Adult apprenticeships emerged as a top funding priority for the government in the Skills Funding Statement last month, according to Mark Corney. He looks at the implications this might have for the HMRC funding plan and also 16 and 17-year-old apprenticeships

The skills funding statement (SFS), published alongside the Higher Education Funding Council for England grant letter, had some important implications for the reform of apprenticeship funding.

The statement confirms turning loan funding for 24+ level three and four apprenticeships into grant funding distributed at the moment to providers.

The decision to introduce individual loans for this group of adult apprentices was forced on the Department for Business, Innovation and Skills (BIS) by the Treasury at the last minute as part of Spending Review 2010.

Individual loans for 24+ level three and four FE courses were already agreed, but extra savings had to be found and so income contingent loans were extended to 24+ level three and four apprenticeships as well.

Always at odds with employer ownership and placing purchasing power into the hands of each employer over public funding of post-16 apprenticeships, the fact that all apprenticeship funding takes the form of grants means the Coalition is now in a position to take the next steps in routing public funding through HMRC system and introducing compulsory employer cash contributions.

More importantly, perhaps, the SFS removes any assumption about the minimum level of planned expenditure on adult apprenticeships within the grant funded adult skills budget (ASB).

In 2015/16, the grant-funded ASB is planned to be £2bn.

Although the precise details of the HMRC system to be used and the alternative for small businesses are important, they are second order issues

The SFS emphasises that funding of adult apprenticeships is the top priority for public support with 19 to 24 traineeships and training for unemployed adults a close second and third.

Previous SFS announcements placed a minimum level of grant and loan funding in cash terms for adult apprenticeships of £770m for 2014/15.

Given that funding for adult apprenticeships is the top priority for public funding and the Prime Minister in the New Year championed more 18 to 24 apprenticeships, a fair judgement is that the sky is the limit within the £2bn ASB.

In effect, BIS wants employers to drive up demand for adult apprenticeships to the maximum available from the ASB.

Apart from the political consensus for more apprentices, especially for 18 to 24-year-olds, and the economic benefits apprenticeships bring, there are specific reasons for wanting spending on adult apprenticeship to be higher than £770m.

In 2013/14, planned spending by the Department for Education on 16 to 18 apprenticeships was £810m. Adding this allocation to the minimum level of planned expenditure by BIS on adult apprenticeships of £770m gives a total of about £1.6bn.

This is not a large sum of public spending in the scheme of things to involve HMRC in its distribution to each employer participating in post-16 apprenticeships. And indeed, less than £1.6bn might need to be routed through HMRC systems if an alternative approach is required for small firms supporting apprentices.

In other words, bumping up spending on adult apprenticeships and in turn overall planned expenditure to more than £1.6bn, whatever the decision for small firms strengthens the case for harnessing large scale national systems operated by HMRC.

A biblical flood requires help from the military: the odd river bursting its banks does not.

A technical specification for the new apprenticeship funding system is due to be published in the spring. But there are critical policy decisions the Coalition must also make.

Although the precise details of the HMRC system to be used and the alternative for small businesses are important, they are second order issues.

The first order issue remains compulsory employer cash contributions (CECCs). More specifically, the Coalition must decide whether it is sensible for CECCs to apply to apprentices starting at 16 and 17 given that the numbers doing so are only 25,000 and 35,000 respectively.

CECCs for 16 to 17-year-olds could weaken employer demand at a time when raising of the participation age to the 18th birthday requires this age group be in some form of education and training.

England has a small 16 to 17 apprenticeship sector, but a growing adult apprenticeship sector. Decisions on CECCs for 16 to 17 apprenticeships will determine whether this sector of the apprenticeship system survives or withers further away.

Mark Corney is an independent policy consultant

Click here to read Rebecca Cooney’s article on Trailblazers, pay and loans