Economic logic and luck money: flaws in the Apprenticeship Funding Consultation proposals

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The Apprenticeship Funding Consultation, launched by the government at the end of July, is full of good intentions. It aims to increase the number and quality of apprenticeships and at the same time get better value for money from public spending. Sadly, however, its proposals seem to show a closer acquaintance with first-year economic theory than the real world.

Theory says that giving employers more control over public funds, and requiring them to make a cash contribution themselves, will ‘empower’ them to drive up quality and efficiency. (Theory also says that requiring cash for something that was once effectively free is a bit of a turn off but that rule seems to be ignored.) The consultation therefore explores three options for giving employers greater control over taxpayers’ money.

The first real world issue to arise is that to distribute money directly to an unknown proportion of the one and a half million employers in the country is a little more complex than giving it to a couple of hundred colleges and perhaps a thousand training providers. The suggestion that it will be done by a new government IT solution does little to inspire confidence. And the need for the system to be simple enough to engage the large proportion of employers who are SMEs (small and medium-sized employers) raises the need for all sorts of awkward trade-offs; simplicity on the one hand versus equity, assurance of quality and the proper control of public monies on the other.

The consultation seems to dismiss the equity issue arguing that funding rates would no longer be set by government but by the market. Employers would seek to strike the best bargain for their money, and government would meet a proportion of the cost incurred. If there is to be a government contribution, however, there will need to be a maximum figure. The paper grudgingly concedes such a maximum and further recognises that it might have to vary by sector. A flat rate would either be very unfair to expensive frameworks like engineering or far too generous for cheaper ones like retail.

The paper is silent, however, on whether the maximum would also take into account London weighting, or disadvantage, or level of study or the current large employer discount. It is also silent on how much complexity is needed to safeguard public money. Unless some rigorous checks are in place to verify the existence and identity of apprentices, the training they are receiving and the payments made, a scandal not unlike the fraud that afflicted individual learning accounts cannot be far away.

A core problem with channelling funding through employers is how to keep control of public spending. The Skills Funding Agency (SFA) currently does this by giving providers a share of the total based on their past performance; and it reviews their performance within the year to redistribute potential unspent money. It is not clear how employers might get an allocation, particularly if the aim is to bring greater numbers in; the potential risks of under-spending and over-spending are huge.

Both theory and practice agree that the apprenticeship system would be better if employers met some of the fees charged by training providers from their own pockets. At the moment, although firms pay trainee wages and make some contribution in kind very little cash changes hands. Central to the idea of employer ownership is the idea that spending their own cash, alongside control of a highly visible government contribution, would make employers more demanding consumers. Hence the idea that public funding is linked to employer cash payments.

It’s a laudable idea, but the way round it has long been familiar to livestock farmers. The quiet payment by the seller of, say, £100 ‘luck money’ to the purchaser to encourage an increased bid enables both to pretend to others that the beast is rather more valuable than it actually is. It is not only the agricultural colleges that will be quick to adapt this strategy for creating the illusion of an employer contribution.

Employer ownership German-style, where social partners agree on long-term investment in training, seems to work. Employer ownership English-style, based on a risky re-routing of public funds seems doomed to repeat earlier scandals. Could this consultation give a chance to quietly bury it?

Mick Fletcher

August 2013

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Posted in Apprenticeships, BIS, Employers, Vocational Education
2 comments on “Economic logic and luck money: flaws in the Apprenticeship Funding Consultation proposals
  1. Stefan Drew says:

    The words logic and government appear in this article but not in the same sentence for a very good reason. Their is little real logic in the government’s proposals and the economic theory is just that .. theory.

    Putting the word luck in a sentence with government might have worked .. after all they’ll need a lot of it for this to work.

    Of course we need more apprentices in this country. But we need to really bump start the economy first. Only when there is work for them to do will apprentices be required and will SMEs be prepared to pay hard cash for them.

    How do I know? I’ve been an employer in the real world .. and in another life I’ve represented SMEs … and nothing parts a business from its cash unless it has value at the time .. not some perceived value that will accrue from market forces sometime in the future.

    • mick says:

      Stefan. I agree 100%. The problem is that government has only one shot in its locker – apprenticeships – and when the recession necessarily limits the numbers it has no fall back position

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