A “radical” overhaul of apprenticeship funding has been outlined by the government in response to a review by former Dragons’ Den investor Doug Richard.

Three funding ‘models’ have been proposed by the Department for Business, Innovation and Skills in A Consultation on Funding Reform for Apprenticeship in England, around nine months after the Richard Review of Apprenticeships came out.

Mr Richard was tasked with looking at how apprenticeships in England could meet the needs of the economy. He said the National Insurance or tax credit system should be used to give employers breaks as payment for training and said such changes should be “at the heart” of apprenticeship reform.

The suggestion figures among those going out to a ten-week consultation (see table below).

Key difference between the models (table from page 18 of the consultation document)

The first of the proposals is for a direct payment model where businesses register apprentices claim government funding online.

The second is for a PAYE payment model in which businesses register apprentices online and then recover government funding through their PAYE return.

The third option, although all could be amended as part of the consultation, is a provider payment model where government funding continues to be paid to training providers, but it can only be drawn down when the employer’s financial contribution towards training has been received.

Business Secretary Vince Cable said: “Employers are the best people to judge what training is worth investing in. These radical reforms will mean just that.

“It gives them the power to train their staff to make sure their skills are relevant to the company, instead of having to rely on what courses are available in the local area.”

The government also revealed it was looking at funding 16 to 18s “more generously”.

“We must recognise that younger apprentices have less labour market experience, which means the costs of getting them to the industry standard are potentially higher,” it says in the consultation document.

The first two models would both need the “time-consuming” construction of a new online system, but could be in place by 2016 “at the earliest”.

However, common to each of the models is for “the employer and provider negotiating the content and price of eligible apprenticeship training”. It would replace a system of government-set national funding rates.

Skills Minister Matthew Hancock said: “By radically reforming the funding system we will allow employers to agree with training providers the content and price of training ensuring greater competition both on quality and on price.”

The proposal to use the tax system follows calls for reform from the UK Commission for Employment and Skills.

Its chief executive, Michael Davis, welcomed the consultation.

“The commission’s perspective is that we must return apprenticeships to their founding principle — a contract between the apprentice and the employer, valued and funded as such,” he said.

It sits alongside a review launched by Deputy Prime Minister Nick Clegg into the employment, education and training of 16 to 24-year-olds announced at a Confederation of British Industry dinner on Monday, July 15. The review is due out in the autumn.

However, the Association of Employment and Learning Providers’ chief executive, Stewart Segal, warned against the apprenticeship funding consultation’s PAYE model.

“We have considerable doubts over whether the PAYE proposal would actually bring more employers into the apprenticeship programme,” he said.

“In fact, it might put smaller businesses off. The co-funding option [model 3] might have merit if it properly recognises the contributions which employers make towards an apprentice’s framework achievement.”

Responses to the consultation should be sent to apprenticeships.consultation@bis.gsi.gov.uk by October 1. Visit www.gov.uk/government/news/government-sets-out-radical-plans-to-shake-up-apprenticeship-funding for further details.


Editorial: Making employers pay

The truly ‘radical’ element of the government’s apprenticeships consultation is not, as it might first appear, in the different funding mechanisms of the three suggested models.

Nor is it that the employer would ‘own’ the delivery.

What is radical is that, in each of proposals, the employer would have to make a cash contribution.

Public co-investment already stands at 50 per cent of full funding, yet anecdotal evidence is that few employers currently put their hand in their pocket at all.

This lack of a cash employer investment must restrict the quality of delivery, which in turn does little to encourage employers to invest.

It is a cycle of underinvestment that has seen the Skills Funding Agency battle declining quality evidenced by short programmes and Train to Gain-type assessment-only delivery models.

So I applaud the government for considering a funding system that requires employers, and I hope particularly large ones, to make a cash contribution.

However, the policy makers would be wise to dust off the Banks Review of Fees — an independent review commissioned by the previous government and published in July 2010.

Within the daunting 110-page document, Chris Banks’ first and central recommendation was for the government to “match co-investment contributions received from employers up to a published maximum contribution”.

Sound familiar?

It’s a policy calling for the employer’s cash contribution that is long overdue and, using the third proposed funding model set out today, it could be fairly easy to implement for 2014/15 using current systems and rates.

In many ways it could operate like loan fees for the 24+ Advanced Learning Loans, where providers are currently charging the Student Loans Company up to a published maximum.

There are however three extra questions I would like to see in the consultation.

1. How would the government avoid over-spending the limited funding pot?

2. Should the apprenticeship minimum duration policy continue to be applied?

3. Can you avoid setting national funding rates where 100 per cent government-funded (e.g. 16 to 18-year-olds)?

Nick Linford, editor