Allocations shock: ESFA ‘mistake’ sees massive firms listed as small

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The allocations “horror show” has got even more alarming, after FE Week found the government has been wrongly categorising giant firms including Santander as non-levy payers.

Other smaller employers have meanwhile been classified as subject to the charge launched last month, despite their payroll being drastically short of the £3 million point from which firms have to shell out.

Providers this week received the detailed calculation of their allocations, for delivering apprenticeships to small employers from the Education and Skills Funding Agency.

Alongside this, the agency sent a letter to providers admitting the non-levy proxy they used is an “approximation using the best available data” and that there are “uncertainties in this data”.

Many providers sent their calculations into FE Week, and we found several examples of huge employers being misclassified, as not having to pay the levy charge.

Banking giant Santander was listed as a non-levy paying employer, despite having UK staff costs of £700 million, according to its most recent set of accounts.

Similarly, Berkeley Group Plc, a large property development firm, has a payroll close to £200 million according to their latest accounts, but was also listed as non-levy paying. And charity Mencap was on the non-levy list even though their accounts show staff costs have hit £131 million.

Only businesses with a total paybill over £3 million have to shell-out for the levy.

But the misclassification has also found small employers labelled as large.

One small provider told FE Week they found themselves classified as a payer, despite their payroll being “nowhere near £3 million”.

Another provider sent FE Week their employer allocation spreadsheet, in which they identified seven that they claim were incorrectly labelled as levy payers, adding their impact was wrong by “as much as 70 per cent” and that “needless to say we are working on a business case to send to the ESFA.”

After being shown the serious mistakes in employer classifications, Association of Employment and Learning Providers boss Mark Dawe said there was a danger of “irretrievable damage being done to employers, providers and apprentices as well as to the apprenticeship brand unless ministers take immediate action”.

News of the faulty calculations is the latest government-inflicted blow to hit the sector, after lead providers learned in April that their May to December allocations amounted to a fraction of the costs of their current delivery.

Mr Dawe subsequently pleaded with the government for an immediate funding increase to prevent widespread “closures and redundancies”, which was swiftly rejected.

Mark Dawe

FE Week then revealed last week that this “horror story”, as labelled by Mr Dawe, had claimed its first victim.

A longstanding provider with 18 years’ experience told us it would be forced to close within months, as a result of the massive cuts, while many other providers warned they faced imminent disaster.

After being shown the ESFA letter to providers admitting there was “uncertainties” in the calculations data, FE Week asked the agency to explain how the non-levy proxy was arrived at, but the agency refused to comment.

It would only say the department had communicated to providers that if they believed their allocations had been calculated incorrectly, they should work it through with their ESFA provider manager.

Mr Dawe told FE Week: “We were told there weren’t going to be winners and losers out of this allocation process, because the same calculation formula was being applied to all main providers and colleges.

“But clearly these mistakes over employer classifications have resulted in unfair allocations. This is why AELP is calling for the ESFA to double the allocations now to providers.”

Analysis: How we think they got it wrong

Our analysis suggests that the ESFA’s classification mistakes stem from employer information provided by Blue Sheep, a specialist data company.

The ESFA has a licence for employer data, which is typically used to determine the size of an employer for funding purposes.

The database includes employer IDs as well as staff numbers.

We believe that where the staff number in the Blue Sheep database is below 150, the ESFA has classed them as non-levy-payers – choosing this figure based on the average wage of around £20,000, a sum which when multiplied by 150 equals £3 million.

For example, for Santander the employer ID and staff number shown in the Blue Sheep database is 80 – thus classing it as non-levy-paying.

However, this is inaccurate information for the purposes of estimating total payroll at £3 million, as the database uses multiple employer IDs for one employer where they have multiple sites.

Therefore, a huge employer with lots of sites will have lots of employer IDs, each with a small headcount. Santander appears to have nearly 1,000 different Employer IDs.

The SFA’s most recent expenditure sheet shows that it pays £371,000 per year for the use of Blue Sheep data and services.

Nick Linford editorial ESFA need to fess up to their ‘mistake’

The Education and Skills Funding Agency has dug itself a huge hole. Incredibly, it’s still digging.

As readers will know, it was in the interest of “stability” that it decided to pause the non-levy tender, after demand from over 1,000 providers well outstripped the paltry £440 million that was available.

Instead it is extending pre-May contracts until December, which left some relieved and others – those without direct access to any funding – disappointed.

But the sense of relief and pretence of stability hasn’t lasted long, as the value of the contract extension appears well below expectation, in some cases by as much as 70 per cent.

The ESFA told providers this week how it arrived at these allocation figures, but still refuses to answer key questions about how much was dished out overall.

It has also refused to tell FE Week or providers how global firms have ended up wrongly classified as non-levy, so we’ve had to figure out for ourselves how the ‘mistake’ occurred.

While it’s clearly unfortunate the data isn’t accurate and that there isn’t more funding for small employers, why refuse to fully explain how much and in what way it’s been allocated?

Starving providers of funding is bad, but also keeping them in the dark is appalling.



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21 Comments

  1. James

    The quality of data supplied via Blue Sheep as been questionable for a number of years so this doesn’t come as a great surprise. It is worrying that the ESFA didn’t take time to sense check the data to identify any standout errors.

  2. Norman

    So whilst many private providers are going to the wall and all providers having to downsize because of the paltry non levy allocations many decent folk will lose their jobs. So why is it that Minister Halfon and Keith Smith keep theirs, the AELP and AoC have clearly sounded alarm bells some time ago as all this was so predictable. Shame on those who still try and defend this horror story. We desperately need some fresh blood and let’s have a modicum of common sense and the ability to listen on the essential person spec skills with the courage to say no minister that won’t work.

  3. Tony A

    Thankfully I’m not a provider anymore. However, I do feel for both providers and the ESFA staff. I know they lost so many people that those left are under really intense pressure. Its the bosses I blame. I spoke to a provider manager and their workloads are crazy. I think Keith Smyth should consider his position. No doubt Peter Laeuner will get his Knighthood.

  4. LRoding

    Is there no one in the ESFA with enough gumption to recognise the names of huge businesses in amongst the list of non levy payers? The level of idiocy is beyond belief. Yet again this utter shower have made a massive cock up. Is there a point at which someone is going to admit that combining two inadequate organisations has created an even more incompetent organisation? This is shameful. Heads need to roll (lots of them) and sharpish.

  5. Kenny

    If the levy system is linked to hmrc paye then why does that not provide an accurate number of employees and payroll totals and dump this data provider (and save money no doubt).

  6. the response ” they should work it through with their ESFA provider manager” is a joke. the managers will not answer the phone, reply to messages or email

    once again the ESFA makes a monumental mistake and its up to providers to pick up the pieces and make sure learners don’t suffer as a result

    one begins to wonder if this is not a deliberate ploy to decimate the private training providers in favour of the colleges

    shame that historically most colleges are really bad at direct delivery – hence sub contracting…

  7. The ‘mistake’ would have increased co-investment allocations, so this does not explain why some providers think that they have cuts.

    Obviously this is not ideal and the ESFA should have allowed themselves more time to check this data. The EDRS dataset is unreliable but as this links into ILR data then this was probably the only option available to the ESFA. However, this will not affect earnings in anyway and only explains an error that would have overstated allocations.

    The ESFA need to make the total allocation pot available and show the levy/co-investment split. It would also be useful if there was a comparison to new start spend for the equivalent period last year so that we can make an assessment on whether there has been any cut.

    Finally, the Government need to make assurances that all eligible new starts will be funded.

  8. Why did they not simply ask providers what % of their employers and apprentices last year are now classed as non levy payers?

    Most of us actually put this information in our non-levy paying employer bids, which were not assessed.

    It would be easier then to allocate: last year = £x. Multiply by SME%. Then divide by 10 to take into account SME apprenticeship budget cuts made in response to the need to upskill post Brexit and improve SME productivity.

  9. So basically, the EFSA have relied on data from a third party without actually analysing it first?
    Using third party data is not necessarily a bad thing, but when you are pouring money into a project based on said third party data, it’s a good idea to check it all first!
    OMG Rookie mistake!

  10. We have errors on our list. Quite an apt name ‘Blue Sheep’. As, as a training provider, I feel that they are treating us all like sheep, and we are being herded into one large financial abattoir!

  11. Chris Bradley

    ESFA and sense do not sit correctly in the same sentence sadly James. I wonder why the Chief Executive is retiring. Perhaps he has vision? 23 years in this sector for me after 20 years as an engineer in industry. It was a surprise just how the education and training sector was not quite as sharp as I expected it to be when I joined all those years ago and since then it has got worse exponentially. World class? Haha!!

  12. Schoolboy error from the ESFA here. Surely they should have sent client lists to all contract holders last year for them to double check, notify the SFA of errors, get the base data straight before deciding allocations. Actually, forget schoolboy error, this misclassification of levy/ non levy is a major cock up by the SFA. Deary me. They’re going to have to redo the non-levy allocations all over again.

  13. It is very worrying indeed, although the principle behind the allocations is not as unreasonable as FE Week and others have been suggesting.

    For the immediate future, each provider will have two main ESFA income streams – the ‘carry in’ of pre-May starts and the non-employer component of income from post May starts. As the former declines, the latter can be expected to grow. If you compare eight months income which is growing from a base of zero, with 12 months ‘steady state’ income, it’s hardly surprising that you see a large drop.
    This is basically the same point that Diane Abbott was trying to make, before the numbers tripped her up, about the full cost of police recruitment not being felt in the first year.

    The real questions for providers are whether they can maintain their total level of income and what the ESFA is going to use as the base for future allocations when the carry in has been exhausted. These are worrying questions, but it does the sector no favours to complain about ‘massive cuts’ based on a false, and easily refuted, comparison.

  14. David

    One wonders what kind of training these people have had…

    They insist staff delivering professional services such as education are properly qualified, but are they? Do they have CIPS training? I suspect they would have to Google CIPS to see what it means!

    It is expected our data is robust before making funding claims. I propose they run draft figures for such exercises via the likes of AoC and AELP before making fools of themselves, causing unemployment and negative business impact on others. Or how about those of us in the sector who are CIPS trained, accountants, etc.

    Remember, this is our money as taxpayers, is about the future of our children, affects SME’s considerably, eventually impacts on our future economy and for it to be so poorly handled should raise very serious questions.

  15. Daniel

    If a training provider made as many mistakes as the ESFA has done over the last 2 months they would have had their contract taken off them…

  16. louise

    we too have this silly error for our company we are a care group and all our homes have their own employer ID so all the homes are classed as non levy, we as the company who pay the wages across the homes are levy payers but on enrollment of an apprentice (its not happening we have decided to quit apprenticeships) it would show we also needed to co invest as the home is non levy!! what an absolute mess this all is and if things don’t change we too will most likely be closing the training centre.

  17. Why isn’t a govt dept using data on payroll from HMRC?
    Surely they should get that for free!!
    Blue sheep is chronicly bad I can’t believe they are paying that amount for such an appalling service.

    • The only data that exists which shows which employers providers work is ILR data linking into blue sheep. This cannot be linked to HMRC data.

      The data is erroneous but this mis-identification of large employers over allocates contract value.

      Ultimately this is just a process for allocating out the co-investment pot. It will not affect earnings in anyway.

      The Government need to give assurances that all new starts will be paid for, and then we can all move on and get on with delivery.

  18. Nigel Bates

    In 25 years of working in this industry I have never seen it so bad.

    Our EFA allocation has been miscalculated and after 8 weeks of sending e-mails I have finally got a response that they will look at our case. £600k out due to the wrong figure being used, which will lead to centre closures and unnecessary redundancies of good people if not rectified.

    Now, we have infant schools recorded as levy paying. Why not check the details with Providers before issuing these contracts ?