During the 2015 election campaign, the main parties vied with each other to promise more and better apprenticeships.
The Conservatives won, and so government policy now includes a pledge both to deliver ‘three million new apprenticeships’ over the next five years, and to ‘ensure they deliver the skills employers need’. Those two commitments are going to be very hard indeed to reconcile.
Should apprenticeship be seen as important for successful job generation, productivity and wage growth? Yes: it can and should be a major contributor. But are the funding and tools in place which can actually make it so? Definitively not.
This paper explains why, and argues for a major funding reform: an apprenticeship fund, with its own trustees, supported by a small, hypothecated payroll tax. Without such a reform, and in today’s British labour market, the ‘three million’ pledge is far more likely to waste large sums of public money, and downgrade apprenticeship quality, than it is to provide the skills that a more productive economy requires.
- A combination of central targets for apprenticeship ‘starts’ and the outcomes-based funding system, pursued by successive governments, has incentivised providers of training to engage in a ‘drive to the bottom’ where large numbers of short, low level and often low quality apprenticeships are favoured over more rigorous, longer, high quality apprenticeships.
- There is not enough funding from government or businesses to deliver the high skill apprenticeships required to increase UK productivity and meet labour market demand. Employers have been slashing their own spending on and commitment to training at the same time as government budgets have been squeezed.
- The current government’s pledge to create three million new apprenticeships in the next five years, while also ensuring they deliver the scientific and technical skills UK businesses need to increase productivity, is impossible to meet under the current apprenticeship system.
- Under current funding arrangements, three million new apprenticeships would leave funding of only £2567 available per apprentice. Currently, only two apprenticeship frameworks, out of more than 200, receive government support below £3000, meaning it will be impossible to meet the three million target and improve the quality and labour market relevance of apprenticeships at the same time.
- Turning apprenticeship back into an institution which reflects labour market needs, develops young people’s skills to a high level, and makes a genuine contribution to increasing productivity requires two major changes: a return to the employer-apprentice contract as central and defining; and, a much higher spend per apprentice than the current system provides.
- A National Apprenticeship Fund, into which every employer would pay in via a small levy on payroll, would provide more money, allow spending decisions to be controlled by employers, and will ensure that all employers are directly involved with the apprenticeship system, even if they do not currently employ an apprentice.
- The key features of a National Apprenticeship Fund would be:
- Every employer would pay in via a small levy on payroll, similar to taxes in other EU countries with successful apprenticeship systems, such as Denmark, France and Austria.
- Anyone who employed an apprentice would be subsidised by the fund at levels well in excess of their own individual contribution.
- The employer of the apprentice would determine where that training took place, selecting from an approved list of institutions.
- The current policy of individual government contracts with ‘training providers’ to find and deliver ‘completed’ apprentices would cease. All apprenticeships would be funded through the apprenticeship fund, on the basis of an employer-apprentice contract.
- Government would also contribute to apprentice training costs, in order to cover the cost of the ‘general education’ part of the apprenticeship. It would do so by continuing to subsidise approved institutions which offer training. However, this money would reach institutions through a different funding stream, not through the fund.
- The apprenticeship fund would be not be treated as a part of general revenue. The student loan system provides a clear precedent for the collection of hypothecated funds through the tax system.