Proposals to use the tax system to fund apprenticeships won tentative approval in a House of Commons vote organised by FE Week.

More than 120 people from across the FE and skills sector attended the debate on the government’s three proposed apprenticeship funding reforms, with the option of employers recouping the costs of training through the PAYE system emerging victorious.

It claimed the biggest minority, with 27 per cent of those who voted saying ‘maybe’ the PAYE option should be adopted.

At the start of the debate, 22 per cent of voters had wanted ‘no change to the current funding system’.

The event, sponsored by Pearson and hosted by Shadow Skills Minister Gordon Marsden, took place in the House of Commons’ largest committee space — room 14 — on Wednesday, September 4.

Figures of SME take-up remain quite stark — that sets the challenge for government.”

Votes were cast electronically at the beginning and end of the debate on reform options and whether employers should make a cash contribution for 19+ apprenticeships.

At first most of the voters — 33 per cent — thought employers shouldn’t pay towards apprenticeships, but at the end 36 per cent thought they should.

Speakers included Stewart Segal, chief executive of the Association of Employment and Learning Providers, Neil Carberry, director of employment and skills at the Confederation of British Industry, and Michael Davis, chief executive of the UK Commission of Employment and Skills.

David Phillips, managing director of colleges and work-based learning at Pearson, and Nick Linford, FE Week editor, made up the rest of the panel along with Ann Konzolik, executive director of business development at Northwest Kent College. She replaced Alice Barnard, chief executive of the Peter Jones Foundation.

They explored the reform options of direct payment to employers, payment through the tax system (PAYE) and payment to providers.

The options were put forward by the government after an independent review of apprenticeships by former Dragons’ Den investor Doug Richard. He pushed the idea of incentivising employers by paying them for taking on apprentices.

Mr Marsden introduced the debate telling delegates: “The most important thing is that we are having this discussion.

“It’s worth remembering how we got here in the first place — the government felt compelled to do the Richard Review because of concerns over quality of training programmes which coincided with the government’s expansion programme when they axed Train to Gain in 2010.

“Also the Holt review looked at how to assist small and medium enterprises (SMEs) in accessing the apprenticeship scheme because many of them felt unable or unwilling to access the scheme in its present form.

“Figures of SME take-up remain quite stark — that sets the challenge for government,” he said.

He said he didn’t see how the three systems put forward “directly addressed” how to get more SMEs to access the scheme, adding: “That should be at the forefront of the process.”

“I’m disappointed that there’s no mention of funding being distributed by a regional or sectorial approach — that might be how SMEs would like to get on-board,” Mr Marsden said before adding that the Labour Party were in the middle of doing their own report on apprenticeship funding reform.

Mr Davis started the debate, pushing hardest for the PAYE system.

“All businesses are familiar with the PAYE system,” he said.

“We have been up-and-down the country and had unanimous support from businesses for funding through PAYE.”

He likened the proposed employer payments to statutory maternity pay, however, Mr Segal dismissed the comparison, saying apprenticeships had multiple rates and would not involve one straightforward payment.

Mrs Konzolik claimed that paying employers directly or through the tax system, could create problems for what she coined “roving apprentices”.

All businesses are familiar with the PAYE system”

“If the apprentice decides it isn’t quite right for them to work in one particular organisation and they want to move on, who picks up the tab in terms of the employer contribution?” she said.

Mr Linford added that one problem already identified by the government of the tax system method could be that many SMEs were so small their PAYE bill would not be enough to cover their apprenticeship incentive.

One audience member suggested that while larger firms with over 1,000 employees could get on-board with the PAYE, perhaps SMEs should be exempt, but Mr Segal did not agree, saying two systems would be “too complicated”.

Further, he said direct funding was not likely to “drive quality”.

He added: “We are not in disagreement that the system needs reforming, but we do not think the system is broken.

“Employers are already owning this system, but clearly we want them more involved — we’ve got to get them back involved in developing the apprenticeship frameworks as government has had too heavy a hand in that.”

Mrs Konzolik said she never had any difficulties getting businesses to pay providers for apprenticeships and Mr Carberry backed her, saying: “The biggest bit of feedback I get off businesses is if something is free, then what is wrong with it? If the price is right, businesses will buy.”

The government’s consultation on reforming the apprenticeship funding system opened two months ago and closes October 1.

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

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The UK Commission for Employment and Skills (UKCES) publication Funding Apprenticeships through Pay As You Earn (PAYE) puts forward the argument that employers should be paid through the tax system.

It would bring simplicity, familiarity and flexibility, as employers would be able to start training apprentices throughout the year, according to the UKCES.

It argues that a change in the tax system would be a long term benefit and bring stability to the apprenticeship scheme, adding that changes to tax reach all businesses and making it easier to take on apprentices.

The Edge Foundation, a charity which promotes vocational education, published Apprenticeship Funding: Heading the Wrong Way? in June.

The charity argues that employers should not make any financial contribution towards apprenticeship training, instead it should be fully subsidised by the government.

At present, only 22 per cent of employers make contributions, according to Edge.

It uses research commissioned by the Department for Business, Innovation and Skills, which suggests that if the state subsidy is reduced to zero, apprentice numbers will fall by 85 per cent.

The alternative, argues Edge, is directing public subsidies to where they would achieve results.



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16 Comments

  1. Paul Stopford

    There is a real tension here between what should work in theory and what will work in practice. The idea of using the PAYE system should (in theory) be simpler, and is the idealogical solution. However we are working with employers who (especially at SME level) have still not made the mental and emotional leap from the Train to Gain “freebie” to the completely different and vastly superior Apprenticeship product. Apprenticeships should be a real tool for SME businesses to increase their competitiveness and develop their business sustainability. Many of them will find the link to PAYE too painful and too complex. (Anything that involves the tax man or the VAT woman is often seen as an instant negative by small firms due to perceived complex bureaucracy). I think that, in the first year or two, ideology will need to give way to pragmatism whilst we get universal confidence in the product and its administration. There is a clear role for the provider here, who is often seen as the “honest broker” anyway. And whatever model is decided upon, we have to keep it for a few years and stop finessing / tinkering/ / reviewing / jiggering about with it, and just leave it alone to work.

    • Paul, you make interesting points, If we had had a PAYE system in place over the past 5 years how would the recession have affected volume – without the provider base funded to drive take up? What are the ‘moral hazards’ of using the suply sde measures/tax system – can a business get a rebate on PAYE when it pays no UK corpration tax – Starbucks, and why should a emplyer co-invest particularly SME’s when other education led programes are free – traineeships? The UKCES case is totally reliant on business sentiment which at the end of the day for someone like me who has run businesses for the past 20 years has always had been constrained by market conditions and the business cycle.

  2. cheryl woods

    A really interesting debate, shame that Stewart was ‘pushed for time’ as he is an excellent speaker!
    Obviously the funding issue was the main focus, however it is important to not to consider it in total isolation, and this was echoed by speakers in that pending changes to the ‘framework’ will also influence and impact.

    For me one of the most encouraging aspects was the continued support for the promotion of VET as a whole, I believe we should be taking a holistic view across pre-employability as well as training within employment (Apprenticeships), to promote and identify this pathway to our school age populous. A fair bit off work to be done here!

  3. Gerry Bender

    I listened to the contribution from all of the speakers with great interest, it seems that Apprenticeships Work, despite the constantly changing backdrop. I question the ‘JOIN UP’ thinking behind the latest moves new standards, new frameworks, and a new funding regime plus the significant chances to the Qualification regime.
    It also seems to be a repeating of previous policies , YPOs,YTS, Msc, TA, etc. we’re brought into being because of the reluctance of employers to fund training for their trainees.
    Why then in the current difficult economic climate will their inclination be any different?

  4. Rob George

    One clear issue that seems to be skirted over is the commonly accepted theory of “supply and demand”. If employers have to pay (which some speakers said would not be an issue) then demand will drop. Couple this with the introduction of Real Apprenticeships (thus taking generic apprenticeships out of the picture e.g. Customer Service), then we can expect volumes to drop from 600,000 to levels seen 10 years ago when only Real Apprenticeships were delivered.
    Is this a move to reduce spend in this area or maybe opening the door to fully funding 16-23?
    Also how will generic frameworks be branded, maybe a Traineeship Plus?

  5. Corrina Hembury

    The employers I have spoken to so far, both SME and large multi-nationals are disappointed at the prospect of a change to the current funding model and unhappy with the view that their many contributions to the Apprenticeship programme, both in employment, payment for attendance at off-job-training, supervision, internal training etc are not taken as seriously as a purely ‘cash’ contribution.

    Having listened to the debate yesterday and also from reading through (and between the lines) of the Consultation document itself I have 3 main concerns with the proposed funding reforms:

    1) Moving much of the administrative burden of the Apprenticeship to employers and insisting that cash only contributions are what count will deter many businesses – both small and large from continuing with Apprenticeships.
    2) Having an ‘open market place’ could, inadvertently, cause a race to the bottom in terms of quality provision as prices are driven down by employer demand and competitor pricing.
    3) The removal of a core Apprenticeship framework model (eg SASE). Whilst this opens the doors for greater flexibility to employers, which is obviously a good thing, there is also a risk that too much variation means no consistency to the Apprenticeship brand. If each programme of study is different where is the transferability? Will Apprentices’ opportunities to progress and move employers within a sector be limited due to the choices their original employer has made about their programme?

  6. Geoff Holden

    A good debate but I share the concerns above that the PAYE model may be less attractive to SMEs.

    One concern not mentioned so far was that the PAYE model will require the building of a new central government IT system to manage this. The tarck record in delivering such projects is not one which fills me with any sense of optimism!

  7. Warren Cresswell

    A really interesting debate but no real surprises in which proposed funding models were favoured by each speaker.
    The are SMEs in certain sectors that just can’t afford to make a cash contribution but where real value is placed on Apprenticeships. It’s these employers that will be impacted by any of the Government’s proposed models. In Care sectors Apprenticeships play a vital role in workforce development & it would be a shame to halt that progress & potentially risk the emerging workforce by rushing through changes without considering sectoral impacts.
    It’s true that some SMEs don’t value Apprenticeships but that’s because they don’t currently provide enough flexibility to match their job requirements – a need for SASE to allow more employer. It’s a common misconception that employers don’t value Apprenticeships because there’s no enforced financial contribution, how could an employer not value something for which they have joint responsibility in delivering (training, mentoring, coaching)?
    In my opinion, the consultation paper is missing a lot of vital information which prevents anyone from making an informed decision – particularly employers.

  8. A very interesting debate that was conducted fairly with all the panel speakers making sensible and relevant points. In respect of the two topics voted upon it was interesting to see the shift in preference pre- and post the panel presentations. As one of England’s largest and longest established ATAs we work with over 350 businesses and recruit and employ more than 500 apprentices every year; the vast majority of our host employers have less than 30 FT staff. In every instance we find the employer is quite happy to pay for training (and usually expects this should be the case)PROVIDING the training is current, relevant and of high-quality. Charging between 30%-50% is not an issue. I am not sure I would be in favour of charging an employer ‘up front’ and I cannot think of another circumstance where anyone would pay for a service ahead of it being delivered (“Can you fix my car? Sure, that will be £700 please and you can pick it up tomorrow”!). So I don’t think charging employers will have a negative impact on the quality of apprenticeships; it may mean less ‘numbers’ but is that necessarily a bad thing? We have made great strides in the past two years in eradicating ‘lesser’ apprenticeships at the expense of volume and should reflect on the lessons learned from that. Some employers may even decide it’s not for them and purchase full-cost training as Ann indicated. Maybe Model 1 is the simplest solution!

    ATAs could act as a conduit for SME employer funding, no problem. Given there is a NAS approved ATA available in all parts of the country this could be a real solution; similar pliots are being trialled with EOS I believe.

    I think Michael made a really good point in that the main relationship in any apprenticeship is that between the employee (apprentice) and their employer. So many young people think they can ‘do’ an apprenticeship without realising it means finding and holding down a full-time job, and that their first commitment is to their employer! So lots more IAG is needed in schools and college to rectify this perception.

    Finally I think we will all be quite glad to see the end of the restrictive framework that is SASE!

  9. It was good to see a consensus from the panel on the narrow nature of the consultation and the issues it doesn’t cover. Gordon Marsden’s suggestion for regional distribution of apprenticeship funding merits more exploration, and the role of LEPs in strategic influence and market making, given their improving understanding of regional diversity in local labour markets will become an increasingly important part of this wider debate. I thought Neil Carberry helpfully alluded to this in his comments about skills system redesign needing to be bottom up not top down. Our wider concerns at NIACE – on equality of access and diversity of need in local labour markets, the need to be clearer on what government is intending to “buy” through its investment, about progression after apprenticeships conclude (which can be patchy in the private and public sectors), and a “stage not age” approach to future funding reform will be part of our response and would usefully be part of future debates. Here is a reminder of our “5 tests” for the current consultation as well.

    http://www.niace.org.uk/news/funding-reform-for-apprenticeships-should-consider-impact-on-apprentices

  10. lindsay mccurdy

    The consultation papers which are out at present in my opinion do not ask enough of the right questions to make informed decisions about what direction we should go in. Also the level of responses to these consultations are we talking 10s, 100s, or 1000s of responses?

  11. It is clear that one of the driving forces for changes is to encourage more SME’s to take on Apprenticeships. It is also clear that the cost to SME’s to employ an Apprentice is already great with wages, training, unproductive time of the Apprentice and the Supervisor. Having spoken to a large number of our employers there is a clear indication that they would take on part-time staff, on minimum wage, during busy periods instead of paying cash towards full-time Apprenticeships. Clearly this would not support the aim of engaging SME’s.
    Instead of, arguably, wasting money on golden hands shakes for new employers and not rewarding employers that give a true and long term investment into Apprenticeships, wouldn’t it be better to offer some form of achievement based incentive.
    The actual debate was very interesting, albeit short on time, and the PAYE concept is interesting but I would support Stewart and say the existing system needs to be improved not completely scrapped or untold damage could be done to the quality of training and the reputation of Apprenticeships.

  12. Mick Fletcher

    Sorry I couldn’t be at the debate because I fear that this has all the makings of a real train crash. Whether you use direct payment or PAYE are trivial issues compared with the operational difficulties of dealing directly with hundreds of thousands of employers as opposed to a couple of thousand closely regulated training providers. Its not clear how BIS could keep control of budgets under such a system; its not clear how one could make the system simple enough to attract SMEs without abandoning controls on quality; its not clear how one could reflect genuine cost differences between sectors, age groups etc. without making it too complex for SMEs to want to operate. The last time something went so quickly from sound bite to strategy was when individual learning accounts were introduced. There are some awful parallels, not least around big new government IT systems and the idea that ’empowering’ customers would ensure a focus on value for money.

  13. Whatever the outcome of the review I really hope that the main thing that is achieved is the quality of apprenticeships. There seems to be too much focus on increasing the number of apprenticeship starts. We MUST remember, as Neil pointed out, that an apprenticeship is first and foremost a JOB. Therefore any increase in the number of apprenticeship starts must be DEMAND led and not SUPPLY led. Apprenticeships must not be seen as the ‘answer’ to youth unemployment. At last we are recognising that the idea that 50% of the population go to Uni is not such a good thing; equally we must be careful that we don’t strive to achieve the same objective with apprenticeships.

    Surely the best solution is to drive up quality (which really means reviewing the constrictive nature of SASE) and relevance of apprenticeship training to make sure that apprenticeships are seen by business and employers as the absolute best way of training and developing their staff. Once we have achieved this then demand will surely follow, but it will probably take quite a few years! Surely by directing public funds to businesses to allow them to purchase the training they deem relevant is the simplest solution? Either Model 1 or Model 2 would help achieve this.

    • I agree wholeheartedly with your comments up until the last 2 sentences! I don’t believe that directly funding businesses, particularly SME’s, will drive up quality as small employers are more likely to look for the cheapest option. This could result in less desirable practices taking place to under cut quality providers.
      I think the focus should definitely be on driving quality and should perhaps consider rewarding employers for successfully working with Apprenticeship – not just employing them!