UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE
To be published as HC 83 i

House of COMMONS

Oral EVIDENCE

TAKEN BEFORE the

Business, Innovation and Skills Committee

Apprenticeships

Wednesday 16 May 2012

Paul Coxhead and Neil Bates

John Hayes MP and Gila Sacks

Evidence heard in Public Questions 667 768

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Oral Evidence

Taken before the Business, Innovation and Skills Committee

on Wednesday 16 May 2012

Members present:

Mr Adrian Bailey (Chair)

Mr Brian Binley

Paul Blomfield

Rebecca Harris

Margot James

Simon Kirby

Ann McKechin

Mr David Ward

Nadhim Zahawi

________________

Examination of Witnesses

Witnesses: Paul Coxhead, Chief Executive, Logistics Apprenticeship Training Academy and Neil Bates, Group Chief Executive, Prospects Learning Foundation, gave evidence.

Q667 Chair: Can I welcome you and thank you for agreeing to speak to us this morning? Just for voice transcription purposes, if you would like to introduce yourselves.

Paul Coxhead: I am Paul Coxhead, the chief executive of the Logistics Apprenticeship Training Agency in the West Midlands.

Neil Bates: Morning, I am Neil Bates, chief executive of Prospects Learning Foundation.

Q668 Chair: Thanks. Some questions will be personspecific, others will be general. Do not feel that you have to supplement what another speaker has said just for the sake of it, only if you have anything to add or contradict to what he says. I will just start. On SMEs, there is a lot said about the difficulty in engaging with the apprenticeship programme. What would you single out as the main difficulties?

Paul Coxhead: We work a lot with SMEs, probably predominantly SMEs. The hardest thing for an SME is giving them the right people for the jobs they want. I talk to a number of them and there is a lot said about Level 3s, Level 4s, etc. For a lot of SMEs they do not necessarily want the higher level skills. They want operatives. They want people who can come in, be efficient, be effective and contribute to their workforce and make a meaningful contribution over and above the level of skills, because they feel that they can give them the skills they want.

We deal with a number of engineering firms even though we are in the logistics sector and they take our apprentices who have not been trained in engineering, but they are well prepared for work and that seems to be their key priority. They are worried that if they are going to a higher level they have to start making a contribution towards the training they are getting. In a lot of cases they want 18plus, but we try and convince them that 16 to 18 are as good, albeit they might not have the flexibility of 18plus, but again it is the funding thing: how much can we prepare someone who is 18plus with the funding that is available to them? I know it should not all be about funding, but unfortunately when you are talking to SMEs, in the majority of cases it really is largely to do with funding.

Q669 Chair: Can I just try and single out what the issue is? Essentially, you are saying that a lot of SMEs need well prepared 18pluses but cannot afford them. You can provide well prepared but obviously young people without specific skills, which they then can pick up from SMEs; basically, will SMEs take that offer?

Paul Coxhead: Yes.

Q670 Chair: If what I have said is not a fair summary of what you are trying to get across, please correct me.

Paul Coxhead: You are trying to change hearts and minds. At the moment, we have a massive pool of available work force and if they are looking to pay someone the rate for the job they will go and take someone that is already qualified and able to do it. What we try and look at are ways of giving a riskfree strategy for them to grow their business, or as riskfree as it can be. We will take away as many barriers as we can. We will find the people, we will train them, we will make them so that they understand good work ethics and good work practices and they are willing and able to go to work. We cannot give them everything they need for that particular employer. What we train them in is more of a transferable skill that goes from one workplace to another, that is going to be useful to any workplace and pretty much that is where we try and focus our attention as what we do.

Q671 Chair: So, the socalled softer skills. So that, in effect, they are more, if you like, apprenticeready. Is that a reasonable-

Paul Coxhead: No. You see, we have gone through this argument. We have had NAS come down and we went through a day of discussing this issue of whether they are just being made apprenticeready. It goes way beyond just getting someone ready. We are a true blue work force. We are a very different model to most ATAs, never mind any other model, because we employ them ourselves in our business.

Q672 Chair: What I am trying to tease out is, if it is not just the soft skills but it is not the specialist skills, what exactly are you offering that employers will buy into?

Paul Coxhead: It is giving them the ability to work. In most cases it is not soft skills, necessarily, because they are getting used to working for a living and I cannot dress it up-it is difficult to take it beyond that point. When we take them in, we are predominantly taking them from the NEET group; I think it is about 83% of ours come from the NEET group. We then have to give them a thorough induction, tell them what is expected and it is about setting boundaries. The first probably 12 to 15 weeks are about setting boundaries and getting them used to working within a defined boundary, and in most cases these young people have not had those boundaries set. They go through school and they disappear off the school spectrum. They do appreciate boundaries. They do appreciate the fact that you are setting this for them and they start to work within it. Then it is about, "Okay, now let us get you doing a useful contribution to the production", and what we are about is getting production going.

So when they get to five or six months, we perceive at that point they are ready to go out to other employers to then get specific skills that might lead them to a job. But at our ATA, we put them out for periods of three months, so they can go to an employer for three months and we say to employers, "Look, do not look at your agency take, or have a look at that and see what your core agency take is and you could use these people to replace that and get good qualified people doing jobs that they can get real good experience." It is about building their experience of working for different employers and, hopefully, they will find something that actually is something they want to continue down a path of.

Q673 Brian Binley: There are lots of very small companies in Darlaston and Gornal and Netherton, Brierley Hill, those sorts of places, and I just wonder, after that initial work that you are doing to get them to understand the parameters of the workplace, to make them mentally attuned to the requirements of the workplace, how you proceed from there. We have heard a lot of fashionable talk about sharing apprentices at that level. Does it really work? Is it really an option?

Paul Coxhead: In most cases with us, we do not share apprentices in that way. Like we do not have companies who will group together and say, "Well, I will have them from January to April and then we will have them from this and this is the skills we will cover". Maybe that is because we are more of an operative level. Predominantly with what we are doing it is operatives; it is warehouse workers, drivers, forklift operatives, etc. But what does come from it, being SMEs, they like the fact that they have a flexible approach to their peak labour requirements, because prior to this, they either took agency workers, who are obviously going to cost them more than their traditional staff, or they struggled by with what they were doing, which perhaps impacted on their ability to perform. So what we have offered them is a riskfree strategy.

In a lot of cases the companies we have, once they take them into their second threemonth period, after that they seem to take them on in the majority of cases, because they have actually found their place within that work force and they are gelling with the rest of the group and becoming an efficient part of their machine. I know there are cases of ATAs, from the Confederation of ATAs, where they actually do match jobs between different people from a sector, that perhaps they will do some time with this one and some time with that one. I do not think we have ever done that.

Q674 Chair: What sort of percentage do get taken on?

Paul Coxhead: I think it is 59%. Our last survey on our completers, which was of 320-that was November last year-we had 59% that went into sustainable full-time employment; 29% either went on to another framework, which may have been in a different sector, or went into full-time education, and only 12% fell back into NEET.

Q675 Chair: It does seem to me that, in effect, as you say, you are derisking the process. What sort of proactive approaches do you get from SMEs, if any, to get apprentices?

Paul Coxhead: It is starting to move now. I believe the majority of it comes from word of mouth. We have companies-Blackburns Metals is one of them; they have just had their 14th apprentice off us. They have grown their work force by over 10% by using our apprentices as that route. They had identified the average age of their work force was 52 and they could see a time bomb waiting to go off and they wanted to just dramatically drop the age, which is why they did it. But they obviously talk around manufacturing groups. Albeit, like I keep saying, we are not an engineeringspecific company, we are getting other companies that we know have worked with them coming to us to get people to grow their work force. So we are starting to have companies come to us, but it has taken us two and a half years, so we should start seeing something happening.

Q676 Margot James: The former chief executive of the National Apprenticeship Service said that we need to adopt innovative approaches to employer engagement. What sort of support have you had from the National Apprenticeship Service in trying to achieve that goal?

Paul Coxhead: Obviously, we were one of the original 12 pilots of the ATA and I have to say they have been with us every step of the way, albeit sometimes perhaps not as positively as we would like, because they are obviously risk-averse. They are looking at it and obviously want to challenge the model at every step and when we first put in for it, we said that we need to have them programmeled to start with. That was throughout our tender, because we knew we would have to have a period to get people work-ready because of the group we were expecting to work with, and they challenged that from day one, which has pushed us down the route to the model. But what they do is challenge us at every step, which you can only see as a positive thing. They are not being negative; they are just ensuring that what we are doing is meeting the requirements of what they would expect to see from what we do. They have been very positive. They have never deliberately done anything to put a barrier against us. If anything, they have tried to help us over them, but in a constructive way.

Q677 Chair Before I bring in Ann McKechin, have you anything to add to that, Neil?

Neil Bates: We operate a fundamentally different model, because we are rooted in the Group Training Association movement, so we work with SMEs in a very different way. It tends to be a process where we are looking at the skills needs of a particular sector. We have Group Training Associations in engineering, in construction and in aerospace and our model is about employers working together to pool their skills requirements, usually around a technical training centre. We have six technical training centres in the Thames Gateway and we provide essentially a training management service for SMEs. One of the difficulties SMEs have is, frankly, that they are confused and baffled by the myriad of Government initiatives, schemes, programmes, frameworks, and qualification requirements, and what we try to do is to demystify that and manage it for them so that they can actually concentrate on doing what they need to do in business terms and in terms of supporting an apprentice through the provision of the on-the-job training. We help them with recruitment of an apprentice, we help them with the management and the planning of the delivery of the apprenticeship, right the way through to accreditation and so on. So it is a different model of working with SMEs and it is a way of SMEs working together to actually get the skills that a particular sector needs.

Q678 Brian Binley: Can I just ask if that means a form of job sharing as you proceed?

Neil Bates: All of our apprentices are employed from day one, but there are circumstances, particularly in the construction sector-

Q679 Brian Binley: Can I just stop you? Employed by you, employed by-

Neil Bates: By the employers.

Q680 Brian Binley: So a single employer?

Neil Bates: Yes.

Q681 Brian Binley: So the sharing of apprentices is not-

Neil Bates: It does happen, particularly in the construction sector, because the framework requirements of the qualifications for the apprenticeships require a range of experience and expertise in the workplace, and for some SMEs it is not possible for them to provide that level of expertise. If you are training a site carpenter and they need to do a particular type of shuttering or roofing, then we will move apprentices to another employer for a period in order to gain that experience for that qualification.

Q682 Brian Binley: Do you organise that?

Neil Bates: Yes.

Q683 Ann McKechin: Paul, I was interested to know about your engagement with employers who have a history of relying on agency workers and probably shortterm temporary contract workers, which is obviously more common in certain sectors than it is in others. I just wondered what you think the ATA model offers in assisting employer engagement and in trying to develop a longer term relationship between them and their employees.

Paul Coxhead: I can only talk from probably the logistics sector really, but in the logistics sector, we have different parts of the sector that need people at different times because of the peak labour requirements for that particular sector. But the sector itself has always taken-they may take quite a high agency number; they might need 20 or 30 people a week to take them through their peak labour requirement, but what they will generally do is keep them for a period of two or three months, because that is what their peak period goes through. But they will generally, from that group, take the ones who excel in what they are doing and look to recruit them into their main work force anyway. What we are trying to do is get them to replace that with the apprentices. It is changing hearts and minds. It is difficult to convince companies that a 16 to 18, or a 16 to 24 year old, can be as effective in the workplace as someone who supposedly comes in older with the skills.

Q684 Ann McKechin: Are you saying that really your model offers an alternative in sectors where apprenticeships have not really been as common?

Paul Coxhead: In logistics, historically, we have massively underperformed on apprenticeships, because I think historically the sector did not really want you until you were 25 and they wanted two-years-plus experience. That is what the logistics sector has always been after and trying to shift that mindset is difficult.

Q685 Ann McKechin: ATAs essentially remove the employment risk for these companies. How do you respond to the criticism that has come from the TUC and others who argue that the relationship between an agency and an apprentice is not genuine employment in the way in which it has been certainly traditionally understood, in terms of that core relationship?

Paul Coxhead: To be honest, I cannot see how it can be seen as not genuine employment. All of our young people we employ are employed from day one and if you ask any of them-we obviously have people coming in all the time and looking at our model-they all perceive that they are employed. They all perceive they are in real jobs. The fact that they are going out and they may go out to another employer-I think the worst we have ever had is someone who has gone to three different employers-and in the majority of cases one of them picks them up, because they are well prepared and they do contribute well to the work force. You are going to have cases where this model potentially could be abused, because it could just become a cheap agency and that is the threat to it, but I think if it is properly screened and guarded against, and if people are following the framework that has been set by NAS and the Confederation of ATAs, I cannot see that there is a big problem with that.

Q686 Ann McKechin: I think you mentioned to the Chair that approximately 12% of apprentices go back to the NEET status without going on to further education or other jobs. Have you carried out any analysis of the reasons behind those failures?

Paul Coxhead: I could probably tell you most of them.

Q687 Ann McKechin: Is it the relationship between their employer, or just people find it-

Paul Coxhead: Largely, we get about 10% that we know we struggle to place with host employers. They are very hard to reach, but I think if you talk to the people who know of this group that we are talking about-they tend to be the people who did not attend school at all and we give them a chance. We try and work with them. I think the experience they will have with us will be invaluable to them, but it is so ingrained in them to not conform and to be different-they will have a day off just randomly. It does not matter how much you try and stop that or encourage them not to or try and coach them, it is ingrained into them. We know we get a certain number of our group that we are not going to be able to place, but we try right until the end. We work with them and it takes us longer to work with that person and they tend to stay with us as opposed to go out to host employers. We send them out to interviews and in some cases they do not even bother attending. It is a difficult group, so with whom we are working we will find that, but that is our particular ATA. I have to say from other ATAs who are working in other sectors, they do not have the same issues we have.

Q688 Margot James: The evaluation of the ATA pilot found that ATAs should be sustainable in the longer run, based on commercial operations rather than funding from the Skills Funding Agency. Do you think that is a realistic prospect? Have you attained that yet with your business?

Paul Coxhead: Ours is. I have to say we are different to most ATAs. The majority of ATAs charge a labour hire fee, so they are earning a percentage more than they are paying out, which is the agency part of it. But they also charge, because they work with other providers and they charge the other providers a percentage of the funding they are drawing down, which is about them helping to place the ATAs. So they earn from two sides of it really: one from the provider side to find the placement and one from the placement side, which is their ATA fee.

From our side, we have a different angle, because our company is the provider anyway, but we actually work with a number of companies. We do jobs for other companies. We do plastic recycling, which we are doing through Dudley Council and we get plastics from other places and so our apprentices are recycling plastics, which we then we sell the plastics into the recycling. We are working with a company called Europlastics, and they buy all of the plastic off us when it has been recycled, cleaned and whatever, and they are setting that up now into a full blown line. So that is our model, and ours is different to every other ATA, but that was the route we had to take, because otherwise we were worried that with ours it perhaps would not be that sustainable. We knew that with the group we were working with we needed to work with them first prior to them coming out, so we had to set up a real work force.

We also do jobs for other employers. For example, there might be returns that are coming back to them that they need to rework. We do little manufacturing jobs for some of the companies who are host employers. They use us to do some of their smaller manufacturing jobs and they pay us for that. So we have different income streams coming into our ATA and that is how we are sustainable.

Q689 Margot James: Right, so you are not typical?

Paul Coxhead: Not typical, no.

Q690 Margot James: Do you think that is a realistic expectation of typical ATAs-that they should be sustainable from their own commercial operations?

Paul Coxhead: Yes, and I think if you talk to the confederation and the members within that, every one of them would consider themselves to be. I mean, they have to be. They have not got any other funding coming in to make them sustainable. They have to fund themselves from their operation.

Q691 Margot James: So they do not receive any support from the Government?

Paul Coxhead: Not as far as I am aware. We obviously had the pump-prime money to start with, which was helping us set up and get things moving, but we have not had support other than that.

Q692 Margot James: What do you charge companies for your services?

Paul Coxhead: We pay the apprentices £2.60 an hour, so if that company has them for 37 hours a week we charge the company £155 for the week. There are cases where they can do overtime or whatever. Some of the companies insist on paying more and we leave that down to the individual company. We have just gone into Honda and they are paying them £6.75 an hour, but that is because of their union agreements and things like that. So it varies from workplace to workplace, but basically we pay £2.60 an hour when they are with us, which gives them a chance for progression, which encourages them to go out.

Q693 David Ward: On the 88% success rate that you have, presumably that is after your own recruitment processes have removed those who are not acceptable to come onto your books. Have you any indication of the size of the rejection rate of those who apply? I am trying to get a feel for the scale of those seeking these places.

Paul Coxhead: On our particular ATA, I have to say we are as inclusive as we can possibly be. If people get through the skills scan and they actually turn up for the interview and then agree a start date, we will take them. We are not selective-only on if we believe they have the ability to go through the programme if we work with them. So we do not have a big burn rate at the start, but what we have started doing now, because predominantly ours are NEET, there is a number of NEET initiatives that you can have them from four to six weeks and we have found a pocket of that now; that works very well, because they generally go in the first four weeks. We take them on to the programme. The ones who are going to leave, leave in the first four to six weeks anyway, so we are finding a big difference now with the NEET programme, because that is happening before they actually come on to the full-blown apprenticeship.

Q694 David Ward: Just for both of you really, while I have the floor, particularly because of some of the sectors and the skills areas that you are looking at, is there any introduction at all to the world of selfemployment for any of these apprentices?

Neil Bates: Certainly in our sector around construction there is, although actually it is declining slightly because of the Revenue rules around direct employment, but there are a number of our apprentices who will go on to be either selfemployed and run their own businesses or will set up their own business on a larger scale. In fact, we have companies who have worked with us for the last 43 years who are former apprentices, who are now the employers of apprentices, so there is a significant focus around selfemployment, yes, particularly in the construction sector.

Q695 Paul Blomfield: Neil, we are obviously trying to explore the respective contributions that GTAs and ATAs can make in cracking the challenge of apprenticeships in the SME sector. I wonder if you could explain a little bit more the distinguishing features between the two models. Obviously the critical feature is the employment relationship. From the two organisations that you have outlined this morning there are sectoral or perhaps skill level differences, but Paul has outlined that his ATA is not necessarily typical, so I am not sure whether that is a general distinguishing feature; what other distinguishing features are there?

Neil Bates: In fact, it might be helpful to refer to the GTA Commission of Inquiry that has just been chaired by Professor Lorna Unwin that, in fact, I was a commissioner on, which exactly sought to identify that distinction regarding what makes a GTA a GTA. The criteria that the Commission have concluded are that the Group Training Associations should be not for profit organisations; their governance is led by employers, so employers form the boards of the GTA and determine the strategic direction and the services that are provided by the GTA; that it should have a membership base drawn from local businesses that want to use the GTA services; and that it is demandled and, if I may, at some point this morning I would like to say something more about the apprenticeship system, what we consider to call apprenticeships and what seems to me to be-

Chair: Could I just say I would take the opportunity now, because we are very constrained with time?

Neil Bates: I am conscious I want to answer Paul’s question as well, but, from our perspective, we have a skills system in the UK which is very supplydriven. It is about training organisations identifying provision and then going out and generating demand for that provision. The GTA model is a demandled model, because it is about employers determining what the skills requirements are for their businesses, and then the GTA providing that provision to meet the skills needs. I would make a bigger point in relation to that, which is that I know that the Committee has been referring to Leitch and the report that he produced and it is rather saddening to learn that since Leitch, in terms of the OECD league tables in terms of skilled workers, we have fallen from 17th to 19th in terms of workers with no skills or low skills. We have fallen from 20th to 21st for intermediate skills and 11th to 12th for high skills; we have this fundamental inverted bell shape problem in this country that we have lots of people with no skills and lots of people with very highlevel skills, but in the intermediate level, Level 3, there is a huge gap. My question and challenge would be does the way in which the apprenticeship system currently operates fill that gap at Level 3 Advanced Apprenticeship in key sectors where those skills are needed? Or are we actually just chasing volumes of apprenticeships in order to meet a target that is not attached to the skills requirements of local businesses or the national economy?

Chair: You have put your finger on the very question we are trying to answer.

Q696 Paul Blomfield: That was a very helpful answer in distinguishing between supply and demandled, but also in the second point that you made. It has been, as the Chair says, one of the issues that we have been looking at as well and I take from what you are saying that you think we are insufficiently ambitious in contrast with some of our competitors in terms of the way we settle for Level 2 apprenticeships instead of pushing for Level 3.

Neil Bates: They are very different systems. The German system, the Dutch system and even the French system are very different systems of apprenticeship. There is a much greater commitment and obligation on the employer. There is much more regulation around the length of the apprenticeship and the content of an apprenticeship, and so my question is really: should we be calling lots of the provision that we are offering-particularly at Level 2, particularly around short, workbased, employerbased programmes-apprenticeships? In Australia, they have a difference between traineeships-

Q697 Chair: Could you give us your opinion?

Neil Bates: My opinion is that apprenticeships should be at Level 3, they should be a prescribed length of time, they should be with an employer, and they should result in, essentially, a license to practise where you can confirm the skill and the competence of the individual.

Q698 Brian Binley: I think you have put your finger on the whole nub of the problem facing this country and I want to put it to you-and I am going to give you my view now-that the concentration on university degrees in our educational system has been actually very debilitating in this respect. We just did not put enough emphasis on those intermediate skills that might be FE colleges, night school stuff and all of that stuff that we-and you are nowhere near as old as I, but you know what I mean about generational gap-grew up with. Am I right in thinking that, and am I right in thinking that we really have to try to lift the appreciation for, and the concept of, doing a good job, and of being valuable to the community, in that middle sector that we have failed to do?

Neil Bates: Yes. My interpretation of history is that as a result of the 1964 Industrial Training Act there were 150 Group Training Associations set up across the UK, specifically aimed at engineering, with training centres and clusters of local employers who trained their apprentices over a fouryear period. The Industrial Training Boards prescribed the content of the apprenticeship and so on. All of that provision was funded by employers, because the levy system drove it. It was not funded by government initiatives.

What happened during the 1990s was we went to a supplybased approach to the delivery of skills and learning, where providers chased funding that had conditions that needed to be satisfied. So the focus was on the driving of demand from individuals, rather than the demand from employers.

Chair: I think we understand the basic point you are making. We are running out of time, but I do want to bring Paul Blomfield back in.

Q699 Paul Blomfield: Thanks, Chair, and thanks for that point, Neil; that is very helpful. If I could pull us back to the respective contribution of GTAs and ATAs: the FSB and BCC surveys before Christmas identified a whole series of barriers for SMEs taking on apprentices. Whilst GTAs would address some of those barriers, they would not necessarily derisk the process of taking on an apprentice in a way that maybe the ATAs would. Would you agree with that?

Neil Bates: I do and that is actually why some GTAs, my own included, have an ATA within our structure. GTAs do some of the features of an ATA model, and I am not critical of an ATA model. I think it has a place, provided it does not fall into becoming a labour supply agency. I think they are an important part of the framework. So, yes, in circumstances where, for example, in the construction sector there are breaks in employment, because apprentices are with a company that loses a contract or has not got work, we will take the apprentice back and employ them for a period of time until we can replace them into another employment, which is a feature of an ATA model.

Q700 Paul Blomfield: Can I just ask whether you faced barriers in setting up your GTA, which you think we can learn from and Government can learn from in making it easier to address the issue of SME apprenticeships?

Neil Bates: Yes. One of the key barriers for Group Training Associations is that because they are predominantly characterised by having technical off-the-job training centres-we have six in the Thames Gateway-our inability to access capital funding in the same way as FE colleges can access capital funding is a major barrier, because the costs associated with opening and developing a centre, like the ones that we have, are very substantial. So one of the things that the Government could do in order to encourage the growth in GTAs, because actually we should be getting back to the numbers that we have historically had, would be to support capital investment in the establishment of new GTAs to serve specific sectors in specific geographical locations, because if you look at the map of GTAs there are huge gaps, particularly in the south, where GTAs have not survived and have disappeared.

Q701 Paul Blomfield: Can I just ask specifically in relation to your organisation-Paul has shared his stats-what proportion of your apprentices stay with their employer and go into full-time work?

Neil Bates: Because we are in a traditional model of construction and engineering it tends to be the majority, the vast majority. There are apprentices clearly who lose their employment, but if they complete their apprenticeship, because of the length of the investment we are talking of an apprenticeship that is between two and four years-

Q702 Paul Blomfield: Do you have any sense of the level of fallout? I know that in my area in Sheffield some employers take on apprentices with the view of 100% completion, others build in a level of wastage and take on more than they know they need in the end.

Neil Bates: There have been some examples where employers have, I think it was described as "training for stock", where they will actually sponsor more apprentices than they have employment opportunities at the end of the period. I do not actually have a problem with that because provided it is a full and robust apprenticeship, the fact that the young person comes out at the end fully qualified but not working for that particular employer often it is down the supply chain. So the likes of RollsRoyce will be training numbers of young people that will not necessarily work for RollsRoyce, but they will work for the supply chain.

Q703 Paul Blomfield: The NAS evaluation of GTAs and ATAs said that whilst some training providers welcomed the relationship, some felt threatened. Do you do all your own training or do you engage with training providers and how do you build that relationship effectively?

Neil Bates: We provide the entire service, so we deliver the technical certificates, the off-the-job training, all the on-the-job training, and all the accreditation.

Q704 Paul Blomfield: A final question from me. As I say, one of the key parts of our inquiry is seeking to really break into the SME sector and probably looking more at the micro end of SME. What do you think we can learn from ATAs and GTAs? How far can we use that model to actually address that end of the problem?

Neil Bates: I think actually, in relation to micro businesses, the ATA model works really well. Very anecdotally-I know we are short of time-I recently had a chap in to fit a kitchen with us. He is selfemployed, owns his own business and I wanted to persuade him while he was in my home to recruit an apprentice and his problem was, "Well, I am on my own. I do not have employer’s liability insurance. I would not know how to go about doing that." So we have a model where we will employ the apprentice for a period, typically six months, and help the employer then to get the appropriate insurances and processes in place, and I think the ATA model in that respect works really well.

Just one final point: I think it has been really unhelpful of the LSC to conflate the ATA and the GTA model and to somehow interchange the terminology, because the GTA model they are referring to is actually the Australian model of ATAs. GTAs are a fundamentally different structure, and that is not to distance ourselves from the ATA; it is just that we are different.

Paul Blomfield: I think that has become clear this morning, so thanks very much.

Chair: We are going to have to move on, I am afraid. I am conscious that there is more that we perhaps could have got at, and I would welcome any further written evidence that you would like to submit to supplement what you have said today. Can I thank you very much? That has been very helpful. I am sure we have not had as much time as I would have liked, but we now want to have the Minister in to question him as well, so thanks very much.

Examination of Witnesses

Witnesses: John Hayes MP, Minister of State for Further Education, Skills and Lifelong Learning, and Gila Sacks, Deputy Director of the Apprenticeships Unit (BIS/DfE), gave evidence.

Q705 Chair: Welcome, Minister, and thank you for agreeing to come today. I know full well of your passion for this particular subject and I know you did ask if you could make a short opening statement. I am happy for you to do so, but will confine it to two minutes because we have an awful lot of questions and very little time to ask them in, so if you would like to make a statement then-

Mr Hayes: Yes, by those constraints, Chair, it would be inappropriate and impolite for me not to mention your passion for Cheltenham Town and they have, I understand, reached this season’s League Two playoffs and I think congratulations need to be put on the record.

Chair: They have to play another game tomorrow.

Mr Hayes: T S Eliot said we know too much and are convinced of too little. What I am convinced of is that apprenticeships offer the best way of providing the skills our country needs to be more productive to compete with those who have already invested in skills amongst our counterparts in Europe and elsewhere. So, in Opposition and now in Government, I decided to make apprenticeships the pivot of our skills strategy. I did so because the brand is well established. We know employers like apprenticeships, we know people want to do them, they have strong brand recognition, but also because we know that the apprenticeship framework reflects the real economy. We know how much they cost, we know how long they take and we know that the skills they confer are in line with real commercial and economic need.

That would be an opening statement with passion, I think you will agree, but it needs to be backed up with some facts and yesterday we received the news of the latest survey, a remarkable survey, which the Committee may be aware of, with 5,000 apprentices surveyed and 4,000 companies, showing an unparalleled, unprecedented level of satisfaction with 92% of apprentices that completed their apprenticeship satisfied with the training they received, and 88% of businesses saying they got benefit. These kinds of figures have never been found before.

This shows the progress we are making in quality as well as quantity. My absolute desire was to grow the system to the point where we could match our competitors and we will, I am confident, by the end of this year have 500,000 apprenticeship starts a year. But it is absolutely essential that we focus on quality too, which is why I have insisted on a minimum time length for apprenticeships, why we put in place statutory standards in terms of what apprenticeships comprise, why we insisted that all apprentices should lean towards Maths and English at GCSE level and, indeed, why we have focused on poor provision and tightened the framework to an unprecedented degree.

Q706 Chair: Your two minutes is up; I think you have summarised it very effectively. I was rather expecting you to talk about that survey. Can I just open? Students, when they are at school and when they are about to leave school, have a range of options. I think some of our evidence has indicated that there is a level of ignorance about the apprenticeship option. Basically, what are you doing to strengthen the awareness of the brand as a credible route for students at school?

Mr Hayes: Well, Chair, I wondered if you might ask that, and so I have brought with me, because I thought the Committee might not have a copy to hand, a copy of the Education Act 2011, which, as you will know, on the face of it says that the responsible authorities, by which we mean schools and colleges, must secure careers guidance in an impartial manner, which includes-and I quote-"information and options available in respect of 16-18 education or training, including apprenticeships". We have put in law that those who provide careers advice and guidance must include apprenticeships in the options which they offer to people. This has not always been the case in the past, as you know, Chair, and it has meant that some with technical tastes and talents have not known about the steps they could take to turn their ambitions into reality.

Q707 Chair: I understand the point you are making, and I think it is a welcome one, but we know that it is one thing putting it in statute and another getting a culture developed within schools that will realise that. I think it was the Association of Colleges survey that found only 7% of pupils were able to name apprenticeships as a postGCSE option, and from our own experience in Sheffield, an apprentice told us that the amount of literature and help available was limited. Everybody is pushing towards university. Basically, how are you going to change that?

Mr Hayes: There is a cultural assumption and I blame the bourgeois liberal class-and I do not mean Liberal Democrat when I say that of course; I mean liberal with a small "l".

The idea that only through academic accomplishment can people gain prowess is entirely specious. It is absolutely the case that the economy needs practical, vocational, technical skills, and that many people’s attitudes lie in that direction and they can achieve fulfilment through the acquisition of those skills, but we are challenging a prevailing cultural assumption that I think has been around for most of the postwar years. I am determined to do so through the training duty on schools, but-may I say one other thing, Chair?-also through the work of the National Apprenticeship Service. I said to them when I became the Minister, "You are a sales and marketing organisation. You have to go out and sell this to businesses. 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.

Q708 Brian Binley: Good morning, Mr Hayes; it is good to see you. You are known for your outspoken comments and can I push you a little further in respect of this particular subject? I believe that the educational establishment has been one of the most destructive establishments in this country for a very long time, specifically in the area of skills training. There is a view that unless people go to university and get a degree, they almost are seen to have been failures and I wonder what you are doing in that particular respect with regard to the culture in our educational establishment.

Mr Hayes: I agree, Brian. Your own example, not only as a person who has started two or three businesses to my knowledge in Northampton, which have employed many people-

Q709 Brian Binley: You are not going to talk about Northampton Town later, are you? You are very flattering.

Mr Hayes: But also, Brian, as someone of rich learning who did not go to university. It is part of the cultural misassumption that I described earlier, that only by going to university can people gain a sense of prowess; we need to challenge it. Apprenticeships are a critical way of doing that.

Might I just draw attention to one thing? I can see you want to come back, but just let me finish the point, Brian. The development of higher apprenticeships-bear in mind it was 180 when I became the Minister; there will be 25,000 higher apprenticeship starts at the end of this Parliament in my estimation. That will not only create new opportunities parallel to the university route for a different cohort of people; it will also change perceptions of the brand of apprenticeships, because people will see them as a highway, not a cul-de-sac.

Q710 Brian Binley: John, the question was: what are you going to do to change the culture in our educational establishment? That means with teachers, in schools, all the way through. What are you doing with your colleagues in that respect?

Mr Hayes: I think five years ago, Brian, a survey was done for Edge, carried out by YouGov, which showed that teachers knew less about apprenticeships than any other qualification apart from the Welsh Baccalaureate. That is why in that Act I changed the law from one which said they had to provide careers advice and guidance to one which said they had to secure independent advice and guidance, and why I set up the National Careers Service, the first all-age careers service England has ever seen, to provide that kind of advice and guidance. It is a big ask, but we are on the case and we are going to do it.

Q711 Chair: Can I just come back? In terms of the supply of apprenticeships, previously in your opening statement you outlined measures that you have taken to ensure that the brand is preserved, but there has been a lot of concern about the increase in apprenticeship numbers and the potential damage to the brand. Indeed, a previous speaker today talked about it having, over the years, become a supply rather than demandled provision, and I think that emphasis has become even greater over the last two years. How are you trying to ensure that modern apprenticeships actually reflect the needs of the employers rather than just boost statistics?

Mr Hayes: I think by making the system be more demanddriven. You will know, Chair, because you are a great student of these things, that the last Government commissioned a report by Lord Leitch. I have a copy of it here, where Lord Leitch called-and I quote- for a "demanddriven system", a system more responsive to employer need. How can we do that? The first way is by ensuring that the apprenticeship frameworks match real commercial need by making sure the frameworks are constructed in a way that reflects employer interest.

The second way is through our employer ownership pilot. We have launched a £250 million employer ownership pilot. We have said to employers, "We want you to get more involved in shaping the skills system". We have just had the responses to the invitation of that prospectus yesterday-employers working with education providers to look at how they can shape apprenticeships in new and fresh ways to match need.

The third way, and finally, Chair, is we need to recognise that in an advanced economy, two things occur. The first is that skills needs become greater, but the second is they become more dynamic and they change more rapidly; it is a point that is not so often made. We need to review those frameworks, look again at what is taught and tested with much more regularity. By creating more freedom for FE colleges, because I have been deregulating FE at a pace of knots, we can get the providers more sensitive to real need, and more responsive to that dynamism.

Q712 Chair: We did receive some written evidence that employers’ perceptions of apprenticeships is that they are "for school dropouts". Is this reflected in your experience of working with employers and, if it is, what are you doing to change the perception?

Mr Hayes: Employers like BAE, BT, RollsRoyce, Bentley, McDonalds, and Barclays Bank do not believe that. There are many employers-

Q713 Chair: I would guess-and I would not wish to second guess the evidence-that this refers more to SMEs rather than the large companies, who of course have well established apprenticeship programmes.

Mr Hayes: I think you are right to return to the issue of brand identity and the importance of marketing to the brand very strongly and I held a series of meetings with employers that are not currently engaged in apprenticeships and what did I do? What any businessman would do: I got those who were and those that are, pitching to those that are not. I think through apprenticeship fairs, through spreading good practice, through getting employers to lead this process and help us to promote apprenticeships, we can bring more of those that are yet to be converted into the net. This is an evangelical business and I am the chief evangelist.

The other point though, in fairness, Mr Bailey, because the diligence of your members is such that they will raise it, is we also need to make the system more navigable for employers, less burdensome, less bureaucratic, and less irksome, particularly for the SMEs. 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.

Q714 David Ward: The apprenticeship programme is seen as being a flagship policy for the coalition Government and much has been made of the expansion in the number of apprenticeships, but the statistics have shown that there is a very large proportion of that expanded programme that is 25plus. Does that concern you at all?

Mr Hayes: You would expect me to be very straightforward, so let me start by saying what I think is good about that and then say what I do not think is. I think it is very important we provide a vehicle by which we upskill and reskill the work force. Sandy Leitch, in the report that I referred to a few moments ago, made clear that the vast bulk of the 2020 work force are already at work. They are not people coming through the school system and unless we upskill and reskill the existing work force-the people over 25-we simply will not catch up with our competitors. So I chose to make apprenticeships the vehicle to do that because I wanted a coherent, consistent offer in skills terms that will allow us to do that with much lower deadweight. You know that the deadweight on apprenticeships is massively lower than the deadweight of the previous Government’s flagship policy Train to Gain.

But I do think there will be an issue if that displaced younger apprentices. You will be familiar with the figures. The growth in numbers that you refer to has been across the age range, so there has been a 12.8% growth in under19 apprenticeships. There has been a 69.3% growth in 19-to-24 apprenticeships. So whilst it is true that 25-plus apprenticeships have grown most, they have done so from a low base and not at the expense of growth in other areas. If that were to happen, I would have concerns.

Q715 David Ward: You mentioned the word "deadweight", and that is used as an argument against many other things that the coalition Government has done in terms of looking at funding of particular schemes, but the evidence that we have seen is that-and, in fact, quite openly and, frankly, large employers have told us that they would have actually carried out the training associated with apprenticeships with or without the apprenticeship funding. They have been open about that, which suggests there is a very large amount of deadweight, particularly with some large employers. Does that worry you at all?

Mr Hayes: The most recent evidence we have is a study undertaken by London Economics, and initial estimates suggest a very high level of additionality associated with Government investment in apprenticeships and a very low level of deadweight, but you are right: if I felt that apprenticeships were merely being used to accredit existing competencies then I would be concerned. I think it is absolutely right that apprenticeships, whoever does them, add to skills and that is partly about the rigour of the system. That is one of the reasons why I extended the time for adult apprentices. A lot of people said I should not. A lot of people think I have been too tough on this. The learning providers, some of them, said, "There will be so much prior attainment amongst older people, there will be so much greater employability skills than there might be for a 16 year old that these apprenticeships can be completed in a shorter time". But I was actually insistent. I resisted that argument and, in order to ensure that what was taught and tested was meaningful and additional, I extended the time limit. So the evidence that we have from independent research suggests the deadweight is not as high as perhaps some claim, but you are right; it is something we must be mindful of.

Q716 David Ward: There are two separate elements to this. One, which you referred to, is the general failure, some would argue, of industry and employers to upskill their work force, and the second area is young people in particular getting into trades and professions through apprenticeship schemes. It was referred to earlier in the first session that there has been a systemic change in the system of funding of training and development in the work force, which was moved very much from an employerfunded system to what now appears to be very much a Governmentfunded system. Have you any comments on that?

Mr Hayes: Apprenticeship systems across the world are governmentfunded. If you look at the German system, which is often held up as a model, this is a relationship that combines government, individuals and business. If you look at the cost of an apprenticeship for an over25 year old compared to the cost of an apprenticeship for a 16 to 18 year old, of course we pay much less. We pay half the training cost, but in practice sometimes the contribution is much lower than that because the employer contributes more. So you are right: if we wanted to move to a system where the Government did not get involved in skills funding for people over 19 then we could adopt an extreme view about this. That is not what the last Government thought when they introduced adult apprenticeships, mindful of the Leitch analysis, and it is not what I think either.

Q717 Chair: Could I ask you whether you have any figures for the number of 25plus apprentices that were already in employment? What sort of percentage of that total of 25plus apprentices were previously in employment?

Mr Hayes: The overwhelming majority of 25plus apprentices were already employed, but I simply strike this warning note on that: the real issue is how many were employed for how long. So, if people were employed for perhaps up to a year or two years-they were new employees and the training was part of their induction, part of them being inculcated, if you like, with the skills necessary to do their job-then that would be rather different to those who have been with a company for a very long time who were looking to use an apprenticeship to upskill. Both are legitimate, but they are rather different. So when we talk about whether they are employed, we need to differentiate between new employees and people who have been with the company or organisation for a considerably longer time. But this does really bring us back to the issue about whether we think apprenticeships should be the vehicle by which we upskill and reskill the existing work force. I took the view that they should, and that does mean that apprenticeships are filling a much bigger footprint than they were previously, and if you do not think they should then you will take a contrary view to my own.

Chair: I quite understand the benefit of this training or retraining, or whatever you want to call it. I think the issue is whether it conforms to the perception of an apprenticeship and whether potentially it could damage the brand. Paul, I think you wanted to come in on this.

Q718 Paul Blomfield: It is precisely that point, because I think we all recognise your passion for apprenticeships, and it is one that we share in this inquiry. But one of the problems surely, Minister, is the way in which the brand has been confused-some would say tarnished-by some of the activities that have taken place in its name and perhaps that would include some activities of upskilling. Perhaps some of the things that you describe as upskilling are just consolidation of existing skills on very shortterm courses and that has led to some lack of confidence in the brand, would you not agree?

Mr Hayes: That is the second time you have paid tribute to my passion and you have it here on the record as having done so before, so I am extremely grateful for that. I think what is certainly true is that we have, as I said, expanded the role of apprenticeships and the risk would have been that, in the drive for quantity, we compromised quality. There is always a tension, when you grow anything rapidly, between quantity and quality, so that is why I said to my Department right at the beginning, and to the National Apprenticeship Service, that we have to focus on quality too and it is why I have put in place several of the measures I have described. It was the last Government, you will remember, that actually provided the relationship vehicle for statutory standards, to their credit, but it was this Government that put them in place. For the first time statutory standards define an apprenticeship.

That is a significant step forward in terms of quality and protection of the brand identity, but I wanted to go further, which is why I did the work on length. Paul, you mentioned length; I do not say-and I know you would not either-that there is an absolute correlation between length and quality, but there is certainly a proxy relationship and you, Chair, used the word "perception". Certainly in terms of perception of the quality of the brand, the length matters, does it not? So I took the steps on length first for younger apprentices and now for older apprenticeships precisely to deal with that issue of brand identity and perception. You are right, Paul, there is always a risk when you expand a system, but I am absolutely determined that we should retain quality and, in some cases, that will mean sacrificing quantity. I do not want to go for quantity at any cost. That would be quite wrong.

Q719 Brian Binley: I am fearful that there is the same sort of elitism growing into this debate that there was with university degree and nonuniversity degree, quite frankly, and I think we have to be very careful. I think you are right to choose one overall brand, so I do not quite share the view that I think Paul is expressing that we have heard from people on this inquiry. For instance, the boot and shoe industry have rarely had a qualification base and yet a threemonth NVQ in lasting room technology, which could easily be managed in that time, would provide a degree of esteem that that particular industry has never had, and I see nothing wrong with classing that within the apprenticeships, because you can do the job in that time. As long as you can do it with quality and do it effectively then it seems not to matter. Am I right or am I wrong, Minister?

Mr Hayes: I think there is a case for other workbased training apart from apprenticeships; you are quite right, Brian. Of course, as long as that training is meaningful and rigorous, it deserves its place in the sun too, and of course much of what FE colleges do, and much of what businesses do, exists outside of the apprenticeship framework. There is a lot of training going on, as you well know, in businesses up and down the country that is not called an apprenticeship. We should not assume apprenticeships are all training and certainly they are not all the work of the FE sector. But if I might provide an Hegelian synthesis between you and Paul-

Brian Binley: But we are the best of friends.

Mr Hayes: I know, I know. 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. The evidence that we have suggests they do, but I am very mindful of the need to be vigilant about that and I think that is where Paul is coming from and where I think we have some sympathy.

Q720 Chair: Could I ask you, not necessarily now, but to provide some written evidence, first of all, on the number of post25 apprentices that are previously in employment and, secondly, the nature of the training that they get, which, if you like, distinguishes the course that they do as an apprenticeship as opposed to more, if you like, conventional workbased training? Would you be able to provide that?

Mr Hayes: Of course, we would be delighted to do that.

Q721 Margot James: You mentioned that you were making progress making the system less bureaucratic. We have had written evidence that stated that the funding for apprenticeships is diluted through multiple steps in the funding allocation. How can the delivery system be made more efficient in that respect, in terms of making more use of the funding, getting the funding to reach the training more directly?

Mr Hayes: I think the challenge, Margot, is in ensuring quality, to make sure this is properly audited, whilst at the same time making it less bureaucratic. One is trying to balance those two priorities. In terms of the funding particularly, we have done work with the very large employers-we have run a pilot with about 20 very large, significant apprenticeship providers, employers-and what we have worked with them on is payment at the end of the process. What they said to us is, ‘Look, we do not want to be involved in monthly and weekly audit and payment related to audit". It just does not work for a very large organisation, so we have worked on a change regime there, where we are looking to pay them in one go. We will expand that. It seems to be successful and we will expand that for the large employers.

For the small employers, of course, that is more troublesome because they need the money. You cannot expect them necessarily to put the money up front. You know, as a businesswoman, that cash flow is a key factor in any business. In fact, it can be the make-or-break of a small business, so you cannot do that. What I think you can do is make the process a more straightforward one for them by making the steps in the process fewer and making the system more transparent. What I looked at when I first came to this, rather in the same spirit as you are asking the question, was: how would you navigate this? How many steps do you have to go through? How many interfaces do you have to have? I have tried to systematically reduce those and we have, indeed, reduced them.

There are fewer steps in the process, but I want to go further, which is why I launched this employer ownership pilot. I want to say to employers, "What do you want it to look like?" We have put a lot of money into that because we felt that it was right to hear the employers’ voice about how they think the system should look. So I am determined to make this more employer-friendly and less bureaucratic.

May I just say, finally, Chair, colleagues have played a big part in this? Because there is another issue about employers and that is getting the message out, and I think every colleague around this table, and many others, through apprenticeship fairs, through the 100 in 100 campaigns they have been involved in, through their promotion, and through their knowledge of apprenticeships with local business, particularly small business, have helped, and that has paid real dividends.

Q722 Margot James: Thank you. Geoff Russell told us that the distinction between the National Apprenticeship Service and the Skills Funding Agency is almost one without a difference. It is an external distinction for marketing purposes, I presume. Would it not be better and would it not save money to have just a single organisation?

Mr Hayes: I think there is an argument for changing the way the SFA is structured. No government gets all these things right and I remember in Opposition looking at the SFA and the NAS and talking about whether that was the right structure and whether the existing arrangement with the SFA, where it is an external body-it is not a Departmental body, as you know-was right. I have increasingly come to the view we need to bring that more inhouse in order to deal with what you have described. We are looking very closely at that now. It would require a legislative vehicle to do that because it has status in legislation. I am looking at that closely. But returning to a point I made earlier, the first thing I tried to do was to say to the NAS, "You are out there as a sales organisation. You are not there as some great bureaucracy to make the process more difficult. You are out there to make the process more attractive and to mission them." Chair, forgive me for sharing; we are speaking privately, are we not? I did say to them, "Why do you not pay your people on commission?" That is what you do in business. They giggled when I said it at first, but then they realised I meant it. We are really quite determined to ensure that they perceive their role rather differently, Margot, to perhaps how it has been perceived historically.

Q723 Margot James: Thank you. Your Department has asked the NAS to target funding where apprenticeships deliver the greatest benefits. How do you expect them to do that in practice? In particular, how do you expect them to ensure that the funding is targeted at a local level in the most effective way?

Mr Hayes: 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. It is true that some apprenticeships-the ones that I suppose many people would archetypally identify as apprenticeships: engineering, construction-have a very clearly defined set of competencies which really, unless you absorb you cannot do the job. You cannot be a bricklayer if you cannot lay bricks, can you? In some other sectors, like hospitality, care, business administration and retail, it is more difficult to discern the competencies, but it does not mean they do not exist. Apprenticeships have to reflect the real economy. That is where people are being employed. Whilst we have grown engineering and construction apprenticeships very substantially, I do not see anything wrong with growing apprenticeships in those other areas, which reflect the real economy.

Just to explain the point: in Germany, the retail sector is the second largest employer of apprenticeships. This is not particular to Britain. I have opened up the banks to the idea of apprenticeships really for the first time. Barclays, HSBC and Lloyds are now seeing apprenticeships as a key recruitment vehicle and as a route into the professions. So I take a pretty broadminded view, I think reflecting economic reality, of the role that skills can play across a range of sectors. For too long we have thought that if you worked in hospitality or care you did not need skill. I think you do.

Q724 Nadhim Zahawi: Good morning, Minister. Mr Way at the NAS told us that we prioritise large employers because that is where the market failure has been historically. What are the barriers that you need to address for large businesses to engage with the programme? My understanding was the challenge was in the middle camp, not the very large employers.

Mr Hayes: Yes, that is an extremely insightful analysis. It is true that the majority of apprenticeship providers are SMEs-over 60% are SMEs-and then you have the very wellknown apprenticeship providers. We can all name them; there are 25 names we could reel off. They have got very longestablished apprenticeship programmes. They are amongst our leading companies. There is an issue and a challenge around that mediumsized business, the business employing perhaps 500plus people. I think we need to look-I would be interested in this Committee’s thoughts and recommendations on this, actually-at how we can incentivise those employers to be more engaged in the system. Certainly we can market to them. We can try to make the system more attractive for them. But getting those kinds of employers to invest in skills is going to be critically important to the performance of our economy. I think you are right. There is a challenge there, partly about bureaucracy, partly about brand identification and partly about perceived value. I think we might be able to do more on that.

Q725 Nadhim Zahawi: One initiative that you introduced to increase employer engagement was the employer ownership pilot. I understand the first round of applications for funding have now closed. Would you give the Committee an update on the progress of this pilot? In answering that, can you just address how you will judge the success of the employer ownership pilot? What are the criteria for success? What does success look like? How will you regulate this pilot to ensure that there is no fraud or misuse of public funds?

Mr Hayes: I will tell you how I judge it. I judge it around the capacity and potential for growth. If we do not look at ways in which we can tie our skills strategy to our growth policy we will be failing, so I am anticipating looking at those responses to the prospectus by that measure. Will these proposals help these organisations to grow, to prosper, to become more sustainable and to fuel the economy? That is how I think we need to judge it. But I think also around the partnerships, the collaborations between businesses, and, if I might say so, between large companies and their supply and distribution chains. This is something, again, other countries do rather better. The automotive sector is a perfect example. Jaguar Land Rover-I visited Halewood-has a wonderful apprenticeship programme. The company is doing very, very well, as you know, a big exporter, more engagement-

Nadhim Zahawi: On the border of my own constituency.

Mr Hayes: Indeed, and, like all automotive companies, with a very complex supply chain. One of the things they want to do is to look at how they can seed skills in their supply chain and increase resilience amongst those suppliers on whom they are absolutely dependent. I think we can do much more of that and I am looking for the pilot to do that through partnerships and collaboration, and collaborations with the FE sector too. Let us be more open minded. Let us be more lateral in our thinking about how we can combine to best effect in the terms you describe. For the record, Chair, we will be happy to provide evidence on that employer ownership pilot to the Committee to add to your considerations.

Nadhim Zahawi: You took the words out of my mouth.

Chair: Thank you.

Q726 Paul Blomfield: In your submission, Minister, you cite a number of reasons why small businesses find it hard to engage with the apprenticeships programme. Several witnesses that we have seen during the inquiry have suggested that a way of overcoming these and providing business with a greater focus on apprenticeships might be to use public procurement to incentivise apprenticeships. Have you any thoughts on this? Have you any plans to introduce incentives for Government suppliers to take on apprentices?

Mr Hayes: Forgive me for not quoting the constituency because I cannot recall it, but as your colleague, Catherine McKinnell, a great friend of mine, knows, I am a great enthusiast for using public procurement. There are issues around competition law, including law from the European Union, but I think we can, within those constraints, be more creative about the use of procurement. For example, around benchmarking good practice, around kitemarking employers who are committed to apprenticeships, around identifying training and skills as one of the factors that is indicative of quality, of the kind of organisation you want to buy from. This is common practice in the private sector. When I was in the IT industry, when we bid for big contracts it was often the case that the tender would demand a certain level of competence, evidenced by accreditations-Microsoft, Oracle and, in those days, Novell accreditations. This is not uncommon in the private sector so-using private sector examples-we can do more on procurement, and I think we should.

Q727 Paul Blomfield: We could go beyond what you describe, couldn’t we, to actually make requirements of Government suppliers? That is achievable within EU competition law, isn’t it?

Mr Hayes: Well, that is the debate. I am determined to push this as far as we can go within the constraints within which we are working. I have made that clear in meetings with your colleague who brought the Private Member’s Bill and others. In fact, strangely-perhaps coincidentally, perhaps by means of an act of God-I was speaking about this, not knowing that you would ask the question, just yesterday to my officials: what progress we have made on the steps we can take on procurement that are within those confines but nonetheless are more than we are doing now.

Q728 Paul Blomfield: We look forward to hearing more. How well have your £1,500 incentive payments to encourage small businesses been going?

Mr Hayes: I am glad you have raised them. We took the view that in addition to making the system simpler we should incentivise small businesses with a £1,500 bonus. It is early days, as you know; it is just at the beginning of the process. But yes, we are making progress. I have asked for an update on that, because now that it is bedded in-we only launched it, as you know, just this spring-I want to look at the kind of companies that are taking advantage and whether some sectors are seizing the opportunity and others are not.

I think how it is being promoted is terribly important, not just by the NAS but by other agencies. But I am confident that we will reach our target and that the £1,500 will help more employers to come into the system. It is something I have long believed in, the apprenticeship bonus concept, for those SMEs that are currently not apprenticeship providers. But I have targeted it at young people, further to a point that was made earlier. I have said it has got to be a young apprentice and an employer that has not had an apprentice previously. We are cutting new ground. This is not about existing people or existing businesses. This is about new businesses and new apprenticeships.

Q729 Paul Blomfield: Understandably, perhaps, given the timelines, you have not got those numbers at the moment, but you could share your update with us.

Mr Hayes: Yes, as soon as we get those numbers we would be happy to do so, but it is very early in the system, I think it is fair to say. I had better let Gila speak, because she is here and it does not seem fair. Could she say something, Chair?

Chair: Please feel free to.

Gila Sacks: I expect the first numbers will probably come out in late June. There is a time lag: because the employer does not get paid until the apprentice has been there for a little while, we do not get the numbers until the payments go out. That is why there is a bit of a time lag. But as soon as we get that data we will be very happy to share it.

Q730 Chair: Before you move on to your next question, can I supplement it? As you said, you have laid certain conditions to ensure that these will be additional apprentices and apprenticeships, as it were. What sort of measures are you looking at to see that the apprentices that are taken on are, if you like, related to the real skills needs of the country? Otherwise you could just get companies taking on an apprentice that could even displace people that they would have recruited normally.

Mr Hayes: Well, in a demandled system you really have to leave that to the employer. My experience of being a businessman and employing people is you do not train people in stuff that does not have a purpose. I did not use to train people in things that did not relate to my business and did not add value to them and to their productivity. So this is about trusting businesses to say, "We know best the skills we need. We are at the coal face. We are doing the job". I do not think a demandled system can predict and provide in that way. Indeed, one of the advantages of our apprenticeship system over some of the others-I do admire the German system, but I do not admire it in an unqualified way-is our system is more flexible. We do have to be careful of rigidity here in a system that we want to make more sensitive to the dynamic skills needs that I referred to earlier. I am immensely probusiness.

Q731 Chair: I understand the difficulties here. I think the problem is that, in effect, by offering a £1,500 incentive, you are diluting the demandled approach.

Mr Hayes: Not if what you are adding is incremental. I find it inconceivable that a very small business would take someone on and train them just because they were getting 1,500 quid. If we said this was an immense amount of money and we would create a profit opportunity for a company, then I suppose that is true, but my goodness, there are not many small businesses that will say, "Well I will take someone on, I will train them, I will do all this audit so I get the 1,500 quid". I just do not think that will happen. I am much more confident that that is not the risk that you are suggesting, Chair.

Chair: I say displacement; it may be in place of somebody that they would have recruited more conventionally. Shall we say we will await the evidence of this with interest?

Q732 Paul Blomfield: On a different issue, still in relation to SMEs, when we met David Way, he told us that NAS operates what he described as a "segmented market approach". What that meant was that large employers got lots of attention and lots of support and SMEs had to rely on what he described as a "webbased and telephonebased system". Given the importance of encouraging apprenticeships in SMEs, do you think that is good enough?

Mr Hayes: It is probably true to say that the providers-and by that I mean colleges, private training providers, organisations that are embedded in their local community-are often the first port of call for those smaller businesses. I have, as I said earlier, deregulated FE, but I have also missioned FE to go still further in terms of those relationships with their SME community. So I do not think it would be fair to say that the only point of contact or even the principal point of contact with the SMEs in the locality comes through the National Apprenticeship Service. I think it is more likely to come through the local network of providers.

There is something else I have done on that, because again, I share your interest in this, as you know. I have established apprenticeship hubs in cities. I want to use local government here. I took the view with my colleague the Minister for Cities, Greg Clark, that we could use the beacon status of a city, the power and influence, if you like, of a city authority and the neighbouring local authorities, to network apprenticeships amongst SMEs in their locality. We are in discussion with the eight big cities to form apprenticeship hubs where the city will coordinate, will bring the SMEs into the hub, as it were, and will match supply to demand-match what the SMEs need to people who want to train, particularly young people. This is an important way in which we can go still further along the lines of creating a local relationship, a local community of interest of the kind you describe, which is additional to anything the National Apprenticeship Service might do.

Q733 Paul Blomfield: Referring back to an earlier comment that you made about Germany valuing retail apprenticeships, is it not true that most of their retail apprenticeships are at Level 3? Are we sufficiently ambitious in settling too often for Level 2?

Mr Hayes: Level 3 is growing faster than Level 2. Both are growing, but here, on my figures, Level 3 is growing faster than Level 2. It is true that in some other countries intermediate skills levels have been higher than they have in Britain. So you are right; we should focus on intermediate and higher level skills. Coming back to Brian’s point, that does not mean that there is not a place for Level 2 training. There is a place for Level 2 training, as Brian said, and I would not want in any sense to disregard the significance of Level 2 training. But I think you are right and certainly our intention is to drive up the level of training and to focus heavily on Level 3. We have said that from the outset. We have had some success on that. Of course, the advent of Level 4 is a further illustration of that. There were 180 Level 4 apprenticeships when I became Minister-180. We will have 25,000 starts a year.

Q734 Paul Blomfield: I have to say, Minister, on the figures that we have shared-and perhaps you could clarify with a supplementary note-on retail and commercial enterprise your own figures suggest there is much more substantial growth at Level 2 than there is at Level 3.

Mr Hayes: I was referring to the growth overall in the apprenticeship numbers and Level 3 is growing faster than Level 2. But you are right. It is a sectorbysector demand issue, so in some sectors most of the skills requirements are at a very high level and in other sectors most of the skills requirements are pitched at a different point. I would not want to create a vanillaflavoured system where we have the same view about every sector in terms of the skills levels required.

Q735 Brian Binley: Could I quickly jump in there, Minister? We must see this skills expertise as a ladder hierarchy, that we move up from one to two to three and onwards. It is that sort of package that we have to create at local level to meet local needs. Is that not so? Those local needs have got to have serious input from local businesses. That has not really happened to the extent we needed it to extend in the past.

Mr Hayes: It is part of what you said at the outset, Brian, that too often we have assumed that it was necessary to have an academic pathway, which was highly progressive in the way you describe it, but there was not an equivalent vocational pathway. The vocational pathway has never been as navigable, as progressive or as seductive. We need to make it all of those things. You are absolutely right; we would expect people to start at the bottom of that ladder and go right through. One of the reasons I think this Level 4 work is so important is the cohort of people that engage at Level 4 and get skilled at that level and then get the employment that results from that will be very different to the cohort that typically goes through the HE system. I think this is an absolutely critical means by which you widen access to higher level learning. It will oblige us to recalibrate our thinking about what higher learning comprises. You are absolutely right that this needs to be highly progressive.

Q736 Brian Binley: Let me take you right to the other end of the educational scale. We have heard in this inquiry many employers telling us that too many young people are coming out of our primary and secondary school structure without the required skills or attitude and knowledge of the workplace and many of them have to do a lot of remedial work before they become able to start on the sorts of ladders that you are talking about. Can I ask what you are doing with regard to your colleagues in the Department for Education to answer this particular criticism?

Mr Hayes: "Northamptonshire has set itself the target of getting 2,016 of its 18 to 24 year olds in employment by 2016. Apprenticeships are at the heart of the scheme." Brian Binley’s website, 20 April 2012. You are right.

Q737 Brian Binley: Thank you for paying tribute to my scheme; now answer my question.

Mr Hayes: You are right; the journey starts before the age of 18, as you imply on your website. It starts when people first begin to think about the world of work, the kind of job they might do and the choices they might make to get to that destination. I think we do need a very close relationship between schools-between preapprenticeship training, if I might put it that way, and the apprenticeship system. This is not a journey that begins for everyone at 16. It is a journey that actually needs to start much earlier than that in terms of how we perceive practical learning and how we see the world of work. I cannot solve all these problems personally, but let me tell you the one thing I am doing. I am determined we get a more systematic relationship between businesses and schools, that we get more businesses into schools, and that we build on the very good work that is done by people like BAE, for example-but it is also true of RollsRoyce and others-where they have a programme where they visit thousands of schools across the country. But that is not systematic. It is not universally effective; it is patchy. The work that is done by our big companies is good, but I want to make that more routine.

The second thing is I was at No. 10 yesterday talking to the Cabinet Secretary about preapprenticeship training, about traineeships, about the idea that we could bring people at an earlier stage than Level 2 into learning and training as a stepping stone. We know there is a very substantial number of young people without the prior attainment to get on an apprenticeship. Their level of skill, particularly the disengaged, does not allow them to get on to a Level 2 qualification and we need better stepping stones for those people so they can subsequently do an apprenticeship. I do not think we have yet got those in place. That is a next piece of work, I think, that needs to be done.

Q738 Brian Binley: We look forward to hearing how that work might progress, because I think it is absolutely vital to the whole process you are trying to put in at a later stage of the process itself.

Can I ask you two very quick questions? What role do you think there is for NAS to work more with schools in terms of preapprenticeship?

Mr Hayes: I have not missioned NAS to do that; I have led it from the two Departments, BIS and DfE. I am a Minister in both Departments. As you know, NAS are involved in apprenticeship week, apprenticeship awards, apprenticeship fairs, all kinds of events, many of which will touch the experiences of younger people by their nature; you have all experienced it yourselves. It is also true that NAS do work with schools. They do have a conversation and a relationship with schools. But maybe we could do more. I always think you cannot do too much in those terms because of the prevailing prejudice that a number of people, including me, have referred to that we are trying to counter. I think we have got to go the extra mile to make the case for apprenticeships and practical learning. I will talk further as a result of your overtures, if I might say so, Chair, to the National Apprenticeship Service about how they can go further with their work in schools. They do do it, but we could do more, I think.

Q739 Brian Binley: We recognise that you are on a ladder yourself in terms of the growth of your projects. Will you come back on those two issues at a future date and let us know what progress you might have made in that regard?

Mr Hayes: I am glad, Brian, that you think I am on the upward ladder.

Q740 Brian Binley: I always have done, Minister. Can I then go on to the National Careers Service, which you recently launched and said would transform careers advice for those outside school? What role will this body have in terms of promoting your apprenticeship programme?

Mr Hayes: You know that the National Careers Service that I have launched is going to be critical to this. It is important perhaps just to say a word about that, Chair, because we have launched the National Careers Service; it is the first allage careers service in England. It is going to have 3,250 points of contact, colocated in colleges, in job centres, in community organisations, in a whole range of communitybased organisations, and I expect that to spread. I was talking to local authorities yesterday in a meeting about how they can become more involved in colocating National Careers Service offices. We expect the website to get 20 million hits a year. The telephone helpline we expect to get at least a million calls a year. We expect something of the order of 700,000 onetoone interviews in the National Careers Service a year. We recently launched and we are looking to roll out in the summer a social network interface with this as a separate piece of work that we are funding too. I think that will be very important in getting to young people when they are making their decisions about what routes they might take. I think it is the best we have ever done in terms of careers.

Q741 Brian Binley: There is only one danger. NAS and the National Careers Service could well be fighting for the same space and the same resource in the same area, couldn’t they? Are you going to make sure that they see their roles as achieving two different objectives rather than the same and therefore fighting to achieve those objectives?

Mr Hayes: No, I would expect them to work extremely closely together collaboratively, and as they both report to me they better not have a fight.

Q742 Brian Binley: Good. As long as you are aware of the problem. You do see it as a problem, or you would not have answered in the way you did.

Mr Hayes: I do not see it as a problem, but if it were to become one I would stop it being one.

Q743 Brian Binley: Well, you might also come back to us and report how that particular connection is proceeding. Finally, does it bother you that only 10% of apprentices are from minority ethnic groups? What work are you doing? I do not need to tell you in some of our northern cities particularly there is a real concern about NEETs and the relationship to ethnic minorities. I wondered if you were paying special attention to this particular problem.

Mr Hayes: When we have got something on the order of half of young black British males out of work, that is of profound concern to this Committee, I have no doubt, and certainly to me. It is absolutely right that we should extend the reach of apprenticeships in those terms. If you look at the figures over a long time, they are not encouraging. I am not speaking about my stewardship alone; this goes back a long way. We need to do much more in terms of creating opportunities for minorities. We need to do much more, by the way, in terms of ensuring that women get their chance in those areas where they are underrepresented-engineering is a good example. We need to do much more in respect of people with learning difficulties and disability. To that end, I have established a series of pieces of work by the NAS-pilots-in those areas to look particularly at how we can do that. I commissioned a piece of work and we have had a report back already on what further steps we need to take and we are now going to take them. I think this is a real test and a real challenge, Brian. You are right to identify it. It is something I identified at the outset and I will not be satisfied until we impact on those numbers. Of course, in a demandled system we need to work with employers on this too, because in the end, I said earlier you cannot predict and provide and I am not going to then change my tune and say you can. But having said that, there are steps we can take to make this more accessible, to make it more straightforward and to look at any barriers that exist in the terms you are describing, and I think it is absolutely right that we do so.

Q744 Brian Binley: Thank you, Minister. Your work in this area is of great importance. In fact, I think it is one of the most important pieces of work that this Government is doing and it is one of the reasons we have spent so much time on this inquiry. I therefore would hope that our report will meet with your approval and you will see it as a very serious piece of work. We see your work as work in progress and I would hope that you would keep in touch with us on this issue, because it is one there is no doubt we will revisit on a number of occasions over the next two or three years.

Mr Hayes: The fact you are doing this is incredibly valuable. I know everybody sitting around this table and I think we have had discussions either across the House or more informally about this, so I know there is a real commitment to skills around this table. Of course it is work in progress and we absolutely want to be guided and advised by your considerations.

Chair: Good, we welcome that.

Q745 Simon Kirby: Minister, what a great pleasure it is to see you today. I think it is fair to say that apprenticeships have been a great success to date. One of the areas of success is that of raising standards and maintaining confidence in a high quality product. How do you build on that success moving forward to raise standards even further and continue to maintain that confidence?

Mr Hayes: Do you mean for individuals, Simon?

Simon Kirby: In any way you like. I could ask the question in a number of different ways.

Mr Hayes: The survey yesterday shows that people who do apprenticeships progress in their jobs. Interestingly, 75% of the people who completed an apprenticeship progressed in their job, so the confidence you describe has real effect and real results. Once you get the apprenticeship, it is not just that you can do the job you are doing more effectively; it is clear that it provides a platform for progress, for further development, and the confidence you describe in terms of the individuals is undoubted.

The second thing is that the nature of apprenticeships is training with employment. I was insistent, by the way, that apprentices should be employed. You probably remember that in the previous regime we had what were called "programmeled apprenticeships". There has been quite a lot of criticism of them, clearly, on television. I really do share the view that they were not the right way to go and that apprentices should be employed. I introduced this absolute requirement that apprentices should be employed. We do have a few exceptions in areas where it is very hard to define employment, like deep-sea fishermen and other people, but in essence all apprentices are employed. Of course, that means people gain the employability skills, the things that Brian was talking about earlier, which are also characteristics of confidence and progress. So in confidence terms, I think the fact that these people are in real workplaces matters.

In terms of companies’ confidence, you know from your background, Simon, that in an organisation, when you have high levels of competence, you have high levels of confidence. I think there is a contagious effect of investment in skills which has an effect well beyond the individuals concerned. If we want to build companies that are worldbeaters, we need to ensure those contagion effects on productivity and that that productivity has a knockon to competitiveness. So I think there is a macroeconomic effect of this as well as an effect on individuals and the spreading of opportunities. It is good for communities, good for individuals, good for businesses and good for Britain.

Q746 Simon Kirby: If I can come back on that point, there is a perception perhaps that UK apprenticeships are of a lower quality compared with other countries. Do you think that perception will be dispelled as the scheme is rolled out and becomes more established and people’s perception of what an apprenticeship is changes?

Mr Hayes: I think it will if we are clear about quality and rigour. As I said at the outset, I think the brand has always had pretty strong recognition. As we build that still further and people recognise to an even greater extent than they have historically that apprenticeships are a high quality qualification, people who might otherwise previously have taken different routes will choose the apprenticeship route, particularly, as I said earlier, as it becomes a highway. If you know you can end up at a Level 4-and by the way, Chair, I expect Level 5 and 6 to develop within this Parliament. The information we are getting from Sector Skills Councils, from employers and others suggests to us that in a number of growth sectors following the development of Level 4 there will be a demand for Level 5 and 6 frameworks too. When people know they can get to graduate and postgraduate level through the apprenticeship route I think the status, which is really what you are describing, of apprenticeships will change and that will mean a number of people who would not have previously considered doing one will begin to do so.

Q747 Simon Kirby: On that basis, when you compare the UK, say, with France with its higher level apprenticeships, that gap will close, won’t it?

Mr Hayes: Yes, I expect us to overtake France. When I was in Germany recently I told them I eventually expected to overtake Germany too. I will make our system the best in the world. France is in my sights already.

Q748 Ann McKechin: Minister, you will be aware of the evidence that this Committee has taken from Morrisons and from Elmfield Training, which has been the subject of comment and an additional piece of evidence has been produced by the NAS subsequent to that to our Committee. I would just like to ask you a number of questions regarding the procurement process. I think the Committee certainly commend Morrisons for their commitment to training of their staff and it would certainly appear clear that Elmfield recognised a business opportunity, but I think the questions that have been raised are about the issues about the way in which these contracts were procured. Elmfield Training was awarded a £40 million contract before they had even been assessed by Ofsted. Are you comfortable with that process? Do you believe that it represents value for money for the taxpayer? Or do you believe that we need to learn lessons from it?

Mr Hayes: Let me deal with the two points, because there is the Morrisons point and there is the Elmfield Training point. Of course they are related, but I want to separate them out. I said earlier that retail is one of the biggest employment sectors in the UK and the apprenticeship programme clearly would be a very odd programme if it did not reflect employment per se, because these are jobs with training. I also mentioned that large numbers of apprentices in other countries are in retail too. But it is right that what is taught and tested should be additional to what people do now; apprenticeships should not simply accredit existing skills. Morrisons has employed 49,500 new people since 2009, and 50% of them were previously unemployed; 50% had no Level 2 qualification; 25% had no qualification at all; and many of those are now doing apprenticeships. Some 84% of the Morrisons apprentices had numeracy and literacy problems, all of which are being tackled by the apprenticeship programme, given that I have said that every apprentice must head towards a GCSE equivalent in maths and English. So I think Morrisons’ defence of their programme has a number of things to recommend it and I certainly would not want to be associated with the view that Morrisons’ apprenticeships are not adding value. I gather that about 2,500 Morrisons staff progress from entrylevel jobs to junior management positions after first gaining an apprenticeship, so 2,500 people move into junior management at Morrisons as a direct result of doing an apprenticeship. Let’s be clear about that.

Q749 Ann McKechin: Was this more or less than before they introduced this apprenticeship programme?

Mr Hayes: These are people who specifically progressed as a result of apprenticeships, so none of them would have done that before.

Q750 Ann McKechin: I think the key point, Minister, is that Morrisons is one of our major retailers, with a turnover of over £1 billion a year, probably much in excess of that. I think the taxpayer is probably going to ask why Morrisons shouldn’t be paying for this.

Mr Hayes: That comes back to a question that was raised earlier about whether governments should invest in apprenticeships, whether the partnership between Government, private business and individuals around the apprenticeship programme is right or not. I think it is right. Let me just deal with your Elmfield Training point as well.

Q751 Ann McKechin: Just on this Morrisons issue, because you have raised this issue of the valuation of the benefit in kind. As I said, I certainly commend Morrisons for their commitment to their staff; that has been a longstanding commitment. NAS has produced to us further information about what the input from Morrisons was and, as you can understand, these are things like coaching and mentoring, although apparently one of the inputs was a positive place to learn. Can I perhaps ask of the different criteria-and I think there are five criteria issued in the input-what valuation would your Department assess that these different elements represent?

Mr Hayes: You mean elements of the framework?

Q752 Ann McKechin: As in actual monetary value.

Mr Hayes: We pay far less for older apprentices, as you know. We contribute less to the training of those apprentices and, indeed, because the charge is that a lot of these were older apprentices, about 11% of the apprenticeship budget goes on post25. Let us be clear, the vast bulk goes on those 16 to 24.

Q753 Ann McKechin: I am just talking about Morrisons, Minister, and I am talking about the valuation of their input of their benefit in kind. My concern was that when we took evidence from NAS and the Skills Funding Agency they said they had no criteria for assessing benefit in kind. They had no guidance that they issued about how to value benefit in kind, but yet employers are, if the employee is over 19 or over, supposed to contribute a significant share either in cash or benefit in kind. So can I come back to: do you think it is acceptable that there is no valuation placed on it, no assessment, no criteria and no guidelines?

Mr Hayes: Well the new research, which we will be happy to make available to the Committee and Gila will say a word about in a moment, suggests that employers make a very substantial contribution in respect of benefit in kind.

Q754 Ann McKechin: Indeed they may, but the problem is how do we assess it? Can Ms Sacks tell me how her Department assesses it? Does she have any criteria?

Mr Hayes: We will be more than happy to make that information available to you. It actually suggests-

Q755 Ann McKechin: It is just a little surprising that you do not have it this morning.

Mr Hayes: It actually 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. Gila will say a word or two more about that.

Gila Sacks: There were some new research studies that came out with yesterday’s set. They were sectorbysector case studies, acknowledging that apprenticeships play different roles in different sectors. One of the sectors they looked at was retail, particularly looking at training of existing employees in some of the large retailers. They found that, on average, the employer invested between £3,000 and £4,000 per apprentice. The report details how those figures are derived. Of course often that is not cash, that is a range of costs.

Q756 Ann McKechin: That is very interesting; I am sure the Committee would be very interested to see it. But my point is that if you have that as a baseline, there will be a monetary element attached to the various components and from that you should be able to produce guidelines in terms of the way in which NAS and SFA provide procurement and audit and find out whether or not the taxpayer is getting value for money. It is a simple audit process, is it not?

Mr Hayes: As you know, the audit process that the NAO themselves did said that there was an £18 return for every £1 Government spent. I do not know any other Government programme that could claim that. But you make a fair point that, given the research errs on, if I can put it this way, my side of the argument, why would we not want to make that research available to the Committee and why would we not want to be more clear about the sort of guidelines you describe? No doubt, an 18:1 return is an absolute endorsement of the money Government spends on apprenticeships, but you are right; let’s break that down a bit more.

Q757 Chair: Could I just intervene at that point, Ann? Yes, we will be probing the NAO on its figures, I have to say, but can I just quote to you Geoff Russell of the SFA, when before Committee? "We do not do a value for money assessment as part of our daytoday business for awarding money. We make an assumption about the product we are funding." Do you think that is an acceptable approach?

Mr Hayes: The point really is, Chair, that I think what Geoff Russell was saying is that because of the range of apprenticeship frameworks, the range of types of business involved and the range of apprentices, it is very difficult to come up with a very simple set of criteria to make an assessment about value. That does not mean to say we should not try to do so. We are talking here about 450,000 apprentices across 200 potential frameworks across 1000,000 businesses, but even given that variety and complexity, it is not unreasonable to say we should do more work on measuring that.

Chair: This is a major contract and you would expect it to be given high priority.

Q758 Ann McKechin: One other issue that was raised in that evidence the Chair referred to was how the NAS dealt with underspends in the budget. At one point Elmfield had a £20 million initial contract and we asked why it was then doubled to £40 million in the space of one financial year. They simply said, "We had an underspend and we asked people who are approved by us to provide us with other bids." You spoke earlier to Mr Binley about your concerns about dealing, for example, with the NEET community, the BME community, various people-obviously there are other issues, people with disabilities, issues about gender disparity. Surely if you have underspends they should be focused on the priority areas rather than just trying to find someone who manages to meet a target.

Mr Hayes: Yes, I agree. The underspends are going first to 16 to 18 for exactly that reason. It is probably worth also saying that I have asked that we should look closely at the rate setting process, which was the end of your previous question. I think there is an issue around being clearer about the rate setting process, so we are doing further work on that to tighten it. We are directing underspends to priorities in exactly the way you describe.

Q759 Ann McKechin: I am grateful for that. I welcome that. You mentioned Elmfield Training. There are a couple of things. The issue was that they had not been assessed by Ofsted before they were awarded the contract. Of the 10 largest contract providers, they were the only one that was ranked "satisfactory", whereas all the others were ranked either "good" or "outstanding". Again, would you agree that the funding structure should reflect and reward only proven good quality providers? I would be grateful for your views.

Mr Hayes: They were found to be satisfactory and we would rather they were good or excellent; you are right. But I do have to say that despite the almost relentless focus on Morrisons that we have had from some quarters, at the end, as the HR Director of Morrisons said to you when he gave evidence, that company has focused funding on getting people some nationally recognised qualifications, many of whom did not have them before and would not have had them otherwise. The fact that it is in retail and the fact that a private training provider is involved does not alter that fact. It is absolutely right we should look at rate setting; it is absolutely right we should look at quality; and it is absolutely right we should look at additionality, but I would not want to stand and say that either retail generally or Morrisons specifically were not adding value.

Q760 Ann McKechin: Have any lessons been learned from the Elmfield contract?

Mr Hayes: We are learning lessons every day. My whole life is a process of learning, as are all our lives.

Q761 Ann McKechin: Yes, I am sure it is. Elmfield made 36% profit levels when it was awarded the contract in 2009-10 when its only income was public money. Are you concerned about any elements of the training provider model that would allow such a large profit margin?

Mr Hayes: I will tell you what I think about that. 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, my goodness, we would have to close down a great deal of what Government-any Government-has ever done. Of course people who supply goods and services to Government make profits. That is the nature of the relationship between the public and the private sector. If this was an FE college who we mission to be highly cost effective and they were making a loss, we would complain bitterly. If this was a health provider that was losing money heavily and therefore jeopardising-

Q762 Ann McKechin: Are you comfortable with a 36% profit level?

Mr Hayes: Across Government we work with organisations that make profits, don’t we? Every Government always has, has it not?

Chair: That begs the question-it is the level of profit.

Q763 Ann McKechin: The proprietor of Elmfield Training told us the state was paying too much money, because it did not recognise there were efficiencies in this kind of delivery model. I have to say I commended him for his honesty. What I am concerned about is that you do not seem to be reflecting the issue about the taxpayers’ value for money and the fact that you are so comfortable with such an excessive profit level.

Mr Hayes: The SFA, for which I am responsible although of course it is an independent body, claws back money from people who do not live up to the standards we expect. Where provision either does not happen at the level we want or where it does not happen at all, we claw back money. A great deal of money has been clawed back from private providers of apprenticeships where they have not delivered.

Q764 Ann McKechin: Does that not suggest the procurement process could have actually got a lot more money for the taxpayer?

Mr Hayes: Elmfield Training?

Q765 Ann McKechin: Do you not think the procurement process should have been designed to provide better value for the taxpayer rather than 36% profit going into Elmfield?

Mr Hayes: We are looking at how rates are set for exactly the reason that we want to maximise value for money.

Q766 Ann McKechin: Mr Syddall has told us he is expecting about just under 14% this year. Would you say that would be a fairer return?

Mr Hayes: Sorry, I did not hear what you said.

Q767 Ann McKechin: He is expecting just under 14% return this year compared with 36%.

Mr Hayes: I think it is absolutely right we maximise value for money where Government is spending it and we will use all mechanisms to ensure we do so.

Q768 Ann McKechin: Okay. In February, the NAO wrote that the Department had not provided sufficient clarity on what success will look like in the medium to longer term. Have you responded to that report, or are you intending to? You also mentioned your ambitions today, which I am sure the Committee were very interested in and supportive of, but given that we have also had evidence this morning that the UK is still slipping down the way in the OECD rankings on skill levels, do you not believe that there is a need for a further effort and drive about how we get to skilled levels in this country?

Mr Hayes: I said earlier there is always a tension between quantity and quality, which is why I am so determined to place this unprecedented emphasis on quality in the apprenticeship programme. The mountain we had to climb, made very clear by the Leitch report, was a very great one. We have neglected investment in practical skills over a very long time in this country, so you are right, we are looking first to catch up and then to overtake our competitors. But it is a substantial mountain, as Leitch identifies.

Returning to your issue of value, I think it is absolutely right that we focus on value, which is why I ended the Train to Gain programme with its massive deadweight cost and focused on apprenticeships, which have a lower deadweight cost and represent much greater value for money.

Chair: We will be probing the NAO on this very issue. Thank you, Minister, for your contribution. Again, as I say to everybody, if you feel that there is further evidence you would like to submit to us then we will be pleased to receive it. Indeed, of course, there were a number of issues that you have undertaken to provide evidence on.

Mr Hayes: Thank you so much for having me.

Chair: Thank you very much, Minister.

Prepared 21st May 2012