6 Reform of apprenticeship funding |
99. The second key element of the Government's response
to the Richard Review was to propose a reform of the funding model
based on the principles of employer co-investment and employer-routed
current arrangements, funding for apprenticeships is directed
via training providers. Employers are required to contribute to
the cost of training for apprentices over the age of 18, but training
costs for those aged 16 to 18 are met in full by Government. In
March 2014 the Government announced that it intended to pursue
one of two new funding options to apply from 2016/17. Both options
involved the routing of funding via employers, either via the
PAYE system or through an Apprenticeship Credit Account.
100. In either model there would no longer be a Government
commitment to funding 100% of training for apprentices aged 16
to 18. Instead, firms employing an apprentice aged 16 or 17 would
be entitled to a grant from Government in addition to the Government's
contribution to the cost of training. Small businesses with fewer
than 50 employees would also be entitled to a further grant.
Training to achieve level 2 in English and maths would continue
to be fully funded.
The Government also proposed a maximum Government contribution
to apprenticeship training, setting caps on funding which vary
according to the complexity of the standard and the amount of
101. During the 2014/15 academic year the Government
has piloted elements of the new funding model, including employer
contributions set at a rate of one third of the total cost of
training, as well as the grants available for small businesses
and those employing young apprentices.
102. While we received some submissions supporting
the principles behind the Government's reforms, opposition to
the method of implementation was nearly universal. The Construction
Industry Training Board warned in their submission that requiring
employer contributions could cause many employers to disengage:
In a survey of 566 construction employers (mainly
SMEs), 86% surveyed stated an increase in employer contributions
to the cost of an apprentice would reduce their apprenticeship
Similarly Sally Hunt, General Secretary of the University
and College Union, highlighted the extra burden that could be
placed on SMEs:
I sent out a questionnaire to all of our members
who are involved in working with apprentices [
] Their concern
is that, working with SMEs, they know that the admin burden on
them is much greater. If we are looking at a change that will
mean their having to shoulder the admin, the training and the
development, that will impact in a very negative way on the students.
What they are not saying is that employers should not be involved.
They welcome that.
103. The Federation of Small Businesses has been
supportive of the employer-led approach, but also raised concerns
about the potential for increasing the bureaucratic burden on
We support the employer-led approach to the point
that financial and administrative burdens are reduced for small
businesses, so there is a debate to be had around the amount of
administration that training providers and employers take on.
104. The Government's consultation on funding reform
closed in May 2014. The consultation document suggested that the
Government would publish its final decision on funding reform
in Autumn 2014.
We held an oral evidence session on funding reform in December
2014, at which point no decision had been forthcoming. Sally Hunt
told us that the uncertainty over the outcome was unhelpful: "If
there is not certainty in the system, you are making it more difficult
for any young person to access it".
105. On 13 January 2015, the day before our session
with the Minister, the Government announced that it would not
pursue either of the options outlined in the March 2014 consultation.
The Minister told us during the session:
The concerns that were raised were ones that
I thought were important for us to listen to, which were that
either of those models might be off-putting, particularly to small
and medium-sized businesses that do not want to get involved in
a huge administrative process, and perhaps do not have the cash
flow to be able to bankroll the training and then get their money
back from the Government. That is why we have today published
the response to the consultation saying that we are not going
to pursue either of those models [
] I am absolutely confident
that we can come up with a system that puts the purchasing power
in the hands of employers, but leaves the administrative and regulatory
burden with providers. Providers are full time dedicated to doing
this and know about the ILR records and satisfying the Skills
Funding Agency, so we need to leave all that work with them, while
giving employers a greater ability to shop around.
106. It may be difficult to devise a specific alternative
approach. Most witnesses to our inquiry supported greater choice
for SMEs about how funding should be handled, although there were
concerns about making the funding system too confusing. Steve
Radley, Director of Policy and Strategic Planning at the CITB,
suggested that employers should be offered a "menu"
of funding options.
On the other hand, Dan Hooper from the FSB told us that there
was a risk that "small businesses would look at a menu of
options and become slightly confused about the options available".
107. Simplicity in any new arrangements will be very
important: many employers do not understand the current funding
arrangements. A 2012 survey by UKCES found that 30% of employers
who had apprentices were not aware that Government fully funded
apprenticeships for 16-18 year olds at that time.
Effective communication about the operation of the Government's
revised arrangements will be key to their success.
108. Some witnesses suggested that greater involvement
of providers, Local Enterprise Partnerships or local authorities
in the administration of apprenticeships could be key to a successful
The Minster indicated that this sort of activity would be covered
by the Government's revised proposals,
but the interim response to the funding consultation had already
specified that training providers would be able to support employers
with the administration of apprenticeships,
and this in itself has not mitigated employers' concerns about
shouldering increased administrative burdens.
Incentives to employ younger
109. The Apprenticeship grant, introduced in February
2012, was described to us as "one of the biggest success
stories in this field of this Government's period in office".
The grant provides £1,500 to businesses with fewer than 1,000
employees (from January 2015, fewer than 50) who employ an apprentice
aged 16 to 24 and have not done so in the previous 12 months.
The scheme is due to close in December 2015. Under the Government's
new funding proposals, firms employing an apprentice aged 16 or
17 will be entitled to a grant from Government, on top of any
Government contribution to the cost of training. As with the current
scheme, small businesses with fewer than 50 employees will also
be entitled to an additional grant. Grants under the new system
are tied to the level of government contribution, which varies
according to the complexity of the apprenticeship standard being
funded. Grants for employing young apprentices range from £600
to £5,400, and those for small businesses from £500
110. While it is welcome that grants for young apprentices
will now focus on 16 and 17 year-olds, we heard from Professor
Fuller that there is a risk that the new funding arrangements,
which introduce employer contributions for 16 to 18 year-olds,
will shift employers away from younger apprentices,
particularly given the limited understanding that employers have
of the current grant system.
Value for money following funding
111. As set out in chapter 3, there is a general
consensus that current government funding for apprenticeships
provides a good return on investment. The impact of the new reforms
on value for money is unclear. The Minister suggested to us that
employer contributions and minimum apprenticeship standards would
ensure value for money,
but this does not address whether the return on the Government's
contribution to apprenticeships will be better or worse following
reforms to funding.
The apprentice minimum wage
112. Apprentices have traditionally accepted lower
wages while on an apprenticeship in recognition of the investment
that employers are making in them. Our fifth principle of apprenticeships
is designed to ensure that this delayed gratification is worthwhile
for the apprentice, but apprentices must still receive a fair,
albeit reduced, wage.
113. The current apprentice minimum wage for 16-18
year olds and those aged 19 and over in the first year of their
apprenticeship is £2.73/hour. Many employers pay their apprentices
more than the statutory minimum, but we have heard evidence that
some are flouting the law on the apprenticeship minimum wage.
The University and College Union and the TUC both quoted a 2013
survey by BIS which showed that 29% of apprentices were paid less
than the minimum wage in 2012.
The most recent survey of apprentice pay shows that this figure
has improved to 15%,
which is welcome but still leaves cause for concern.
114. On 6 October 2014 the Secretary of State for
Business, Innovation and Skills announced that the Low Pay Commission
would look into whether the apprentice minimum wage should be
raised to align with the national minimum wage for 16-18 year
olds (currently £3.79/hour).
A number of the written submissions we received argued for such
an increase, 
but there is a risk that an increase could discourage businesses
from taking on young apprentices. Dan Hooper from the FSB suggested
that "a quick rise would lead to a fall but [FSB members]
are fully supportive of a gradual increase".
On 23 February 2015 the Low Pay Commission announced that it was
recommending an increase in the apprenticeship minimum wage to
£2.80/hour from October 2015.
Conclusions and recommendations
employers support the principles behind the Government's reforms
to apprenticeship funding but the majority of witnesses to this
inquiry expressed strong concerns about the proposed methods of
implementation. The Government's initial proposals were complex
and could have imposed an unnecessary administrative burden on
employers that would have been particularly felt by SMEs. We congratulate
the Government on listening and dropping them.
116. Swift development
of new apprenticeship funding proposals is vital to end uncertainty
and make sure employers are not deterred from involvement. Further
delay caused by the General Election or otherwise could undermine
efforts both to drive up quality and engage more employers in
117. We recommend that the new apprenticeship
funding regime offer SMEs a choice between taking a lead on administering
the funding or contracting it out to a provider.
118. We recommend that the Government clarify
what role training providers, local authorities, Local Enterprise
Partnerships and others may have in assisting employers with the
administration of apprenticeships under the new funding arrangements.
119. The Government should ensure that the employment
of young apprentices is made more, not less, attractive to employers,
and particularly small employers, as a result of the funding changes.
The benefits of taking on young apprentices also need to be widely
and effectively advertised.
120. We recommend that the Government set out
in advance the criteria by which the value for money and broader
success of the new funding approach can and will be evaluated.
accept a lower wage in recognition of the investment by employers
in their training and the promise of a significant uplift at the
end of the programme. We support this principle but this lower
wage is rightly a legal minimum and we are concerned that some
young people are not receiving it.
122. The Government should take steps to ensure
that all employers who flout the law on the apprenticeship minimum
wage are identified and swift action is taken against them. Training
providers should educate apprentices about their employment rights
and how to take action if their rights are breached.
123. Any review of the apprenticeship minimum
wage should recognise the need for the internal economics of the
apprenticeship to add up for the employer, and particularly the
small employer, or the number of apprenticeships on offer will
drop further still. So long as a low minimum wage for young apprentices
is accompanied by a high quality, sustained input from employers
and a transformative impact on earnings afterwards, then it can
and should be supported.
123 BIS, The Future of Apprenticeships in England: Funding Reform Technical Consultation,
March 2014, p.6 Back
Ibid., p. 15 Back
DfE () para 4.6 Back
BIS, The Future of Apprenticeships in England: Funding Reform Technical Consultation,
DfE () para 4.15 Back
Construction Industry Training Board () para 19 Back
BIS, The Future of Apprenticeships in England: Funding Reform
Technical Consultation: Interim Statement, July 2014, p. 3 Back
Q317 [Sally Hunt] Back
BIS, The future of apprenticeships in England: funding reform technical consultation - government response,
January 2015 Back
Q64 [Professor Alison Fuller]; Q65 [David Massey]; Q283 [Dan Hooper] Back
BIS, The Future of Apprenticeships in England: Funding Reform
Technical Consultation: Interim Statement, July 2014, p. 4 Back
Q108 [David Harbourne] Back
Apprenticeships policy, Standard Note SN030052, House of
Commons Library, December 2014 Back
DfE () para 4.15 Back
Q59 [Alison Fuller] Back
BIS, BIS Research Paper No. 121: Apprenticeship pay survey 2012,
October 2013, p.32 Back
BIS, BIS Research Paper No. 207: Apprenticeship pay survey 2014,
December 2014, p.121 Back
"Cable to bolster apprenticeship pay", BIS Press Release,
6 October 2014 Back
Chartered Institute of Personnel and Development (AAT0034) para
45; 157 Group () para x Back
Low Pay Commission, 16th Report: Executive Summary, February 2015,