The AoC’s Teresa Frith believes that the chancellor should make tweaks to apprenticeship funding, rather than wholesale changes

Apprenticeships are an increasingly important part of the long-term plan for workforce development, enhanced productivity and social inclusion in England. The government’s reform programme is aimed at ensuring apprenticeships in England become more rigorous and more responsive to the needs of employers.

Every part of the system is being reformed and this creates a risk that numbers will fall. Although the levy and public sector targets have generated new interest, many large employers appear to be waiting until they are confident the new standards work. It will take some time for the full impact of the changes to be clear but no-one should underestimate the change and the potential for the overall impact of the programme to be diverted.

In its budget recommendation to the Treasury, the AoC recommends that the DfE should earmark up to 25 per cent of levy funds to ensure access, quality and progression. While any diversion of money away from apprenticeships is risky, there needs to be more investment in access, widening participation and progression, which are all crucial issues for social mobility. The government should consider likely shifts in behaviour and demand before agreeing to use it for broader training objectives with employment.

We need to recognise that we are trying to do two things with apprenticeships: increase productivity and boost social inclusion

Budgeting for apprenticeships is opaque, but should be watched closely. There will probably be an overall underspend in 2017-18, as it’s been the pattern for several years and because this is the first year of the new system. Larger levy-paying employers are likely to be cautious while smaller employers may have been put off by new co-financing requirements. Meanwhile colleges and providers have had to struggle with new procurement and allocation systems, both of which have made it harder to access funds.

New schemes typically run on a boom-then-bust cycle but there is an extra twist with apprenticeships because larger employers are likely to act towards the end of 2018, when their funds start being cancelled. Demand is likely to increase as employers and providers get to grips with the new system and the ESFA resolves its teething problems.

There should be a review of the rules that grant levy-paying employers control of 110 per cent of their funds. It gives larger employers the first call on training funds, and squeezes smaller employers into second place. These arrangements forced the ESFA to cut non-levy allocations this summer, and penalties if the agency overspends make it very difficult to manage the uncertainty.

The new system also transfers control over a large part of the training budget to large employers headquartered in the south-east. Putting employers in control of spending has many benefits but the economy and jobs are changing. Today’s employers are getting a larger share of training funds, but may be in sectors that will shrink in future.

They may perpetuate English training patterns which are currently biased towards level two skills in low-value service roles. It would make sense for the Treasury and DfE to scale the offer down to 75 per cent, to release funds that address failures in the training market. Money should be used to widen access by tackling both gender and ethnic disparities in key sectors. Funding should also support and incentivise progression to levels three and four, and to bolster training in regions or sectors where numbers are lower.

We need to recognise that we are trying to do two things with apprenticeships: increase productivity and boost social inclusion. While these objectives are not mutually exclusive, they do require separate thinking and treatment. There also must be more focus on better quality apprenticeships built around strong employer involvement and proper off-the-job training.

Furthermore, we need more apprentices at level three and above, in science, technology, engineering and maths (STEM) sectors. Getting to this point requires more stability and confidence for colleges and training organisations to encourage them to invest.

Teresa Frith is senior policy manager at the Association of Colleges