Devolution of skills funding to city regions could be the key to solving local skills shortages, according to Mark Farrar

Shadow Skills Minister Liam Byrne, at last month’s Association of Colleges conference, floated the idea that skills funding should be devolved to city regions.

This proposal is similar to a key recommendation from an AAT-commissioned report by the Centre for Economics and Business Research entitled Apprenticeships for the Future.

It advises there should be a greater focus on the local ownership of skills education and funding. Taking such an approach locally could help ensure that local labour skills match the current and future demands of the local job market.

While apprenticeships are increasingly becoming a success story, geographical coverage is uneven and elements of funding — such as the standard rates for training providers — still operate on a one-size-fits-all basis. Despite innovative thinking on how to drive demand, a traditionalist centralised approach to funding remains.

Regional disparities in new apprenticeship starts highlight why this funding model needs improvement. The North East, which had 35,870 apprenticeship starts last year, has one of the highest levels of youth unemployment at 27 per cent.

While there may not be a direct correlation between the two, more apprenticeships could help improve the employment prospects of young people in the region.

At the same time, there are industries suffering from acute skills shortages, such as construction and ICT, which show no signs of abating. In fact they look set to get worse as apprenticeship numbers in both have dropped, with ICT apprenticeships falling by 28 per cent between 2010/11 and 2012/13, while construction new starts reached a ten-year low.

City regions could play a key role in addressing such issues by determining where funding for skills should go. They should be better placed to know what skills shortages there are in their region and could implement a more targeted approach to tackling them.

City regions should be better placed to know what skills shortages there are in their region and could implement a more targeted approach to tackling them

Government proposals to reform the funding model for apprenticeships offer an opportunity to deliver this devolved funding model. By targeting funding at priority sectors, emerging skills gaps, and addressing geographical imbalances, apprentices can provide the skills that the UK economy will need to continue to grow.

How can this funding approach be achieved? Better data is required below regional level to allow skills shortages and certain types of unemployment to be targeted. Government departments and agencies should examine how they currently record data and seek to use business surveys, and other techniques, to help map skills shortages at a local level.

Local Enterprise Partnerships (Leps) could also have a major role to play. There is currently much regional variation in their capacity and capability to ensure effective delivery. This is something that would need to be resolved so that all are empowered to deliver effectively for their city region.

To be successful, funding policy should also reflect the changing needs of the economy. As the system moves towards employer contributions, it should differentiate between types of apprenticeship, offering greater funding incentives for places that address identified skills shortages.

Conversely, higher employer contributions may be sustainable where needs are already being met.

But let’s not rush at this, to achieve the desired change the government should consult further with employers and providers about the details of its new funding mechanism before going ahead. A new system provides a crucial opportunity to target incentives at priority sectors and locations where additional places would provide the greatest economic benefit.

The impact of the changes should also be monitored closely after introduction to make sure that skill shortages, as they are identified, are addressed.

There has been a huge increase in the number of apprentices in recent years, which has helped businesses and transformed lives. Now we must look to ensure that all areas of the country benefit fully, with apprenticeships that deliver what the UK needs to drive economic growth.