Apprenticeship funding: too generous, but off-putting to small firms

In an article originally published (in a slightly different and shorter form) by ‘FE Week’ on 6 June 2014, Policy Consortium member Mick Fletcher considers the introduction of a mandatory 33% contribution by employers to the funding of Apprenticeships.

The new BIS guidance on trailblazer funding is an heroic attempt to achieve incompatible policy objectives.  Encouraging more employers to take on apprentices while also insisting they pay more for the privilege was always going to be difficult — but the proposals issued last week almost succeed. They do so, however, by being too generous to employers at the same time as deterring their involvement through administrative complexity.

The spin on the proposals is £2 for £1 – government will match employer funding at a ratio of 2 for 1, up to a set cap per standard.  Depending on the audience, this can be sold as good value for employers or as ‘getting tough with them’ by insisting for the first time on a ‘mandatory cash contribution’.  Actually, it’s a lot more generous than that: in addition to the misnamed ‘maximum government contribution’ (MGC) or cap, the taxpayer will hand over bonuses for successful completion, for recruiting 16-18s, and to small firms.

The key sentence is the one that makes clear that employers can “use these incentive payments as you wish”: in other words, it is open to any employer to net them off against their mandatory cash contribution.  The table below shows that in the great majority of cases (most apprenticeships will be in the lower bands), a small firm can get more than its cash back — and large firms pay a lot less than you might think.  Set this against the 25-year-old single mum wanting to better herself through a BTEC Diploma who gets charged 100%!

A lot of course depends on how the new standards are allocated to bands or caps. Assume that a given apprenticeship currently costs £6,000 to deliver and its successor costs much the same.  Since current funding is assumed to reflect costs, government now pays £6,000 for a 16-18 year old starter and £3,000 for most adults.  Employers with adult apprentices are expected to pay £3,000. In practice, they rarely do and therefore providers deliver for £3,000 (or usually an average depending on the mix of ages recruited).

If this programme were to be put in the £6,000 band, government would pay at a level ranging from £6,900 for adults in large firms rising to £9,600 for 16-18s in small firms; generous, indeed.  If it were put in the £3,000 band, government would pay from £3,500 for adults in large firms to £4,900 for young people in small ones.  Employers would need to pay no more than they now do for adults — but over £1,000 for young people to make up the gap. This is not consistent either with the policy intention for adults, nor with the assertion that ‘many’ young people would still be fully funded.

Though technically clever these new proposals seem set to fail to deliver on three of the principal stated purposes of the reform.

• They won’t lever in more employer cash, and certainly not for the 16-18 age group, since they are still mainly fully funded. This raises the question: ‘Why complicate matters at all for young people?’
• They won’t exert much downward pressure on prices. There’s no incentive to negotiate 16-18 prices — and for adults, employers lose £66 of every £100 they knock off the fee.
• The complication of five caps, three sorts of bonuses, staggered payments and an untested apprenticeship credit mechanism represent just the sort of bureaucracy from which SMEs will run a mile. Moreover, the ‘cliff edges’ between (e.g.) £8000 and £18000 suggest that complexity is sure to grow.

It is fortunate that the timescale for the trailblazers gives ample time for the serious revisions that are surely needed to this approach .

[1] Calculated as employer cash contribution less (where appropriate) 16-18, small firm and achievement bonuses