Apprenticeships - Business, Innovation and Skills Committee Contents

7  Value for money

Additionality and deadweight loss

170.  The total value of public funding for apprenticeships is uncertain, not least because it is not always clear what amount of training would have taken place had the funding not been available. This concept is known as additionality or deadweight loss and was described by the Department in the following terms:

In general economic terms, deadweight loss is a reduction in net economic benefits resulting from an inefficient allocation of resources and is a common concept when assessing government interventions and programmes.

In the context of Further Education and Skills, deadweight loss might occur following the introduction of a particular government policy aimed at raising the skills profile of the population, where the intended outcome (i.e. increased training) might have occurred (at least to some extent) in the absence of the government intervention.

Deadweight loss occurs as a result of individuals or employers no longer privately financing their own skills acquisition, or those of their workforce, and substituting publicly financed training in its place. Additionality refers to the concept where the government policy specifically induces the desired outcome that would not have occurred in the absence of such intervention. [262]

171.  It went on to distinguish between the different elements of deadweight loss:[263]

172.  The Local Government Association told us that "there is a risk that public subsidy lacks additionality and that it funds activity employers would have funded themselves in the absence of subsidy".[264]

173.  Wm Morrison Supermarkets plc, have been very active in terms of training its staff through apprenticeships. We discuss this in more detail later. However, the supermarket explained to us that while no taxpayers' money was used to train staff, it was used to accredit the apprenticeship.[265] When we asked Norman Pickavance, the Group HR Director of Wm Morrison Supermarkets plc, whether he would have conducted the same level of training if there had been no public funding available, he stated that "we would have done it anyway".[266] This was disturbing, given that £41 million[267] of public money was granted to Morrison's training provider, Elmfield Training last year (50 per cent of which funded the accreditation of Wm Morrison Supermarkets plc's apprentices).[268] Mr Pickavance went on to explain that there was additionality in the accreditation of skills:

What we would not have been able to do is to ensure that people got nationally accredited qualifications as a result of the training that we provided. [...] We use the Government money through a third-party provider, because we are not experts in accrediting people and we are not experts in national standards.[269]

174.  The issue of accreditation was addressed by the Department which stated that:

The accreditation and certification of existing skills can still be economically valuable, even if it does not enhance human capital.[270]

Accreditation may increase the perception, portability and aspiration of the UK's workforce. However, accreditation and certification is related to, but ultimately separate from funding training and up-skilling the workforce. While we recognise Wm Morrison Supermarkets' commitment to training their staff, from a value-for-money perspective we cannot ignore the fact that the training in this company would have taken place anyway without publicly funded accreditation.

175.  Given the size of some of the training contracts for apprenticeships, and that the issue of additionality is directly linked to value-for-money, we were interested in the National Audit Office's conclusion that:

The Department has not yet assessed the level of 'additionality' delivered by the Programme. [...] The Department assumes that, for economic returns to apprenticeships, all public funding achieves additionality, but lacks data to support this; therefore any reduction in additionality would result in an equivalent reduction in the economic returns.[271]

176.  It is important to distinguish between qualitative and quantitative additionality when considering the evidence and research conducted in this area. The objectives of the apprenticeship programme cannot be judged by figures alone. In May 2012 the Department published a Research Paper which attempted to assess both the quantitative and qualitative additionality and deadweight loss associated with publicly funded further education and skills. However, this paper acknowledged the lack of quality data available. It described "the quality and extensiveness of the required data" as being one of "the main problems associated with the estimation process",[272] as a result of which the researchers were altogether "unable to estimate qualitative deadweight".[273]

177.  Despite the data issues, the Department's paper concluded that "in the absence of any publicly-funded apprenticeships, 28% of apprentices would have undertaken some training".[274] While this finding gives some reassurance about the effectiveness of public funding, it is important to bear in mind that the existence of deadweight loss in itself is not a sufficient reason to criticise or withdraw support. Most public funding includes an element of deadweight loss. However, the associated wider economic benefits may be sufficient to justify continued funding. Given the difficulty of calculating economic benefits of training, we are not in a position to realistically conclude or recommend on whether the aggregated 28 per cent deadweight loss (or 72 per cent additionality) warrants government intervention into apprenticeships or not.

178.  Taking the issue a stage further, the Creative & Cultural Skills Council told us that the issue of additionality was especially pertinent when funding older apprentices:

Care should also be taken not to target funding at areas where training would have taken place anyway, particularly in the case of adult apprenticeships, whose numbers have tripled in 2010/11.[275]

The Department's report largely supported this by disaggregating the additionality by age of apprentice. It found that:

The results also suggest that the estimate of deadweight loss stands at 16% amongst firms offering training to 16-18 year olds only; approximately 27% amongst firms offering apprenticeships to apprentices aged between 19 and 24 only; and approximately 44% amongst firms offering training to apprentices aged over 25 only.[276]

179.  We accept that there are factors to consider when interpreting these findings (such as the fact that 16-18 year olds are fully-funded). It is also the case that these figures only addressed the issue of quantitative additionality and were unable to account for any qualitative additionality. However, the fact that the additionality associated with public funding of apprenticeships varied so dramatically by age of apprentice (between 84 and 56 per cent) indicated to us the importance of more detailed work in this area.

180.  This seemed to chime with the Minister's view, who told us "I think it is absolutely right that apprenticeships, whoever does them, add to skills and that is partly about the rigour of the system".[277] Despite the Department's Research Paper's finding on the value of certification, he went on denounce the practice of accrediting existing skills using publicly funded schemes:

What I think I would say about that is the factor that unites all quality training is: does it add to competence? Does it deliver something extra? I think the risk is actually in accrediting existing skill. People were highly critical, including the NAO, as you know, of the Train to Gain scheme, because they said that is what it did and I think we have to be careful that all schemes add additionality.[278]

181.  The issue of additionality and deadweight loss is key to calculating the value-for-money of any publicly funded project. It is especially pertinent to the funding and provision of apprenticeships. While we were encouraged by the Department's recent Research Paper and the Minister's words on this subject, there is a need for more detailed analysis to be done to better quantify the issue. The Department's own research bemoaned the lack of quality data and it is clear that a significant amount of money is being spent on areas where additionality has not been proved. We therefore recommend that the Government, as a matter of urgency, forms a clear strategy to rectify this through the collection and analysis of the necessary data.

Targeting public money

182.  The Department has sought to measure the economic returns associated with investment in the apprenticeship programme. The NAO has conducted an independent examination of the economic returns. The results of both studies are shown below (Table 4).

Table 4: Estimated returns to public spending on adult apprenticeships (economic benefit per pound spent)[279]

	Department's estimate	NAO estimate
Advanced apprenticeships	£24	£21
Intermediate apprenticeships	£35	£16
Combined return	£28	£18

183.  The NAO explained that the differences between its estimates and the Department's arose from differences in the cost-benefit models used. In each case, these estimates assumed that without public funding, none of the apprenticeships would have taken place (i.e. zero per cent deadweight loss). This is plainly an unrealistic assumption and the Department has since published its estimate of additionality (combined additionality of 72 per cent). A combination of the NAO's estimate of economic benefit and the Department's estimate of additionality would lead to an approximate economic return of approximately £13 per pound spent.

184.  The Government's priority is to target government investment into those areas where the economic returns are greatest. The Department told us that:

The Government is committed to securing best value for every pound of public money invested, focusing public funding where returns are greatest. [...] The Department has asked the National Apprenticeship Service to target actively, through marketing and other operational levers, those learner groups, qualifications and sectors where Apprenticeships deliver greatest benefits, taking account of economic returns, skills needs and market failures.[280]

The NAO concluded that this objective had not yet been achieved:

The Department and the Service have not explicitly targeted those frameworks, levels of qualification and age ranges likely to have most impact on the economy. The Department needs robust evidence to identify which qualifications are having most impact and where the additionality delivered against public funding is greatest. The Department should use this information to decide where to target its resources. It has recently announced its intention to do so, though has yet to publish details.[281]

185.  Much of our evidence related to the targeting of public money, and included suggestions as to how the Government should be focussing its resources. Some witnesses suggested that funding should be focussed by size of employer. For example Carillion plc told us that "funding to encourage more SMEs to get involved in training apprentices is important".[282] The sentiment that smaller businesses would benefit most from funding was echoed by many (for example British Constructional Steelwork Association Limited,[283] Learndirect,[284] Improve Ltd & National Skills Academy[285] and the Association of Licensed Multiple Retailers.[286]) Others disagreed, however, telling us that large businesses had an equal funding need. For example the Co-operative Group Apprenticeship Academy told us that "large employers are perceived as having the funds to contribute to part or all of the funding for an apprenticeship and it needs to be acknowledged that this is not always the case".[287]

186.  Other witnesses argued that the Government should be funding apprenticeships based on the characteristics of the apprentice, not the employer. For example the JHP Group told us that "funding would also be valuably directed at increased rates for 19-24 year olds. [...] Similarly, those recently unemployed or with no experience should attract higher rates".[288] This approach was supported by the Shropshire Training Provider Network,[289] Gateshead Council,[290] Unite the Union[291] and CITB-ConstructionSkills.[292]

187.  Finally some witnesses told us that the Government should differentiate funding by sector or level of framework. For example BAE Systems told us that "the engineering and manufacturing sector should be a priority".[293] However British Gas suggested that the highest returns were found in "advanced engineering [...] [and] renewable technologies".[294] The Greater Manchester Local Enterprise Partnership were broader in their suggestion that "funding should be deployed in closer alignment to the needs of local economies".[295] It expanded on this point saying that funding should "reflect the importance of place and labour market geography, creating an efficient infrastructure to foster a stronger market for apprenticeships based on the requirements of the local economy".[296] The Financial Skills Partnership told us that "funding for apprenticeships is necessary to develop new higher level apprenticeship frameworks".[297]

188.  We asked the Minister how he expected NAS to be able to focus its funding in practice with so many competing arguments. He told us that he assessed benefit at the apprentice level, arguing that NAS should focus on age and sector:

In terms of the most difference to the individual, apprenticeships targeted at young people are of greatest value in the sense that you are shaping someone's future career in a pretty definitive way if you train them between 16 and 24. In terms of sectors, this is a much more difficult thing to determine. [...] Apprenticeships have to reflect the real economy, because that is where people are being employed.[298]

189.  The Department provided more specific criteria for funding by age, level and sector:

[1] Government focuses the highest levels of public investment in Apprenticeships on supporting younger learners [aged 16-24].[299]

[2] In focusing resources [...] we will prioritise especially those who are offering opportunities at Advanced Level and above.[300]

[3] We will seek both to maximise Apprenticeship opportunities in key growth sectors and to explore how quality and returns can be further strengthened across the programme.[301]

190.  We asked the Chief Executive of the National Apprenticeship Service, David Way, how he had put the Minister's direction into practice:

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.[302]

We asked Mr Way if a future budget profile would therefore demonstrate a higher investment in those growth areas compared to others. He agreed: "certainly, that is the intention".[303]

191.  With so many competing proposals, the Department is in the unenviable position of having to prioritise qualifications from an economic benefit perspective. However, we agree with the NAO that the Department "should use this information to decide where to target its resources".[304] We heard from the Minister that progress was being made, particularly on funding 16-24 year olds and those taking advanced level apprenticeships and above.

192.  The Department was less clear about which sectors provided the highest economic returns and conceded that more work was needed to explore how quality and returns can be further strengthened. In September 2012, the Department published its Industrial Strategy, which set out which sectors "could make the greater contribution to future economic growth and employment in the UK".[305] However, the strategy did not significantly narrow the field, recommending three broad industry groups; "advanced manufacturing", "knowledge intensive traded services" and "enabling industries".[306] It made no specific recommendations as to which sectors or industries NAS or the SFA should focus its resources upon.

193.  While we were encouraged by the progress made since the NAO's recommendation to improve the targeting of public funding, it is clear that more work needs to be done. Transparency is key in the allocation of investment, particularly if some are to be given preference over others. It is especially important that fixed criteria for preferential funding are published and adhered to so that businesses and individuals have no doubt that the funding is fair, evidence based and attainable. The Minister and Department have been unambiguous that funding should be focussed on 16-24 year old apprentices and advanced (and above) frameworks. We welcome this clarity and, despite the recent Industrial Strategy, recommend that the Department now identifies which 'growth sectors' will benefit from focussed funding at a much more specific level. We further recommend that these sectors are reviewed annually to ensure that public funding is consistently being allocated to those areas where economic benefits are greatest.

Employer contributions

194.  Under the current system adult apprenticeships are only 50 per cent funded by the Government. The employer is expected to provide the remainder. However, employers are allowed to make their contribution 'in-kind'. For example they can provide training equipment, study-time and resources to the apprentice. This is intended to offer employers and training providers some flexibility in the practical arrangements for training an apprentice.

195.  We were concerned, however, to learn that there has not been any audit of employer contributions. When we asked the Chief Executive of the National Apprenticeship Service, David Way, about this he told us that NAS was "interested primarily in the success of the outcome".[307] While we agree that a successful apprenticeship programme is a key priority for the National Apprenticeship Service, it is not one that should be pursued at any cost. In fact, this subject has been highlighted to us on several occasions as a potential area of abuse to the system. The Chief Executive of the SFA, Goeff Russell, was certainly aware that training providers were using the 'in-kind' contribution to actively encourage employers not to make any significant payment so that the training provider could secure more contracts and public funding. They could do this safe in the knowledge that no audit was conducted of such in-kind payments. He told us that this had a direct impact on the public purse:

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".[308]

196.  This is not a new issue. In its report into value for money, the NAO cited three previous studies:

A 2009 survey of providers found that while 57 per cent of providers collected fees from employers, in half of these cases (47 per cent) this funding made up only between 1 and 25 per cent of their apprenticeship funding.

Research in 2009 suggested that the majority of providers did not charge fees to employers for adult apprentices. It also found little evidence of providers seeking in-kind contributions.

In 2010, the Banks Review of Fees and Co-Funding concluded that the current system of co-funding in further education was failing to make sure that the expected contributions were being made. It recommended introducing a matched-funding approach, where public funding would be paid only where fee income had been collected. The Department has not taken up this recommendation.[309]

197.  The NAO report was unambiguous, reporting that "employers pay apprentices' wages and deliver on-the-job training, but some are not paying the expected contributions towards training providers' costs".[310] We have heard evidence to the same effect. The Chief Executive of the Association of Colleges, Martin Doel told us that the practice leads to training providers engaging in 'price wars' which may damage the quality of provision:

There is a tendency for providers to be led into a process of undercutting each other below that presumed 50% contribution from employers, and I am aware that a number of providers [...] are providing it at no contribution from the employer, i.e. a 0% investment from the employer. That must be an incipient threat to quality.[311]

198.  The Managing Editor of FE Week, Nick Linford agreed. He argued that training providers could not offer top quality training without taking employer contributions:

That is the point: high quality training costs money. Where the Government are paying reduced rates on the basis that the employer is contributing it seems implausible that high quality can be delivered without charging the employer.[312]

However, when we challenged the Chief Executive of the National Apprenticeship Service, Mr Way, about whether quality was at risk because of this issue, his response was hesitant and anecdotal:

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".[313]

199.  When we asked the Minister to update us he cited new research[314] which "suggests that employers contribute a minimum of £3,000 and, in some cases, according to the framework and employer, up to more than £30,000 in kind for each apprenticeship".[315] This may be so, but it does not address the evidence that we have heard that some training providers are offering to supply training for a much smaller proportion of funding from employers.[316] Jason Holt, in his Government-commissioned review, recommended the "Government to require providers to set out for client employers the amount of money it is contributing towards the cost of training their apprentices in a simple, consistent and transparent way".[317] We agree that more transparency is needed and that the quality of apprenticeship training is likely to have suffered as a result of this practice.

200.  We have heard that, despite fairly high levels of media scrutiny on the topic, some training providers continue to offer their services to employers without seeking employer contribution of any kind. This practice suggests either that the quality of training is being compromised in order to reduce costs or that too much public money is being spent on training that the employer should be funding. This practice poses a substantial risk both to the quality of training and the apprenticeship brand with apprentices and employers being the ultimate victims. We recommend that the National Apprenticeship Service, as a priority, produces a robust methodology for valuing employers' in-kind contributions in the future.

201.  We further recommend both that employers be required to publish an annual statement of their contribution to the training provider, and that training providers be obliged to report a statement of contributions and costs to the SFA. This statement must include an account of the value of any in-kind contribution using the methodology proposed above. In addition, we recommend that an annual audit is conducted of a representative sample of employers and training providers to assess the scale of the problem.

Case study—Wm Morrison Supermarkets and Elmfield Training Limited

202.  Throughout the inquiry we have heard about specific examples of best practices which should be celebrated and replicated, but we have also been made aware of some specific concerns of commentators and stakeholders, where lessons may be learned. This section examines a specific example which illustrates both sentiments.

203.  The case study of Wm Morrison Supermarkets and their training provider Elmfield Training has been brought to our attention on several occasions. Wm Morrison Supermarkets told us that it supported the Government's drive to increase the number of Apprenticeships:

We support the increased emphasis and funding that the Government is putting behind apprenticeships. This must be part of a powerful and joined-up youth agenda, rather than the somewhat fragmented approach we have at present. Apprenticeships help young people often from challenging backgrounds progress from exclusion to inclusion, unqualified to qualified, dependent to independent. At Morrisons they can go all the way from shop floor to top floor.[318]

We welcome Wm Morrison Supermarkets' commitment to training and the up-skilling of its workforce through a significant programme of apprenticeships.

204.  Wm Morrison Supermarkets has worked closely with the training provider Elmfield Training, who reported that since October 2009:

Over 12,500 [people] have completed an Apprenticeship [and] over 20,000 [people] are currently on an Apprenticeship [at Wm Morrison Supermarkets].[319]

Wm Morrison Supermarkets set out the three types of apprenticeships that it offered:

Technical—for example technical apprenticeships in engineering. These require a high level of specialist skill, provide training to do a technical type of role and are often completed over a longer timeframe.

Specialist—for example a craft apprenticeship in butchery. These are aimed at people who want to build on their knowledge of working in a sector by developing the skills to perform a specialist role.

Generalist—for example an entry level or 'frontline' apprenticeship in customer service. These are aimed at people who need basic training in the skills needed to perform the role.[320]

205.  The Group HR Director of Wm Morrison Supermarkets, Norman Pickavance, explained that Wm Morrison Supermarkets conducted all of the training at its own expense and that the only public money being spent went to the training provider for accreditation:

What we would not have been able to do is to ensure that people got nationally accredited qualifications as a result of the training that we provided. We do not receive any money from the Government purse for the training that we provide. All the training that we deliver is at Morrisons' cost, and so it should be. We use the Government money through a third-party provider, because we are not experts in accrediting people and we are not experts in national standards.[321]

This case study highlights three areas where lessons might be learned going forward; value for money, linking reward to performance and tackling conflicts of interest.

Value for money

206.  We have already discussed the issue of accreditation and the potential economic benefits that may arise through such recognised qualifications (such a job portability and workforce aspiration). These economic benefits are notoriously hard to measure. In 2010-11 Elmfield Training received £41 million from the Skills Funding Agency.[322] The Chief Executive of Elmfield Training told us that approximately half of that was a result of the Wm Morrison Supermarkets contract.[323] By any standard, this was a significant contract. In fact Elmfield Training received the second largest amount of money from the SFA of all training providers in that year. The Chief Executive of the Skills Funding Agency had no reservations about whether or not this represented value for money.[324] He explained that training providers receive less money if they are only accrediting (as opposed to training) apprenticeships:

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.[325]

207.  In the financial year ending 2010, Elmfield Training declared pre­tax profits of £12 million. As the Chief Executive, Ged Syddall, told us, all of this was "government money".[326] The Minister responded to our concerns that such profit levels might indicate a squandering of public funds:

I think that if Government took the view that none of the organisations with which it deals or collaborates to deliver public programmes should make profits [...] we would have to close down a great deal of what Government [...] has ever done.[327]

208.  However, when we asked the Chief Executive of Elmfield Training if he felt he was "overpaid", he responded that "the state was paying too much money".[328] Mr Syddall elaborated that value for money was not achieved "because it [the Government] did not recognise that there were efficiencies in this kind of delivery model".[329] While we have heard some evidence of improvement in this area,[330] the Chief Executive of the Skills Funding Agency, Geoff Russell, told us unequivocally that the SFA "do[es] 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".[331] While we understand that private companies must have some incentive to go into partnership with the Government, on this occasion we do feel that the training provider understood our concerns better than the Funding Agency or the Minister of State.

209.  We are deeply concerned that both the Minister and the Skills funding Agency have adopted a hands-off approach in respect of the profit levels and value for money of training providers. We were particularly troubled that the Minister appeared unconcerned about value for money given the 36 per cent level of pre-tax profits achieved by Elmfield Training and the statement by the Chief Executive of Elmfield Training that the Government paid out too much money. We are encouraged that the Government is now more aware of these issues and has reviewed the rates to take account of efficiencies and economies of scale that allowed training providers to make substantial savings, and therefore excessive profits, from receiving a flat rate of public funding. We recommend that the Government takes a more active approach in the future and constantly reviews the profit levels of training providers as an indicator of potential risks to efficiency.

Linking reward to performance

210.  Every training provider is subject to independent evaluation by the Office for Standards in Education, Children's Services and Skills (Ofsted). The Managing Editor of FE Week, Nick Linford told us that "the first time they [Elmfield Training] were visited by Ofsted they were already on a £40 million contract that had been doubled".[332] This was because the structure of the SFA contract was such that Elmfield Training secured an original contract of "£20 million, which was doubled during the year". We were surprised that the SFA had awarded its second biggest contract of the year to an un-tested company which had never had an Ofsted inspection.

211.  Ofsted assess companies on a scale of four classifications: 'inadequate', 'satisfactory', 'good' and 'outstanding'. [333] When Elmfield Training was assessed by Ofsted they received an overall score of only 'satisfactory'. We note that as of September 2012 the 'satisfactory' rating was renamed to 'requires improvement'.[334] The Skills Funding Agency expressed some frustration that it could not incentivise training providers to aspire to be better. The Chief Executive, Geoff Russell told us that:

We [the SFA] 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.[335]

212.  Mr Russell went on to say that "the key quality control from my point of view is the employer". He went on to explain that "if Morrisons did not think Elmfield was doing a good job there is no particular reason for them to stay with Elmfield".[336] We have already discussed the multitude of incentives facing employers when selecting a training provider and concluded that the Government must avoid such naive assumptions. We repeat that it is unrealistic to assume that all employers will reject training providers who may be of lesser quality and will actively seek out more expensive ones. This is particularly relevant given the recent (and ongoing) wider economic position in which many employers find themselves.

213.  We are surprised that the Government, through the Skills Funding Agency, paid £40m for what was essentially an untested product. The quality of training providers is assessed by Ofsted and we recommend that such assessments be a pre-requisite for every provider who is bidding for more than £6 million of Skills Funding Agency money (which would have covered the top thirty contracts last year). Training providers must be incentivised to aspire to provide the best quality training. To that end, we recommend that quality training providers (i.e. those who receive grade 1 or 2 from Ofsted) must be first in line when it comes to allocation (and subsequent reallocation) of public money.

Conflicts of interest

214.  Elmfield Training uses the awarding body Skillsfirst Awards Limited to accredit its training. In fact 69 per cent of Elmfield Training's activity was with this awarding body in the 12 months to March 2012. This was of interest because the two companies are owned by the same individual. We were concerned that this represented a potential conflict of interest.

215.  We asked both the Chief Executive of the National Apprenticeship Service and Skills Funding Agency, David Way and Geoff Russell whether they were concerned about the significance of having both organisations owned by the same person. Mr Russell said that they were both aware of the problem, but relied on the regulator (Ofqual) to monitor 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 [Way] says, there is definitely potential for a conflict of interest. [...] 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.[337] [338]

216.  We followed this up and were encouraged to learn that the Ofqual review will cover "the issues and potential problems associated with conflicts of interest in the qualifications sector".[339] However, Ged Syddall, Chief Executive of Elmfield Training, assured us that the regulation was already tight when it came to conflicts of interest. He told us that the Government had actively encouraged him to "bring more competition to the market"[340] so he set up Skillsfirst Awards Limited:

I set Skillsfirst up because I thought there was a gap in the market for a good, customer-centric, employee-focused awarding body. As a result, that is now a very successful awarding body. It deals with 30 organisations, including us, so it is a competitive, out-in-the-market business.[341]

Mr Syddall went on to tell us that he had breached no regulations and was careful to stay within conflict of interest guidelines. He told us that "there are no rules from Ofqual to say you cannot do it [own both a training provider and awarding body]. There are very robust and rigorous conflict of interest policies that we adhere to". [342] He finished by telling us that this was common practice in the industry:

It is no different, for instance, from City & Guilds and City & Guilds for Business, who deliver Asda. It is no different from Edexcel and Pearson in Practice. It is no different from Walsall College, who I believe have an awarding body, and Norwich College, who have an awarding body, and there are other organisations.[343]

217.  The Chief Executive of the National Apprenticeship Service, David Way agreed that "of course, that is not a practice only with Elmfield; there are others that do that".[344]

218.  While the practice appears to be widespread, we do not believe that it is desirable for training providers and awarding bodies to be owned by the same group or individuals. The Government should look critically upon this serious issue. To that end, we are encouraged that the regulator Ofqual is conducting a wide market review, which the Skills Funding Agency expects to include an assessment of the issues surrounding combined ownership of training providers and awarding bodies. We look to the National Apprenticeship Service and the Skills Funding Agency to work with Ofqual to ensure that this review is successful and comprehensively deals with this specific issue. We accept that the practice of joint ownership is not unusual but learner experience is key and should not be put in jeopardy by conflicts of interest. Robust mechanisms must be put in place to prevent any conflict of interest impacting the learning experience of the workforce. We recommend that, if the Ofqual review does not cover this, the SFA conducts a more focussed review on the impact of competing incentives, the risk to quality and brand perception arising from this practice.

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262   Department for Business Innovation and Skills, BIS Research Paper 71: Assessing the Deadweight Loss Associated with Public Investment in Further Education and Skills, May 2012, page 9 Back

263   Department for Business Innovation and Skills, BIS Research Paper 71: Assessing the Deadweight Loss Associated with Public Investment in Further Education and Skills, May 2012, page 11 Back

264   Ev w195 Back

265   Q 388 Back

266   Q 388 Back

267   Skills Funding Agency Allocations 2010/11 Back

268   Q 435. The case-study of Elmfield Training is discussed in further detail later in this Report. Back

269   Q 388 Back

270   Department for Business Innovation and Skills, BIS Research Paper 71: Assessing the Deadweight Loss Associated with Public Investment in Further Education and Skills, May 2012, page 11 Back

271   National Audit Office, Adult Apprenticeships, 1 February 2012, para 9 Back

272   Department for Business Innovation and Skills, BIS Research Paper 71: Assessing the Deadweight Loss Associated with Public Investment in Further Education and Skills, May 2012, page 23 Back

273   Department for Business Innovation and Skills, BIS Research Paper 71: Assessing the Deadweight Loss Associated with Public Investment in Further Education and Skills, May 2012, page 19 Back

274   Department for Business Innovation and Skills, BIS Research Paper 71: Assessing the Deadweight Loss Associated with Public Investment in Further Education and Skills, May 2012, page 22 Back

275   Ev w90 Back

276   Department for Business Innovation and Skills, BIS Research Paper 71: Assessing the Deadweight Loss Associated with Public Investment in Further Education and Skills, May 2012, page 22 Back

277   Q 715 Back

278   Q 719 Back

279   National Audit Office, Adult Apprenticeships, 1 February 2012, para 2.24 Back

280   Ev 143-144 Back

281   National Audit Office, Adult Apprenticeships, 1 February 2012, para 18 Back

282   Ev 171 Back

283   Ev w44 Back

284   Ev w185 Back

285   Ev w155 Back

286   Ev w25 Back

287   Ev w87 Back

288   Ev w166 Back

289   Ev w255 Back

290   Ev w137 Back

291   Ev w300 Back

292   Ev w70 Back

293   Ev w35 Back

294   Ev w45 Back

295   Ev w147 Back

296   Ev w145 Back

297   Ev w129 Back

298   Q 723 Back

299   Ev 144 Back

300   Ev 145 Back

301   Ev 145 Back

302   Q 663 Back

303   Q 664 Back

304   National Audit Office, Adult Apprenticeships, 1 February 2012, para 18b Back

305   Department for Business, Innovation and Skills, Industrial Strategy: UK Sector Analysis, September 2012, page 3 Back

306   Department for Business, Innovation and Skills, Industrial Strategy: UK Sector Analysis, September 2012, pages 34-35 Back

307   Q 620 Back

308   Q 575 Back

309   National Audit Office, Adult Apprenticeships, 1 February 2012, para 3.21 Back

310   National Audit Office, Adult Apprenticeships, 1 February 2012, para 3.21 Back

311   Q 474 Back

312   Q 534 Back

313   Q 570 Back

314   Department for Business Innovation and Skills, BIS Research Paper 67: Employer Investment in Apprenticeships and Workplace Learning: The Fifth Net Benefits of Training to Employers Study, May 2012 Back

315   Q 755 Back

316   For example, employers are expected to pay 50 per cent of adult apprenticeship training costs. Furthermore if the business is a large business, public funding is reduced by a further 50 per cent.  Back

317   Jason Holt, Making apprenticeships more accessible to small and medium-sized enterprises, May 2012, page 7 Back

318   Ev 187 Back

319   Ev 173 Back

320   Ev 188 Back

321   Q 388 Back

322   Skills Funding Agency Allocations 2010/11 Back

323   Q 399 Back

324   Q 608 Back

325   Q 609 Back

326   Q 400 Back

327   Q 761 Back

328   Q 413 Back

329   Q 413 Back

330   Q 533 Back

331   Q 650 Back

332   Q 530 Back

333   Ofsted website, After an inspection [accessed 18 October 2012] Back

334   Ofsted, Elmfield Training Limited Inspection Report, 29 July 2011 Back

335   Q 653 Back

336   Q 642 Back

337   Q 640 Back

338   More information on the Ofqual review may be found at: http://www.ofqual.gov.uk/news-and-announcements/128/807 [accessed 19 July 2012] Back

339   Letter from Glenys Stacey, Chief Executive of Ofqual to Rt Hon Nick Gibb MP and Rt Hon John Hayes MP, 28 November 2011 Back

340   Q 419 Back

341   Q 419 Back

342   Q 419 Back

343   Q 418 Back

344   Q 639 Back

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Prepared 6 November 2012