Without proper focus on apprenticeships at the top end, the government will never achieve its ambition to close the skills gap, claims Adrian Anderson

While most of the current apprenticeships headlines have been about the recent falls in starts, there’s another issue that’s been taxing officials on the side. It’s no secret that the DfE and the Institute for Apprenticeships are concerned about the affordability of higher-cost apprenticeships, specifically at higher and degree level.

Do the maths: the government’s three million starts commitment means 600,000 per annum. The apprenticeship levy will raise £2.5 billion per annum; divide this by 600,000 and we have just £4,167 to fund each apprenticeship. Having given employers the leadership role, they are focusing on the higher-level and higher-cost apprenticeships their businesses need, rather than the lower-level apprenticeships historically funded by the Skills Funding Agency.

As a productivity programme this is excellent news. The problem, of course, is the income raised from the levy will not fund both the 600,000 apprenticeships the government wants and the tougher, pricier ones the economy requires.

The IfA must show some backbone

So what’s the solution? Firstly officials shouldn’t panic – we’re talking about a medium-term issue and decisions need to be made on the basis of clear evidence. In 2016/17 there were, for example, only around 2,000 degree apprenticeship starts. I anticipate significant growth but it will be some time before affordability becomes an issue. The current IfA priority must be to ensure employers have the standards that their businesses need. There’s plenty of work to do here.

Then the IfA must show some backbone. Put simply, quality must trump quantity. It must base its advice to ministers on the twin policy objectives of apprenticeships: increasing productivity and enhancing social mobility. I am amazed, for example, by arguments to restrict employer spend on management degree apprenticeships. Didn’t the industrial strategy suggest that management skills could account for a quarter of the productivity gap between the UK and US? If productivity is a key policy objective, then employers should be allowed to spend significant sums. Apprenticeships should be a socially mobile route to high-level technical, professional and managerial roles.

It will then be time for the IfA to start advising on how the funding system can best be used to deliver high-quality apprenticeships in the longer term.

Two levers that could be changed are the 0.5-per-cent levy contribution and the £3 million threshold for paying the levy. The £3 million threshold could be reduced, but I suspect changes will happen elsewhere first.

If an apprenticeship is doing what it’s supposed to do, increasing the productivity and skill base of a business, then by any measure the current non-levy employer co-investment rate of 10 per cent is generous. It represents a 90 per cent state subsidy for the cost of the apprenticeship. The non-levy employer contribution could be increased to a third. There are also powerful arguments to differentiate an employer’s contribution by standard; if we’re serious about the link between apprenticeships and productivity, a lower employer contribution could be used for STEM standards. The government’s contribution to levy-paying employers’ accounts could also be phased out.

There are, however, a few areas where the IfA and government will need to tread very carefully. I think it goes without saying that, given the unacceptable and slow process in the development of standards and approvals, the 24 months employers have to use their levy should not be reduced.

A final no-go area should be meddling with funding bands, which should be based on all costs associated with delivery and assessment – not “affordability” as is increasingly emphasised by both the IfA and the DfE. If the IfA is concerned about affordability, it should suggest using the other levers at the government’s disposal to influence employer behaviour. Decent apprenticeships are costly. If the IfA wants to adopt a policy of pushing funding bands down due to “affordability”, it will have an adverse impact on the supply of apprenticeships in areas of critical need to the economy.