Apprenticeships - Business, Innovation and Skills Committee Contents

3  Delivery and funding

Bridging the gap—NAS, SFA and simplifying delivery

34.  The apprenticeship programme represents a significant investment on the part of the Government. In 2010-11 the programme cost the public purse £1.2bn.[48] In England, the Department for Education and the Department of Business, Innovation and Skills allocate funding for the provision of 16-18 year olds and 19+ apprenticeships respectively. The National Apprenticeship Service co-ordinates this funding by covering a proportion of the cost of training apprentices as determined by the relevant Sector Skills Council, dependant on the age of the apprentice (this is discussed in paragraph 42 of this Report). NAS acts as a single point of contact for employers so that the funding appears seamless despite originating from different sources and involving a large number of organisations.[49]

35.  Some witnesses argued that the current funding structure was a source of inefficiency for the funding of apprenticeship training. Professor Alison Fuller and Professor Lorna Unwin explained that:

    Funding for apprenticeships is diluted through multiple steps in the funding allocation chain—BIS?SFA?NAS?Providers?Employers?Apprentices—along the way, other organisations take a slice (e.g. Apprenticeship Ambassadors Network, Sector Skills Councils, UKCES, Awarding Bodies, ATAs, GTAs). The money pays for a range of administrative tasks, for the cost of qualifications, assessment and accreditation, inspection, and for wages. For example, Awarding Bodies benefit greatly from apprenticeship. In the past, they provided significant levels of curricula and pedagogical support to their 'centres' (e.g. FE colleges), but this has declined in recent years.[50]

36.  Taking the issue further, the Managing Editor of FE Week, Nick Linford, asserted "the main inefficiencies [...] come from a very extended supply chain in terms of delivery" [51] and that merging NAS and the SFA would go some way to solving this problem:

    Let us start by appreciating that the National Apprenticeship Service say that they have end-to-end responsibility for apprenticeships, and yet they have no responsibility for the funding and compliance. [...] I would have single responsibility, absolute clarity about who is responsible, but not leave the independent role to monitor quality with the body that deals with compliance and funding. That has to be more independent. How can the funding body be responsible for saying whether they spent the money well or not? That has to be done independently.[52]

37.  When we discussed this with the Minister, he agreed that the funding structure was not perfect but was keen to highlight recent improvements. He told us that progress had been made, particularly for large employers:

    I have set about that by simplifying the system and by producing a toolkit for employers to guide them through the system. We are piloting, for large employers, a much simpler funding regime so they do not have to deal with weekly or monthly funding; big employers do not want to have to do that. So we are setting about making the system more navigable, less burdensome, and less bureaucratic at the same time as we are engaged in this passionate evangelism.[53]

38.  People 1st warned that the current structure deterred the employment of some apprentices. However, it welcomed the SFA's objective of simplification:

    Unless the system and funding criteria becomes less confusing employers are unlikely to take up this incentive. However, the SFA work with larger employers on the Simplification Pilot will hopefully reduce unnecessary bureaucracy for larger national employers.[54]

The Chief Executive of the Association of Employment and Learning Providers, Graham Hoyle OBE, agreed and expressed optimism for the future. He told us that "funding is complicated, but at the present time we and the Skills Funding Agency are looking at making that much simpler. This follows the expectation of a reduction in bureaucracy and so on, which, of course, we all support".[55]

39.  We discussed these issues with NAS and the SFA, specifically asking whether they should be merged. The Chief Executive of NAS, David Way, told us that the SFA had wider responsibility than just apprenticeships and that it was important that they were kept separate. He argued that NAS was "responsible for performance, the development of programmes and the money", while the SFA was "responsible for a much wider skills budget".[56] The Chief Executive of the SFA, Geoff Russell, however, told us that "the distinction between NAS and the [SFA] is almost one without a difference. It is an external distinction; it is about brand".[57] Comparing the SFA to a private company, he went on to explain that the separation was important for accountability and control:

    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".[58]

40.  The Minister conceded that more needed to be done. He told us that:

    We also need to make the system more navigable for employers, less burdensome, less bureaucratic, and less irksome, particularly for the SMEs. [59]

In supplementary evidence, the Department set out the progress made in reducing bureaucracy for businesses:

    We are reducing bureaucracy, and streamlining and speeding up processes, with significant progress made already. For large employers (5,000+ employees) that directly contract with the Skills Funding Agency; the latter is currently running an Employer Outcome Payment Pilot. This will test a new approach to making payments based on Apprenticeship framework completions enabling a significant reduction in the paperwork and reporting requirements. We are also introducing more proportionate audit, inspection and monitoring arrangements and a single certification service.[60]

It also told us of its plans to reduce bureaucracy for smaller businesses:

    To address the concerns of small employers, we are working to streamline processes so that it takes just a month for an employer to advertise for an apprentice, through from first enquiry to agreeing a training package. The Skills Funding Agency has removed health and safety requirements on providers and, where relevant, employers, that go beyond regulatory requirements. We are working with training providers to develop new service standards for supporting SMEs to be included in all new contracts for Apprenticeships delivery.[61]

41.  While we welcome recent efforts to improve the administrative processes for apprenticeship training for employers, we are concerned that the funding chain remains unnecessarily complex. The sheer number of organisations involved works against the efficient allocation of funds. We therefore recommend that the Department provides a simpler and more efficient delivery system.

The effect of varying funding by age of apprentice


42.  The NAS website summarised the funding structure for employers:

    If the apprentice is aged 16-18 years old, you will receive 100 per cent of the cost of the training;

    If they are 19-24 years old, you will receive up to 50 per cent; and

    If they are 25 years old or over you may only get a contribution depending on the sector and area in which you operate.[62]

43.  The rationale behind this funding structure is twofold. First, it reflects the Government's commitment to free education for all individuals under the age of 19 and second, the potentially higher cost to an employer of taking on a younger (and relatively less experienced) apprentice. The Department confirmed that:

    The 100% funding available for the training element of Apprenticeships for 16-18 year olds is founded on the principle that Government should fully support the education and training for those yet to reach adulthood. This is consistent too with the position that those under 19 cannot legally be charged fees for their learning in schools and colleges.

    For employers, the policy reflects the relative labour market inexperience, greater learning needs and initially lower productivity of the youngest apprentices at the outset of their careers and entering the workplace for the first time.[63]

We received a significant volume of evidence on this subject which raised four main issues: cost, inequality, progression and supporting our youth.


44.  The Engineering Construction Industry Training Board told us that this funding structure was distorting the recruitment practices of employers:

    Obviously employers will look to the 16-18 age group first. This leaves the 19+ young people, who may have been out of work for some time, or have just left school with A levels and do not want to go to university, with reduced opportunities.[64]

The Open University agreed, telling us that:

    After the age of 19 the funding goes down considerably and with it, goes the incentive for employers and learning providers to engage with older apprentices.[65]

The training provider NCG took this notion further, telling us that is was especially pertinent when businesses were sensitive to cost because of the wider economy:

    In the current economic climate, businesses are discouraged from taking on 19-24 year olds due to the expected fee level.[66]

45.  Many industry representatives told us that not only was the funding structure distorting recruitment, but that it was based on a false premise. For example, the Royal Aeronautical Society summarised that "there is no difference in cost if an apprentice is 16, 18, 25 or 32—the training, materials etc. they receive are the same".[67] Learndirect explained that the learning needs of 19-24 year-olds had been underestimated, particularly when many 19-24 year olds apprentices come from non-employment, education or training (NEET) backgrounds:

    The current split by age group alone is too simplistic. In our experience 19-24 NEET apprentices can be as resource-intensive as 16-18 apprentices for the following reasons:

    They have been out of the working environment for some time and therefore will need a lot of support in the workplace to bring them up to the employer's expectations. In reality they are starting from scratch in the workplace.

    They may be moving into a new sector which means starting again. This requires higher levels of support from the provider and employer to retain them in that role and make them valuable to the business/employer.

    They have developed poor working habits from previous, less structured programmes and employers.[68]

British Gas agreed, telling us that "the investment British Gas makes in individuals is consistent irrespective of their age".[69]

46.  Other contributors to our inquiry were more pragmatic about the idea of two-tiered funding. For example Gateshead Council told us that 19-24 year olds were easier to train, but argued that 50 per cent funding was too low and did not account for experience:

    To many employers, a 19-24 year old is a more valuable employee because they are more mature. However, they still require time, and training because they have limited practical experience and skills.[70]


47.  Several witnesses expressed concern with the current funding structure from a diversity and fairness perspective. For example the National Skills Academy for Nuclear told us that apprenticeships should be focussed on getting the right person into the right place, not dependant on their age:

    Expanding the ability of the funding to offer apprenticeship places to the right person, irrespective of age, should be a focus for the government and UK plc. The current funding discrimination is placing a barrier to diversity for Employers and Providers who recruit on behalf of Employers to get the right people for the right jobs.[71]

Sheffield City Council told us that "the current funding model acts as a financial disincentive to employers in employing/investing in the skills of the 19 plus workforce".[72]

48.  The evidence also highlighted specific sectors, whose representatives told us that they considered themselves to have been discriminated against. The Financial Skills Partnership argued that the Financial Services sector was disadvantaged because it did not tend to recruit below the age of 19. They told us that "some apprentices do not come to the decision to train in a particular career, such as accountancy, until 19 or over".[73] This was echoed by the Association of Licensed Multiple Retailers[74] and UCATT (the union for construction workers).[75] The National Specialist Contractors' Council highlighted that the specialist sector had all but been excluded from the apprenticeship scheme because of the two-tiered funding structure:

    Many specialist apprentices are mature workers because the nature of specialist trades often requires more experience and maturity. [...] Under the current system, employers of apprentices aged over 18 years are financially penalised for being more mature and the SFA will not provide enhanced funding for those apprentices who have had previous employment.[76]


49.  We have also heard that the current funding structure prevents employers supporting their apprentices to progress in their training. This view was prominent in evidence received from the construction and contracting sectors. The Federation of Master Builders explained the problem:

    The current age-dependent funding rules for apprenticeships (100% for 16-18 year old and only 50% for 19+ year olds) limits a firm's ability to progress their apprentice onto Level 3 programmes which is our industry standard for a craftsman. Most apprentices are likely to be 19+ before progressing onto Level 3 courses and therefore a flexible delivery contract covering full funding for both Level 2 and Level 3 is required.[77]

This sentiment was echoed by the UK Contractors Group who told us that this was an issue specific to the construction industry:

    The nature of the construction industry means that the reduction in apprentice funding post-19 has a particularly strong impact on the numbers starting Level 3 apprenticeships compared to other industries.[78]

The Federation of Master Builders agreed that an apprentice over the age of 19 was more attractive as a resource for an employer, but agreed that the structure was preventing the appropriate training of this group of apprentices:

    Employers are often motivated by the benefits of hiring apprentices over the age of 18, which can include a better level of maturity, previous work experience and fewer problems with insurance. [...] The current system limits the rate of progression to advanced apprenticeships, and thus has a negative impact on the industry's ability to meet its skills needs.[79]


50.  We also heard evidence supporting the current funding structure. For example BAE systems told us that in a tough funding climate the "Government need[ed] to prioritise its investment". It went on to say that it was "vital that Government investment should continue to be at the 100% level for 16-18 year olds".[80] Similarly McDonald's agreed that the current apprenticeship funding arrangement of 100% for 16-18 year olds and 50 per cent for 19-24 year olds was "appropriate" but told us that it could be improved by "weighting their support towards younger people and those not in education, employment or training (NEETs)".[81] Other witnesses agreed with the principle of 100 per cent funding for 16-18 year olds, but argued for more flexibility within the funding arrangements for older apprentices. The West Midlands Training Provider Network summarised this argument by telling us that the Government should take more factors than age into account:

    Apprenticeship funding must recognise the true costs of successfully delivering such a complex programme, often uniquely tailored to meet the needs of both the employer and of the apprentice and make available appropriate levels of funding based on those individual needs. Age and experience will, of course, be factors that would need to be taken into account. We do believe, however, that those learners who are 19-24 who do not have a Level 2 qualification or who had been unemployed at the start of the programme should have full funding and not reduced, as currently happens, by 50%.[82]

51.  When considering the evidence submitted to us on this topic, we were keen to combine the opinion of experts and stakeholders with the evidence of what was actually occurring in the economy. Despite the evidence received, it is worth repeating the analysis of the official growth in apprenticeship starts, which saw the age group which received the least amount of Government subsidy (those over the age of 25) tripling in size between 2009-10 and 2010-11.[83] When we asked the Department whether or not it had conducted any assessment or analysis of the current funding policy on employer demand, apprenticeship take-up or resulting socio-economic consequences, it confirmed that no such analysis had taken place.[84]

52.  We note the concerns that the funding structure (of 100 per cent public funding for 16-18 year olds and 50 per cent for 19-24 year olds) may bias firms towards employing younger apprentices and unfairly disadvantage older applicants. However, there is a lack of empirical evidence and analysis to substantiate these concerns and it is disturbing that the Minister does not have this evidence to hand. We therefore recommend that the Department provides a detailed assessment of the impact that the funding structure has had on the take up of apprenticeships by age group. That assessment should specifically address the following four issues:

  • The actual cost to businesses of employing apprenticeships of differing ages and experience;
  • Inequality perpetuated by the funding;
  • Barriers to progression through the scheme; and
  • Disproportionate impact on specific sectors.

Perception of apprenticeships

53.  Alongside the recent expansion of the apprenticeship scheme has come an increase in public awareness and engagement around the programme. This is not coincidental, as the National Apprenticeship Service told us of its recent efforts to promote the apprenticeship brand, specifically citing the recent 'apprenticeship week':

    The National Apprenticeship Service have been working closely with BIS and the Cabinet Office on a new marketing and communications campaign that launched during National Apprenticeship Week on 9 February 2012 to promote Apprenticeships to employers, young people and parents. The campaign creatives lead with the strapline 'Apprenticeships deliver' designed to be inspirational and to showcase young talent in Apprenticeships. Direct mail, public relations and advertising will focus on themes that define 'a new era for Apprenticeships'—quality, growth, pride and value.[85]

54.  When we asked the Chief Executive of NAS, David Way, how important he considered the apprenticeship brand to be, he confirmed that NAS was actively looking at ways to enhance it, saying, "I think the brand of apprenticeships is hugely important in this area, because we have a rich heritage on which we rely heavily. [...] We are always looking at branding, not least to keep it modern and relevant to those mostly young people who come into apprenticeships".[86] The Shropshire Training Provider Network largely agreed, saying "NAS has provided a national profile of the apprenticeship brand which has been successful".[87]

55.  However, despite the value that NAS claims to place on the apprenticeship brand, we have also heard that the pursuit of its other objectives may have worked against that end. Several witnesses and written submissions told us that the focus on apprenticeship numbers had undermined industry confidence in the scheme. For example, CITB-ConstructionSkills told us that "NAS had promoted apprenticeship volumes, irrespective of age and length, but this could potentially damage the apprenticeship brand in the long term".[88] We received evidence to this effect from different stakeholders. The Electrical Contractors' Association told us that NAS was perceived to be entirely focussed on numbers which created a perception that the quality of the apprenticeship scheme had suffered and was seen as secondary. It summarised that "a focus on quantity continues to dilute the apprenticeship 'brand'".[89] The Greater Manchester Learning Provider Network also argued that the pursuit of numbers had incentivised NAS to focus on 'easy wins' and that this had a negative effect on public perception:

    NAS is fixed upon chasing and reaching the target numbers that it has been set. In our opinion this is leading NAS to focus more on the larger employers and in many cases using tax-payer money to subsidise the training programmes of the very large employers, thus de-valuing the Apprenticeship Brand.[90]

56.  The Minister told us that NAS had a responsibility to enhance the apprenticeship brand. He told us that one of the fundamental reasons he made apprenticeships "the pivot of our skills strategy" was because of the already strong brand:[91]

    I said to them [NAS] when I became the Minister, "You are a sales and marketing organisation. You have to go out and sell this to businesses and you have to sell this to providers." The brand "apprenticeships" is bigger than ever. We are filling a bigger space than we ever have, but you are quite right: there is much more to do.[92]

57.  While we appreciate that one role of NAS is to 'sell' the benefits of apprenticeships to employers, we consider that an unfocussed and indiscriminate sales pitch may produce numbers but is unlikely to address skill-needs. This is likely to have unintended consequences on the brand. As well as the ongoing perceived conflict between the NAS's objectives and the public perception of quality, we were made aware of several high-profile cases recently reported in the media. These seemed to culminate in April 2012 with a BBC Panorama programme which "investigate[d] a story of poor quality training, of disappointed young people, and highlight[ed] the example of some training companies who are making a killing out of public funds".[93] There can be no doubt that the reporting and handling of these issues had an effect on the public's perception of apprenticeships. Responding to these reports, Geoff Russell, the Chief Executive of the SFA, argued that this was not a widespread problem and explained:

    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.[94]

58.  We are sympathetic to the desire not to over-burden providers and to avoid the excessive use of public money to regulate a few 'bad apples'. However, we do not believe that historically the balance has been right. Neither NAS nor the SFA has given adequate weight to the negative public perception associated with doing nothing. The Director of Unionlearn, Tom Wilson, told us that this while these bad practices may not have been widespread, it was essential to deal with them swiftly because:

    It can very quickly become a major problem. [...] You have to deal with it very quickly and effectively to stop it spreading quickly from the margins and becoming a much bigger threat.[95]

59.  Our overall assessment of the objectives and success of public bodies (including NAS) can be found elsewhere in this Report. We cannot ignore, however, the evidence that the perception of quality may have been undermined in recent times. It has been argued that the priorities of NAS have been misaligned, which has led to the perception of NAS as an organisation blind in its pursuit of sales. Whether or not this is the case is not the issue. There can be no doubt that the apprenticeship brand has been damaged as a result of this perception. Secondly, recent high-profile issues have damaged the public's confidence in apprenticeship quality and value-for-money. We acknowledge that many of these issues have now been dealt with, but future examples of poor performance will need to be addressed quickly and efficiently to prevent further damage.

60.  While we welcome the efforts of NAS to strengthen the apprenticeship 'brand', we cannot ignore the evidence that the perception of quality may have been damaged in some sectors, which has in turn undermined those efforts. NAS must not trade off between numbers, quality and brand. We therefore recommend that NAS produces a longer-term strategy outlining how it intends to maintain and improve the apprenticeship brand in tandem with its other objectives.

48   National Audit Office, Adult Apprenticeships, 1 February 2012, para 1.6 Back

49   The diagram on page 6 of this Report summarises the key organisations involved in the apprenticeship programme Back

50   Ev w133 Back

51   Q 526 Back

52   Q 524 Back

53   Q 713 Back

54   Ev w242 Back

55   Q 19 Back

56   Q 586 Back

57   Q 593 Back

58   Q 593 Back

59   Q 713 Back

60   Ev 138 Back

61   Ev 138 Back

62   National Apprenticeship Website, The Basics-Apprenticeships [accessed 5 July 2012] Back

63   Ev 144 Back

64   Ev w117 Back

65   Ev w235 Back

66   Ev 212 Back

67   Ev w253 Back

68   Ev w187 Back

69   Ev w46 Back

70   Ev w139 Back

71   Ev w221 Back

72   Ev w267 Back

73   Ev w130 Back

74   Ev w25 Back

75   Ev w282 Back

76   Ev w224 Back

77   Ev w153 Back

78   Ev w298 Back

79   Ev w125 Back

80   Ev w35 Back

81   Ev w201 Back

82   Ev w244 Back

83   Table 2 Back

84   For example Ev 218 Back

85   Ev 199 Back

86   Q 562 Back

87   Ev w256 Back

88   Ev w70 Back

89   Ev w108 Back

90   Ev w143 Back

91   Q 705 Back

92   Q 707 Back

93   BBC website, BBC One-Panorama, The Great Apprentice Scandal [accessed 3 July 2012] Back

94   Q 568 Back

95   Q 568 Back

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© Parliamentary copyright 2012
Prepared 6 November 2012