Geoff manages a much wider budget and the contracts with the training providers.

Q587 Nadhim Zahawi: Do you agree with the quote-yes or no?

David Way: Geoff is an accountant by background. From my answer, I guess we are interested in getting to the truth of accountability. I have explained the truth of the accountability. I am not quite sure what was in Simon’s mind or whether I would agree with him, but the position is as I have described.

Q588 Nadhim Zahawi: I hear what you say, but I really wanted a straightforward answer as to whether or not you agreed with that statement.

David Way: Geoff is by background an accountant and Simon is by background in sales.

Geoff Russell: I do not think that statement was ever meant to be a description of the accountabilities; it was more about our respective skills background.

Q589 Nadhim Zahawi: Mr Russell, we have already heard that the National Apprenticeship Service claims to have an end-to-end responsibility for the delivery of apprenticeships. If that is the case, why do we need two organisations?

Geoff Russell: As David said, the Skills Funding Agency is responsible for a wide range of adult FE in this country. It has a budget bigger than that for apprenticeships. We have all the facilities in place to procure training and check to make sure that the money we have spent on procurement is spent properly. It would not make sense, given that NAS is primarily an organisation to deal with sales and marketing of a product, for it to replicate the wiring in the background-procurers, contract managers and quality controls-because from my point of view, the difference between a provider delivering an apprenticeship and delivering some other form of vocational learning is nil. We do it all, but to NAS specifications: they define the product, the quality they want, how they want the contracts to be managed; they define what is paid to providers; and they tell us what they want us to do with the money-broadly, where they want it directed.

Q590 Nadhim Zahawi: Maybe it should not be called "end-to-end".

David Way: "End-to-end accountability" or "end-to-end responsibility" is a phrase which captures an idea but does not stand up to the most robust scrutiny, by which I mean that what it is trying to capture is the notion that when the National Apprenticeship Service was created lots of people had responsibilities for apprenticeships: sector skills councils, awarding bodies, all the way through to the point at which there was delivery. The worry was that no single organisation took an interest in all those things. Therefore, if something went wrong between the various players in the organisation there was lack of clarity about whose responsibility it was. What this is trying to capture is that, if something goes wrong or employers say they cannot get a certain framework, somebody picks that up-NAS, if nobody else-and talks to the sector skills councils; it talks about retail and new frameworks. For example, I went to see a well-known employer who said they were not entirely happy with the structure of some of the retail apprenticeships. I have picked that up. I am talking next week with the relevant sector skills council to try to resolve it so we can make frameworks fit for purpose for all retail apprenticeships. That is what it is trying to capture. I do not have total responsibility for every aspect. In a sense, it is trying to hold the whole thing together.

Q591 Nadhim Zahawi: One of the previous witnesses, Nick Linford, expressed a real concern that NAS is the only body that "claims to have end-to-end responsibility, but does not control the money, compliance or use of that funding".

Geoff Russell: That is absolutely untrue. I spend the money, but it is David’s budget and I spend it to his specification. I have a service level agreement with him where he effectively buys services from me, but I do not make the decisions about what an apprenticeship is, what the quality should be, and what is paid for it. I just do the execution. Therefore, David is the accounting officer with statutory responsibility under the legislation. If I screw up, it is his fault. If I fail to deliver, he has to take responsibility, so in that sense I am a provider to him.

David Way: I think the accountabilities are very clear. You are right though to expose the fact that the term "end-to-end responsibility" needs to be interpreted in the right way. Even correcting Nick’s comments in the way Geoff has, the reality is that I am not responsible for every aspect of delivery.

Q592 Nadhim Zahawi: But you are accountable.

David Way: I am accountable. The reason the National Apprenticeship Service was created in the first place and taken out of the Learning and Skills Council as part of a single organisation was that previous, as well as current, Ministers were very ambitious for apprenticeships. They wanted a service as part of government that could have a dedicated focus on working with employers, not on everything but on apprenticeships, to drive up the quality and quantity of apprenticeships. That is what we have been doing, and the statistics suggest we have been reasonably successful in that. I am very pleased with that.

Of course, you are right to say that the downside is that we need to work very carefully with Geoff. Frankly, I do not think there have been issues between the National Apprenticeship Service and the Skills Funding Agency. The issues on short duration apprenticeships are a good illustration of why there is a problem with the whole system. We analysed it, Geoff investigated and we fixed it. That is a good illustration of two parts of the organisation working together, sorting out a problem and Ministers agreeing a way forward which will solve it, so we make it work in that way.

Q593 Nadhim Zahawi: Would it be better to have just a single organisation?

Geoff Russell: The distinction between NAS and the agency is almost one without a difference. It is an external distinction; it is about brand. The reality of it is that my people and David’s work together inextricably, but it is important, as in any company that sells different products, to have one division focused on that product and to have the ability to say, "This is the product we want; this is how it should look; this is what we are going to price it at", without having somebody else from some other part of the organisation saying, "We don’t like that." The focus is the thing that has made NAS so successful. The reality is that when we become an actual executive agency next year NAS will be a division in it, but legally those accountabilities will be taken over by my successor. The practical uniqueness, separateness and focus of NAS will be maintained as a division. It is formalistic. David is absolutely accountable at the moment; next year, legally he will not be, but it will not change anything in terms of the NAS focus and the agency’s partnering with NAS to deliver the service.

Q594 Nadhim Zahawi: If you were to change the phrase "end-to-end responsibility", what would you use instead?

David Way: I wish you had not asked me that. I was going to ask you the same question, in the sense that I have not found a better one.

Q595 Chair: But you are here to answer.

David Way: I do understand that, and I apologise. The truth is that I have not thought of a better descriptor, hence the reason we are continuing to use it. It has never really been a problem in the sense that the people who work in the system understand it, but if it has started to become a problem then I agree that I need to find a better way of describing it. I am afraid I cannot pluck an expression from the air. If I had got one I think I have already been using it, but it is a fair challenge.

Q596 Paul Blomfield: I wanted to explore the area of employer engagement, on which you have put great emphasis as a priority for NAS. When we met the Association of Employment and Learning Providers, who clearly have their own angle, they said you should not be dealing directly with employers at all; it was already effectively undertaken by training providers. I can see why they would say that, but what would your observation be?

David Way: My observation is twofold. First, the reason the National Apprenticeship Service was set up in the first place was that there was a fundamental barrier to progress with expanding apprenticeships, and that was the lack of employer opportunities. My answer to Graham and the AELP over the years has been, "I don’t know why you have an issue with this. 90% of employers in this country do not employ apprentices. I would have thought there was enough room for both of us to be working in that market to secure extra employment opportunities." That was my first response. It was not working; it needed acceleration; and NAS was created.

Secondly, it makes a huge amount of sense to work in harmony with the Association of Employment and Learning Providers and their members. That is what we seek to do. What the AELP was saying was that their bread-and-butter business tended to be local employers and local SMEs. We agree. That was the impression I got, so when I answered the question about our involvement with smaller employers, it is absolutely to hold their hand through the first stage and explain the apprenticeship, what it means, how to find a training provider and then get out of the way. I have about 25 people working for me, running a small business service team. What they do is take the details and within two days they respond to that employer and find them a training provider. Within the month they have to move to the position of trying to find an apprentice. We do get out of the way.

As I explained to Nadhim last time we spoke, we segment the markets so that the NAS involvement is where there has traditionally been market failure; that is, those mid-size employers who just do not have a history of employing apprentices, or large employers who have lots of employees but do not typically employ them across very many occupations. I spend most of my time with my staff approaching large and medium-sized employers, but even there, as I said in answer to questions before, having got the employer to the point at which they say they want apprenticeships, we encourage them to talk to a range of providers and see which is best for them. They choose their different providers.

We get out of the way most of the time. We want employers to establish a long-term relationship where there will be a number of apprenticeships in the first year which will grow over many years. That is what large employers do. Typically, they grow their apprenticeship programme. We check in with those employers from time to time to see how the relationship is going, or they know to come to us if they want to make a change. There is a huge market there for us both to go at. I was pleased with comments about our marketing approach, which were very positive, but we do try to get out of the way. If we go to an employer and they say, "We’re already working with the local college", we say, "Fine. Is that working well?" and then just go.

Q597 Paul Blomfield: As you describe it, you are almost pre-empting my next question: how do you avoid duplication? You talk about a complementary relationship where you are focusing on large employers. The problem with that, and it is in some of the evidence we had, is that NAS is seen as not providing support to SMEs because of that focus on large employers. Is that true?

David Way: No, it is not true.

Q598 Paul Blomfield: You have just described a process by which you followed a journey where you were concentrating on large employers and, after an initial relationship, getting out of the way for SMEs.

David Way: Let me try to explain again. We have a segmented market approach. We divide employers basically into SMEs; 250 and below; mid-size; and large employers. As far as the SMEs are concerned, we have a web-based and telephone-based system that enables us to give them enough confidence to know where to go to with their inquiry and to find a local training provider. We use our resources to deal with those employers in that way. My internal feedback is that that is now working well, but there has been a period of transition, and perhaps that is what you are picking up. As part of our efficiency savings, I have changed the small business service from being nine systems operating across the country to one consistent standard operating in a central team. Perhaps you are picking up a little of that. However, only 25 of my staff basically run that service, whereas there are 125 people working with large employers.

To some extent, we prioritise large employers because that is where the market failure has been historically. Providers have been very good at working with SMEs, and we are continuing to develop that, but the thought I would just plant in this is that quite often employers get lots of inquiries from people all the time. They fend off those inquiries. I think the AELP would be the first to agree that there are many occasions where we can get a foot in the door with large employers by being the National Apprenticeship Service. As a Government body they will come and talk to us, because they know we are not trying to sell them our training company but to promote apprenticeships and the right skills solution. We can often get to talk to them and to some large employers and then introduce them to providers.

Q599 Paul Blomfield: If I may pursue the point about market failure, while what you might be describing is identifying a historic market failure for large employers, and you have addressed that, would you not say there is now a market failure for SMEs? If I look at my region of South Yorkshire, for some time a lot of the large employers have been developing and running extremely effective apprenticeships. We have 40,000 SMEs who want to but are not effectively engaging apprentices. The FSB and British Chambers of Commerce have both produced reports saying that is a problem area. Should you not be doing more in that area?

David Way: We are doing more in this area. Apart from having this small business team, we have just launched the Government’s incentive scheme for SMEs who can get a grant of £1,500 if they have not taken on employees before. That is something which AELP members now have in their armoury. They approach employers and say they have that.

However, there is also something that I know is dear to your heart. We have been looking at the introduction of more ATAs. We are working in some of the core cities to ensure that ATAs are a popular part of that particular approach. We have been working with the TUC and others to set out what good ATA arrangements look like, because, although we have about 30 ATAs at the moment, from memory there are about 70 in the pipeline. This is becoming very popular with SMEs. I mentioned it in respect of the construction sector.

We are still doing lots of things with small employers: incentivisation; new delivery models; and ATAs. In terms of my own sales team, what we are not trying to do is use a high proportion of my staff to sell to SMEs. We are trying to provide them with the information so they can then work with trainers. Remember, there are over 1,000 training providers out there. Why would I intervene in a process where there are 1,000 training providers out there and many more people who could work at a local level with those people and develop the long-term relationships that they need?

Geoff Russell: It is worth mentioning that 80% of all the apprentices out there are in SMEs; it is an SME programme. I think we need to be careful to distinguish between medium-sized companies and micros, because the latter do not get much attention from the provider base, because it is too expensive to try to sell one apprentice to someone who is very busy running their business and probably is not going to buy. I think there is much more success at medium-sized companies closer to 250. The smaller ones, micros, are the big issue.

Q600 Paul Blomfield: How do we address that big issue? Micros are, in a sense, the future, are they not? I look at how the industrial terrain has changed in my area. Micro businesses are a big feature. Not enough is being done. What should we do?

Geoff Russell: It is difficult, though, isn’t it?

Q601 Paul Blomfield: Yes, it is difficult, but it is important.

Geoff Russell: It is inherently difficult, because if you are a two- or three-person business the time you have to take to try to deliver a proper apprenticeship to someone, working with them on the job, is going to be a real challenge. Most of those micro businesses are up to their eyeballs and desperately trying to stay afloat.

Q602 Paul Blomfield: But many of the ones I talk to are interested in getting engaged, with all the problems associated with it. How do we make that possible for them?

David Way: What I am trying to describe, obviously not successfully, is the fact that the best way of supporting micro businesses and small business is to ensure they are aware of apprenticeships, where to go for information and feel supported by somebody locally on the ground. If I was trying to put a fence round this and say that only NAS people will deal with SMEs-I know you are not suggesting that-it would be the wrong thing to do. What we are trying to say to people is, "There are thousands of providers out there local to you. Talk to them; develop a long-term relationship", because there are various dimensions to how you get high-quality people, not least establishing a relationship with local colleges, local training providers and schools to ensure a flow of people. You also ensure those are the people who can put forward proposals for ATAs and all the other things we are talking about.

The service we are providing to SMEs is very strong. We need to keep working at information, but I honestly believe that the best way of supporting SMEs is through people locally on the ground in training companies and colleges, not through some sort of centre. We can support it through marketing and information, but they need delivery people on the ground. Unless NAS had thousands of people, we use the resources that are there, and in the main they are very capable resources.

Geoff Russell: It is interesting that David and I had a meeting with the AELP board yesterday. This issue was raised and they said, "It’s very expensive to get at those people." I think David took away an action to think about whether we might want to incentivise or defray some of that additional cost, because broadly that is what it would take.

Q603 Paul Blomfield: You have followed our proceedings quite closely. You will probably know that we had a difference of opinion last week on ATAs versus GTAs. What is your view?

David Way: I think they are very different animals. An employer needs to understand which of those models is the right one for their solution.

Q604 Paul Blomfield: But you would take the view that they both have a place.

David Way: Yes, a very strong place. To go back to your previous question, Jason Holt has been brought in to do a review of apprenticeships, particularly the support to SMEs. I am not quite sure when he is due to publish his report, but he has been sharing some of the emerging thinking with people, so that is something the Committee would be very interested in. As Geoff has indicated, the discussions we have been having throw interesting light on the costs and the amount of money we pay to SMEs. We discount quite a lot for large employers; we cut down the rates. The sort of questions that are now being thrown around would include whether or not you almost have to have a reverse premium for those who are in very difficult circumstances: the very micro business. It will be very interesting to see what Jason Holt, who as a businessman is very knowledgeable about the sector, comes up with. I think you will be interested to see those recommendations, which should be out fairly soon.

Q605 Ann McKechin: Mr Russell, can you tell the Committee how your agency assesses conditionality in the procurement of contracts?

Geoff Russell: We do not.

Q606 Ann McKechin: Why do you not?

Geoff Russell: As I mentioned before, it is the responsibility of NAS to decide what an apprenticeship is, what should be paid for it and the quality of it.

Q607 Ann McKechin: Surely one of the key criteria is value for money for the taxpayer.

Geoff Russell: Indeed.

Q608 Ann McKechin: We have taken evidence, as you will be aware, from Morrisons, which is one of the major providers of apprenticeships in this country. They stated on the record that they would have carried out this training anyway. The only issue was certification of their employees, for which the UK taxpayer spent £40 million in the last tax year. Do you consider that to be value for money?

Geoff Russell: Yes.

Q609 Ann McKechin: How?

Geoff Russell: Because what Morrisons were saying was that they would carry out training for their employees. What they would not have done is give them sufficient training and the certification that gave their employees the kitemark that said, "I have this qualification." Therefore, the bit we paid for-we pay far less for that sort of service than we do for the full training of a young apprentice coming in for the first time-represents an important part of upskilling the existing work force, which is the single biggest strategic skills weakness the UK has.

Q610 Ann McKechin: You are a retail assistant in a supermarket. That is the majority of the apprenticeships Morrisons were taking on. You are serving at the counter, stacking shelves and dealing with customers’ inquiries. You gain a certificate. Have you made any assessment of the additional income a person would have in that type of job by having a certificate rather than not, and what value it adds to the British economy?

Geoff Russell: I am not sure an assessment has been made of retail apprentices.

Q611 Ann McKechin: That is the majority of the apprenticeships Morrisons are offering.

Geoff Russell: Indeed. I am trying to answer your question.

Q612 Ann McKechin: Are you saying to me you have carried out no assessment of what additional income a person in that position would have with a certificate at the end of that period of training, compared with two years previously when they did not have a certificate?

Geoff Russell: I do not believe-David may wish to add something to this-that we do studies for each type of apprenticeship framework on additionality or value for money.

Q613 Ann McKechin: If you are giving out £40 million of public money you would be expected to, would you not?

Geoff Russell: No, not necessarily. We do it at a high level across all frameworks, and the evidence shows that the value for money is probably higher than in most Government programmes. The NAO confirmed that. BIS believes that the NAO’s figures are underestimates. I do not think that level of study is done for every single type of framework in every single type of provider, because there are cost implications to that as well.

Q614 Ann McKechin: I accept that, but there are a lot of people in this country who work in the retail industry. Are you saying there has been no assessment carried out in the retail sector for people in this type of job about the value of having this qualification? This is a structure in a retail industry that is very flat-lined. There are very few promoted posts, so what is the additional value to a person having a certificate at the end of a six-month course to them or to the UK economy, because the British taxpayer has just paid out £40 million on just one contract alone?

Geoff Russell: I think the benefit to the economy is significant. I am sure the studies that were done across the country by definition had to include retail because, as you observe, it is the largest single sector of the economy.

David Way: I think that is right. The NAO report and the PAC concluded we needed to do more work on additionality, and that work is being done. The point about Morrisons was not just to do with gaining the certificate; it is also the literacy and numeracy issues that they addressed. The general conclusion on the gain to the public purse in investing in apprenticeships is £18. Work has been done across not all but a number of sectors. I know that retail is below £18; it is less than the general figure, but I cannot tell you the exact figure. You get a range of benefits from investing in retail. Retail is an important sector. We talked earlier about NEETs. We have talked about Morrisons. There are a number of large retail chains and it is an expanding industry. They are looking to recruit significantly from the NEET group, so there is real value in this.

Q615 Ann McKechin: That takes me to my other point about the fact the NAO reported that the majority of providers did not charge fees to employers for adult apprenticeships. You mentioned that Morrisons were carrying out some additional work in-house as part of the certification process. Perhaps later the Chair will go on to talk about the Elmfield contract in particular. In connection with Morrisons, to take one example, have you made an evaluation of the value of the additional training Morrisons has been providing? We concede that Morrisons is getting no additional money for this particular scheme. Have you made an assessment of that additional in-house work, and what the contribution is?

David Way: The contribution from the employer?

Ann McKechin: Yes-from Morrisons.

David Way: We know what the contribution that Morrisons make. I have a list of all the activities that are undertaken by Morrisons and those undertaken by Elmfield. I have not put a quantification on that in terms of price, but I have a breakdown of what each party did to help those people complete their apprenticeships.

Q616 Ann McKechin: Could you provide that to the Committee, because I think it would be help to see the additional value that has been contributed?

David Way: I am sure I could. Out of courtesy, I should probably just clear it with Elmfield and Morrisons, but I do not think there is anything in it that would present any difficulty for them.

Q617 Ann McKechin: That would be helpful to the Committee’s analysis. Following that, in general how do you monitor and police employers’ contributions for those apprenticeships that are only partially funded?

Geoff Russell: All employers are required to contribute half the cost, but it can be in kind, not necessarily in cash. Providers understand that that is a condition of their contract. All providers-I think you took testimony from several earlier-will have a discussion with the employer about the contribution they are going to make. It varies depending on the nature of the employer and the nature of the framework, but if as part of our funding audit procedures we believed that providers were not ensuring that employers made their contribution, whether in kind or cash-

Q618 Ann McKechin: Do you work to a standard template contract in that regard to describe what a contribution in kind would be, and how it could be interpreted?

Geoff Russell: Contracts are standard. It requires the employer to make a contribution in cash or in kind. The nature of the contribution is probably David’s territory, but in practice it is the provider who will negotiate. There are only so many possibilities, are there not? It is the time company employees give up in training apprentices; provision of equipment, possibly purchasing it; and paid time off.

Q619 Ann McKechin: If equipment is a component of the contract, is an approximate value placed on it so you can audit that?

David Way: I do not think you can look at it in that way.

Q620 Ann McKechin: How can you audit it if you do not have a value attached to it?

David Way: I think we are interested primarily in the success of the outcome.

Q621 Ann McKechin: I am concerned about value for money for the taxpayer. The UK is somewhat unique because other countries have very specific regulations about how the contribution is made by the employer, and almost all of that is in cash. That is not the case in the UK. Obviously, in the case of engineers and construction there will be an issue about providing kit. Are you saying that 10% of the 50% contribution made by the employers is represented by kit, and therefore you can audit whether that has been provided? If not, quality is impacted, or the taxpayer is not receiving the appropriate value for money in terms of what they can expect.

Geoff Russell: You might interpret it that way, but it is the outcome that matters, so I do not think it is an issue of quality. We do manage and monitor the quality.

Q622 Ann McKechin: How do you manage the quality if you do not know the components of the contract, Mr Russell?

Geoff Russell: I do not think it is an issue of the components of the contract.

Q623 Ann McKechin: But how do you audit it when you do not have a value attached to it?

Geoff Russell: We do not audit it.

Q624 Ann McKechin: You do not have a value, so you do not do any spot checks; you do not go and check.

Geoff Russell: We audit providers. It is the provider’s responsibility to ensure that in their negotiations with the employer they make an appropriate contribution; otherwise, the apprentice will not be successful. If I were to employ an auditor to go and check whether an employer’s 50% added up to exactly the number it should, that might cost more than the contribution being made by the employer.

Q625 Ann McKechin: I am not talking about "exact" but having a clear idea of what the share actually is and people have worked out what the 50% contribution is, with a value, because if you are saying to the employer, "You are providing a 50% contribution", and they are saying 30% of that will be in kind, there has to be a value attached to it, does there not?

Geoff Russell: Implicitly, yes.

Q626 Ann McKechin: Surely you should give the training providers a guideline about how they assess whether the employer’s contribution is an accurate reflection of the value contributed.

Geoff Russell: I think that is in fact the case. Providers know very well what the range of employer-provided contribution is, but we do not regulate this system; we run a market and we sell a product.

Q627 Ann McKechin: You rely for the greater part on trusting the employers. That is what you are saying. There is a huge element of trust here.

Geoff Russell: No. We rely on market forces primarily. If the employer does not make the contribution they need to make to the apprenticeship’s development, they will not be successful; it is in the provider’s interest to make sure that their apprentice trainees are successful, because if they are not we will not pay them. There are quite powerful forces in play here to ensure quality-including the employer’s contribution to training the apprentice, giving them equipment and giving time off to go to college, if that is what is happening-because if the employer is not willing to do that the provider will not want to contaminate their track record.

Q628 Ann McKechin: Mr Way said earlier that when employers contact you a large number say they want to do it for nothing, so that is quite a strong incentive, too.

Geoff Russell: But that is when David says, "Sorry; you don’t get it for nothing."

Q629 Nadhim Zahawi: Picking up Ann’s point, what is the cost of evaluating a particular sector, for example retail, and what would be the time scale?

David Way: It depends on what you mean by "assessment". What we would be doing is having a series of meetings. It depends on how you go about it. The way in which we would normally assess the effectiveness of the sector is that I would find an employer in a particular sector who has employed apprentices and has hands-on experience to work with the sector skills council and National Apprenticeship Service to do an analysis of the problem, and then bring that together. It is largely a displacement cost of the activities of other people, and you would expect to do that in a couple of months.

Q630 Nadhim Zahawi: Are you saying there is not a big cost to it?

David Way: It depends on whether we are talking about the same problem.

Q631 Nadhim Zahawi: Picking up Ann’s point about retail, I am sure you will agree there has been some controversy about it and the additionality numbers.

David Way: Yes.

Q632 Nadhim Zahawi: What would it cost to focus on that particular sector and do some work to evaluate it? You are saying the timeline is two months.

David Way: The timeline for understanding the issues and trying to develop some solutions depends on whether at that point we needed to do some evaluative research. That would cost a few thousand pounds to get somebody to do that. I have people who work in this area quite regularly, but I do not really have a call-off contract where I can just turn round and say, "Could you do that?" It may be that that is something we should have, but at the moment, I have people I can go to but there would be a procurement timeline on it. I think it would take a few months to get all the evidence. In most cases, it is a matter of getting together the employers, some of whom employ apprentices and some of whom do not, because they see issues with it, and tend to work through the sector skills council, and working out some sensible recommendations. That would be our normal approach.

Q633 Nadhim Zahawi: But you see where I am going with this.

Geoff Russell: Yes. I think you would agree with me that there is definitely value in it. There may not be as much value as an engineering apprenticeship.

Q634 Nadhim Zahawi: If you are going to carry public confidence-and you know there is an issue on this-should you not be thinking about conducting that research and making sure it is available, not just to this Committee but publicly?

David Way: Yes. What you have done is probably describe what we are doing at the moment in retail, which is to take a number of these issues where a small number of employers are standing back from apprenticeships in the area of food retail and are saying, "We are doing some apprenticeships, but we think there are lessons to be learned from all of this, before we go big time into apprenticeships we want to ensure that the content is right and that the payment regime is right." That is what we are doing and that is why I am meeting the sector skills council for retail next week and other people the following week.

Q635 Nadhim Zahawi: I am glad you said that; otherwise, you open yourselves up to the criticism that it is a few thousand pounds and eight weeks’ work for tens of millions of pounds of taxpayer money being spent on apprenticeships, which is causing controversy.

David Way: Yes.

Geoff Russell: It is probably worth making it clear that we run a market, and it is a very complicated market. We do not do it perfectly, but we respond when issues arise, whether they are quality or value-for-money issues. We have talked about the tension between quantity and quality, but I do not think we should ever underestimate the complexity of the thing we are trying to do, which is broadly run a market but tweak it where we have to, using money or rules. I also do not think we should lose sight of the fact that there is a price to be paid in getting the number of apprentices we have today and get that critical mass; to persuade mothers that this is a good route for their children; and to be in a position where today, in the middle of the worst recession we have had in a century, there are 500,000 apprentices working. As hard as we try, we cannot plug every leak in the ship, but when we see a leak, we do try to plug it pretty quickly.

David Way: I think that is the value of the surveys. We try to cut out everybody else and say to the learners, "Where are the issues for you?" and, to employers, "Where are the issues for you?" You have rightly highlighted the fact that there are issues with some employers in retail. We need to sort that out. Similarly, on the learner side, I referred to some of the issues that arise from that. We need to be forensic and follow through on those things in the way you describe.

Geoff Russell: I am not coming out with excuses. You should challenge us.

Q636 Nadhim Zahawi: I hear what you say and completely get the point of complexity and the profile of the market in which you operate, but your last comment slightly worried me. You said there is a price to be paid in order to get mothers and fathers to be happy that we have half a million apprenticeships in place. I hope you are not saying that doing things that are not delivering value for money and quality of apprenticeships is a price that is acceptable, and that it is okay to turn a blind eye to this problem.

Geoff Russell: I do not think there is anything we have done intentionally to try to say, "Oh, let’s pile them high and sell them cheap." I think it was more a case of setting a definition and quality standard, but it is not possible to enforce that perfectly every second when you are also trying to grow the market. It is not that we ever set out to do something of poor quality.

Q637 Nadhim Zahawi: Of course not; I get that. You grow the market, review it and deal with issues that are found.

Geoff Russell: And we respond to the challenge of people like yourselves and the Nick Linfords of this world.

David Way: When we say we are being responsive, to return to a point that I think I made before you arrived, in the surveys we conducted there is a consistent picture that 90% of people under apprenticeships are having a really good experience. Increasingly, our focus needs to be on the other 10%, whether they are learners or employers, to make sure that we sort out those issues. At the moment, you have described some of those issues; in six months’ time there will probably be another set of issues, but-I entirely agree with what you have drawn out-what we have in place is a process by which we tackle those issues thoroughly and forensically in the way you indicate.

Q638 Nadhim Zahawi: I do not want to labour the point, but I used to run a research company, and did so for 10 years. 90% of people saying they are pleased requires further analysis. I would be pleased if I had a certificate; I would tick the box saying I was really pleased, without it meaning very much.

David Way: We do ask some other questions, but I take the point.

Q639 Chair: I want to finish off with questions about the NAO report. Before I do so, I want to pick up some outstanding issues on the Elmfield/Morrisons link-up.

You talked about certification and so on. My understanding is that Elmfield has a separate company that does the accreditation, so potentially the provider provides a course and the same company, or at least a sub-division of the same company, does the accreditation. Is that what goes on with Morrisons?

David Way: Yes, in the sense that Elmfield’s arrangements with Morrisons are that the awarding body they use, unless I am corrected, is First4Skills. Of course, that is not a practice only with Elmfield; there are others that do that. The information I have is that Elmfield do that for about 30 other companies.

Q640 Chair: However, I think there is an issue about the size of the contract and the numbers involved. It is strategically significant.

David Way: The whole issue of providers and awarding bodies is one that Geoff and I discuss on a number of occasions. It is a relatively recent development.

Geoff Russell: The legislation changed in 2009 to take away the barrier that prevented that from occurring. Some companies have taken advantage of it. Ofqual, which regulates the awarding organisations, is in the midst of a market health review. One of the things it is focusing on is that very question. As David says, there is definitely potential for a conflict of interest. He and I ponder this quite often. My view is that there have to be some very strong firewalls to prevent conflict of interest.. Ofqual already has a rule which says there should be a firewall, but I am not sure how strong it is. It needs to be very strong; otherwise, the risks are obvious.

Q641 Chair: What I think a lot of people will find astonishing is that in 2010-11, you awarded this company a £23.8 million contract before it had even been assessed by Ofsted. By what sort of judgment or criteria did you make this decision?

Geoff Russell: At the outset of this hearing, we discussed the sort of process we go through before we allow providers to get on our registration list, but we award moneys to companies that have demonstrated they can deliver successfully; that is how the system works.

Q642 Chair: If it is delivered successfully by their own accreditation system.

Geoff Russell: By a regulated awarding organisation. Please do not forget that the key quality control from my point of view is the employer, because if Morrisons did not think Elmfield was doing a good job there is no particular reason for them to stay with Elmfield.

Q643 Chair: That comes back to the broader issue. Have you done any research on, if you like, the value added in terms of performance within Morrisons of the money invested in them, and the accreditation they receive?

Geoff Russell: I guess that goes to the question Ms McKechin addressed.

Q644 Chair: Yes, it is the same thing.

Geoff Russell: I think David has recognised that we probably should do more specific research, primarily to try to put to rest the idea that people think there is no value attached to that. I think there is value. I am pretty sure it is not nearly as much as it is in other areas, but I do not think there is any potential that it is a waste of public money. We might be able to find ways to use public moneys on, say, engineering that would provide greater value, but, at the end of the day, this is an employer-led programme.

Q645 Chair: I think it is very honest of you to say so, because one of our jobs is to assess where best this money may be spent. It would seem that a lot of money is being spent in an area where, at best, the overall economic benefits are, shall we say, not obvious, whereas there are other areas where they are much clearer.

Geoff Russell: That is a legitimate challenge undoubtedly, but we are clear that there is value.

Q646 Chair: I am sure there is some value in it.

Geoff Russell: But it is important to recognise that this is a programme that is led by employers; it is a market, and we could, if we wished, say, "We will not fund retail apprentices."

Q647 Chair: It is led by employers but funded by the taxpayer. Therefore, it is perfectly reasonable to ask these questions.

Geoff Russell: Of course.

David Way: Even within sectors you will find from the research we have done that a clear influence on the return for the investment of public money depends on the nature of the individual employer and the way in which that apprentice is either stretched and supported, or otherwise the attitude is, "You’ve done your apprenticeship; it’s business as usual." With an employer like Morrisons, which takes its training development seriously, you would expect to get a better return than you would in some employers who put people through a retail apprenticeship but do not extract the full value by giving that apprentice, post-training, the opportunity to develop, grow and get further training.

Q648 Chair: You may be right, but I think it is reasonable for the public to expect some degree of research and assessment to feel confident about it. You awarded this contract before it was assessed by Ofsted and then you doubled the allocation halfway through the year. Why was that?

Geoff Russell: One of our jobs is to move money from training organisations that are not using it to training organisations that can deliver training, because our objective is to try to use our budget to meet the demands for training that exist in the country, so every quarter we sit down with every training organisation with whom we contract and agree with them whether or not they are going to use the allocation we have given them. If they are not, we take it off them and examine applications from other companies who have the demand, and we make a decision about where to redeploy that money. Elmfield clearly had the demand because it had a contract with Morrisons.

Q649 Chair: I find that quite astonishing. There was money unspent in other programmes.

Geoff Russell: Other providers.

Q650 Chair: And then you sat down with Elmfield to award them extra money without any assessment or evidence to demonstrate that this was value for money.

Geoff Russell: We do not do a value-for-money assessment as part of our day-to-day business of awarding money. We make an assumption about the product we are funding.

Q651 Chair: And it is being accredited by Elmfield.

Geoff Russell: Elmfield is not the accreditor. They have a company owned by the same man, which is regulated by Ofqual as an awarding organisation, and that organisation is obliged to check.

Q652 Chair: But ultimately they are owned by the same person.

Geoff Russell: As I have just said, that is true. We sit down with every provider who says, "We have demand for training from employers." We decide where that is best used. With regard to apprentices, we make that decision with the National Apprenticeship Service. Ofsted does not inspect every training provider every year; that is just not their regime. We, however, do funding audits of every provider every year, or a statistical sample of them, to ensure that we know the money we have spent has been properly used, so it is not that Elmfield will have been not subject to external scrutiny, just not Ofsted-yet.

Q653 Chair: I think the decision is even more mystifying in the context of the fact that NAS claims the majority of providers are "good or outstanding", but that Elmfield got an overall score of only three out of four, four being the worst possible. Are you going to go on awarding money to an organisation that is not performing at the level most others are?

Geoff Russell: We set a standard and they met it, so it is rather difficult for us to change the rules for one particular provider. They are satisfactory. Would we like them to be better than satisfactory? Of course, but that is the standard we set. We are in the process of tweaking the funding system in future so that organisations that exceed the minimum standard will have a greater likelihood of attracting our funding than those that do not, as a way to try to drive quality improvement, but at the end of the day they were awarded a satisfactory grading and that was the standard.

Q654 Chair: I find this quite astonishing, given the fact that in other sectors of education-in schools-the Secretary of State is saying that a "satisfactory" Ofsted rating is not good enough.

Geoff Russell: I think he said that a persistent "satisfactory" was not good enough, and I agree with that.

Q655 Chair: So, they will not get any more money if they do not improve.

Geoff Russell: What we will do is put in a system that says, "When we do our procurement, if your standards are higher that will increase the likelihood of our giving you the money." If we sat down each quarter to do the business case I talked about earlier and had five providers each asking for money and this one was of the highest quality it would increase the likelihood that we would give the money to them rather than someone who is just consistently satisfactory.

Chair: It is a bit vague.

Q656 Ann McKechin: Mr Russell, you said that the additional tranche given to Elmfield in the financial year 2010-11 came from a surplus from other training providers. Can you confirm what percentage that was of your total surplus? How much of the total surplus did they get?

Geoff Russell: I am sorry; I have no idea. I could probably provide that for you, but it would have been a small fraction of the total available.

Q657 Ann McKechin: What is the procurement process for dealing with surpluses?

Geoff Russell: It is not a procurement process per se. The formal procurement process is that they have to get on our registered list first.

Q658 Ann McKechin: But were all the other providers told, "I now have a surplus of £100 million", and then asked to re-tender with alternative or additional proposals?

Geoff Russell: What happens is that we sit down with every provider every quarter. We take money off those we do not think are going to spend it. Any provider in the country who has, in their view, the ability to deliver more than their existing contract can make a business case to us through our local people. Those get aggregated and moderated across the country, and we try to make a decision as to where best to deploy that money.

Q659 Ann McKechin: As to moderation, would it not be unusual for someone to get literally an extra 100% of the allocation already provided to them in any financial year? That seems a huge additional capacity without any rigorous form of reassessment.

Geoff Russell: It is not unusual.

Q660 Ann McKechin: Was a report provided to Ministers about how the surplus was used?

Geoff Russell: No, because it is our job. Ministers are statutorily barred from being involved in funding decisions.

Q661 Ann McKechin: But were they not informed or provided with information on how the surplus was used?

Geoff Russell: They know that the surplus gets used by being redeployed to other providers who can use it, and there are hundreds of them.

Q662 Ann McKechin: I think it would be very helpful if you could confirm to the Committee what percentage of the total surplus in that year Elmfield obtained.

Geoff Russell: Okay.

Q663 Chair: Perhaps I may conclude with the NAO February report. There were three recommendations that refer to NAS. I would like to know what you have done in response to them. If I may read them out, recommendation b) was about "explicitly [targeting] those frameworks, levels of qualification and age ranges likely to have most impact on the economy"; recommendation c) was about gathering information on the cost of delivering different apprenticeships; and recommendation d) was a review of whether employers’ needs are matched to potential apprentices in the provider network. Perhaps you could deal with them one by one. I am quite happy to read them again, although I suspect I will not need to.

David Way: If I may take the first one, which is targeting sectors likely to have the most impact, that is not just sectors, as you read out, but also ages. We have targeted NAS resources, in particular sales resources, on the 16 to 24 age group. We are also targeting new employers who are likely to employ apprentices rather than convert their existing work force. We have also been working with BIS on their growth sectors to try to ensure we have got strategies to develop apprenticeships in each of those sectors.

Q664 Chair: Could I reasonably conclude from what you have just said that a future budget profile will demonstrate a higher investment in that area than in others?

David Way: Certainly, that is the intention. If I may illustrate, in the 16-to-24 group we have just been talking about the reallocation of surpluses in-year. One of the areas we give least priority to are growth requests for 25-plus apprenticeships, so if anybody comes forward with requests for apprenticeships at 19 to 24 we would fund those routinely; for 25-plus we would not, because we are looking to grow 19-to-24 apprenticeships rather than 25-plus apprenticeships in line with our trajectories.

Q665 Chair: What do you say about the second one: gathering information on the cost of delivering apprenticeships?

Geoff Russell: We do that. Sector skills councils are primarily responsible for deciding what it costs to deliver the frameworks, because they develop the frameworks with employers. We take that information and assess it, and it is used to determine what we should pay. We have not updated those costs for some time, and the PAC at the time suggested we should. We could have done it but it would have meant we would have been paying more rather than less, so we were rather content at the time.

As a result of the fact there are now SASE-compliant frameworks, to try to get consistency between apprentices and nonapprentice vocational learning we are in the process of trying to pay for identifiable components of apprenticeships that are the same as other vocational qualifications, in exactly the same way and at exactly the same price, and then make a very explicit payment in relation to an apprenticeship to recognise there is a greater requirement to get an apprentice successfully through a framework than to do just individual qualifications. We are going to be far more explicit about that, and I think it will bring much greater clarity and accuracy to what an apprenticeship should cost.

Q666 Chair: Recommendation d) is: reviewing whether employers’ needs are matched to potential apprentices and the provider network.

David Way: I think we touched on that a little in our earlier discussions, but we have been asked and are very keen to look at apprenticeship supply and demand on a sectoral basis, in essence to analyse every sector to ensure we look at whether there is additional demand from individuals in those sectors, whether we need to ensure our sales people get more employer opportunities, or vice versa; and whether there are any obstacles to expanding apprenticeships in those particular sectors. Sometimes that is about the provider base. The report indicated that sometimes it is about the lack of frameworks; in some cases it is about the lack of level 3 opportunities, so we have been asked to look at apprenticeship business and to report much more on a sector-by-sector basis. That is something we are keen to do, because all the analysis suggests that in many ways it is the sectoral dimension that has a big impact on overall performance; and that the generic issues to do with the difficulties and successes with apprenticeships are often associated with some sectors rather than others and need to be approached on that basis.

Chair: That concludes my questions. I finish off by saying that if, on reflection, we feel there are one or two others that we need to ask you to follow up from the responses you have given, we will put that in written form and would welcome your written response. Indeed, if you feel there is any point you wish to make that you have not made during the course of this session, please feel free to send supplementary evidence to us. Thank you very much for your contribution. That will be very helpful in providing a basis for our recommendations in the near future.

[1] Note by Witness: The figure was checked and it was £1 million

Prepared 5th November 2012