The past ten months have seen major changes to English apprenticeships policy– not least to its funding system which is going through an overhaul. The apprenticeship levy and the latest Department for Education’s Proposals for apprenticeship funding in England from May 2017 are key to the new funding regime.

These proposals are part of a consultation that closed on 5 September. Although they have attracted less mainstream media coverage than the apprenticeship levy did when it was announced, professional sectoral organisations and interest groups have been quick to comment on the latest plans.

The proposals and the levy are intrinsically linked and together will radically reform funding for English apprenticeships. Given the importance of these changes, a summary and clarification of the latest policy developments is welcome.

The funding system for English apprenticeships until now: how does it work?

The current system is managed by the Skills Funding Agency and varies by the type of apprenticeship. Apprenticeship frameworks are funded in a different way from apprenticeship standards, both of which are explained below.

An apprenticeship framework is like a curriculum: it is a list of skills and learning requirements that must be achieved by an apprentice for them to complete their apprenticeship. They ensure that similar apprenticeships delivered in different parts of the country by different providers provide learners with equivalent standards of skills and knowledge nationally.

There are over 200 different types of framework available in thirteen broad sector subject areas. Under the Coalition Government, apprenticeship frameworks came under fire in several reports (the Richard Review of Apprenticeships, Ofsted’s Apprenticeships: developing skills for future prosperity, the National Audit Office’s Adult apprenticeships…) for the poor quality and low success rates of some of them. See the House of Commons Library briefing papers onApprenticeship policy and Apprenticeship policy 2010-2015 for more details on the impact of those reports.

Pressures for reform from all parties led the Coalition Government to put employer groups (known as ‘trailblazers’) in charge of developing new frameworks more in line with the needs of UK businesses and learners. At first called ‘apprenticeship trailblazers’, these new frameworks are now known as apprenticeship standards and are meant to replace frameworks as the latter are progressively phased out. For this reason, no new frameworks have been issued since 2014. The Skills Funding Agency expects to finish phasing out the remaining frameworks by 2017/18.

Frameworks:

For apprenticeship frameworks, the amount of training costs covered by government depends on the age of the apprentice:

  • 100% of the training costs if the apprentice is aged 16-18;
  • 50% of the training costs if the apprentice is aged 19-23;
  • Up to 50% of the training costs if the apprentice is aged 24 and over.

In certain circumstances, government will provide extra funding in the shape of a ‘disadvantage uplift’ to support learners living in the most deprived areas of the country or an ‘area cost uplift’ for those in areas where training costs are higher.

Employers who choose to deliver additional training as part of an apprenticeship on top of the minimum requirements funded by the government must pay for it themselves. Employers can also fund apprenticeships themselves without any support from government.

Standards:

Funding for apprenticeship standards does not depend on age but on funding bands: all standards are assigned to one of five or six funding bands. The employer and training provider agree on a price for an apprentice’s training and assessment within the standard’s funding band. The government covers two-thirds of the total agreed price up to the set maximum for that funding band. The employer pays the remaining third.

Small businesses, employers recruiting 16-18 year-olds, English and Maths qualifications and successful completion of an apprenticeship warrant additional support from government.

The levy and new funding rules: what will the future system look like?

The Government announced in November 2015 that it would replace the existing system with one in which the funds for apprenticeship training are drawn from large UK employers via an apprenticeship levy and redistributed across fifteen funding bands.

The apprenticeship levy:

From April 2017 onwards, the apprenticeship levy will be paid at a rate of 0.5% of all UK employers’ annual paybills worth more than £3 million. It is estimated that between 19,000 and 20,000 businesses will fit the bill. All UK employers, whether public or private, are eligible.

The Government expects to raise over £3 billion a year by 2019-20, £2.5 billion of which will be ring-fenced to be spent on English apprenticeships only. A £15,000 allowance guarantees that employers will effectively only pay the levy on the portion of their paybill that is above the £3 million threshold. This is because 0.5%*£3 million equals £15,000.The funds collected will be accessible to employers who want to purchase apprenticeship training regardless of whether they paid the levy or not.

The latest proposals from the Department for Education provide details on the future apprenticeship funding rules – in other words, they explain how the funds gathered with the levy will be spent.

New funding rules:

Starting from May 2017, the Government wants to launch a new system of fifteen funding bands to which all apprenticeship frameworks and standards will be assigned. As with the apprenticeship standards system, employers are responsible for negotiating with their chosen training providers a price for training and assessment within a funding band.

The allocation of funds is then two-fold:

  • For those who pay the levy: these employers will receive a digital voucher worth the amount of money they paid into the levy multiplied by the fraction of the employer’s paybill paid to their workforce living in England. In addition, they will receive a 10% top-up from government. All in all, employers will thus receive more than they put in.These digital vouchers will be ring-fenced for the purchase of apprenticeship training only and expire after 18 months. The Government is also considering allowing employers to transfer some 10% of their unused funds to other employers in their supply chain or sector.
  • For those who do not pay the levy or those who do pay it but want to spend more than the funding band allows them to: the Government put forward a co-investment proposal.The principle of funding bands is that no employer is able to use levy funds to purchase training that is more expensive than what the relevant funding band allows. Employers are responsible for funding any additional costs.However, the Government is offering to support employers in doing so by paying for 90% of these additional costs while employers will only pay for 10% of them. As a result, even employers who do not pay into the levy and do not have de facto digital vouchers to spend can purchase apprenticeship training and only pay for 10% of it.
Other changes:

The Government will also maintain incentives for employers to hire 16-18 year-olds by giving them an additional £1,000 when they do so. Small businesses (with fewer than 50 employees) will also be reimbursed 100% of the costs for training a 16-18 years old apprentice.

Finally, the Government is adding some new incentives to the list. For employers who hire apprentices aged 19-24 who have previously been in care or who have a Local Authority Education, Health and Care plan, the government will pay for 100% of training costs.

For apprentices with a learning or physical disability, the government will give an additional £150 each month to cover for extra learning costs.

For apprenticeship frameworks in Science, Technology, Engineering and Mathematics (STEM), the Government will increase by up to 80% the amount of funding provided to reflect the higher costs incurred by these subjects.

Reactions from professionals: what do they think of the Government’s plans?

These new proposals have attracted less media coverage than the apprenticeship levy. However, some professional sectoral bodies and interest groups have commented on the announcement. Some of them welcomed the proposals but many others pressed for adjustments.

Tech professionals:

techuk expressed on behalf of UK tech companies their support for most of the proposals, including the Government’s plans for:

  • Increased funding for higher apprenticeship and STEM frameworks which “accurately reflect the cost of training and assessment”
  • Employers who want to start providing in-house apprenticeship training – “a welcome development”
  • Apprenticeships offered at the same or lower level than the existing apprentice’s qualification
  • Employers who want to use their levy funds for in-house retraining or upskilling
  • Businesses in devolved nations who want to use levy funding to train apprentices whose main workplace is in England
Manufacturers:

Representing UK manufacturers, eef welcomed the proposals as “both balanced and fair”. In particular, the organisation hailed the measures for co-investment and additional support for 16-18 year-old apprentices. They also stressed that “the announcement that up to 10% of vouchers will be transferable from 2018 will be particularly welcomed by larger organisations”. Likewise, eef described the possibility for employers to spend their vouchers on equivalent or lower qualifications as “particularly beneficial for learners wanting to make a career move or move across industries or sectors”.

Construction:

In contrast, the representative body for the construction industry (the CITB) released the following statement: “The Government’s proposed funding bands for framework apprenticeships raise real concerns for the construction industry. We support the new employer-designed standards (…). However, no standards for construction have yet been approved (…). Even with the sector beneficial STEM increases to funding the Government’s proposed funding bands will cut funding for construction apprenticeships by between 20% and 30%.”

HR professionals:

The professional body for HR and people development (the CIPD) also criticised the new proposals and denounced as “irresponsible” the Government’s plan to press ahead with the levy. According to CIPD’s research “the levy, in its present form, will undermine efforts to improve the quality of apprenticeships.” The organisation thinks “it is disappointing the government has not taken the opportunity afforded by a new ministerial team (…) to look again at the apprenticeship levy.”

Members of parliament:

In a damning article by specialist newspaper FE Week, Shadow Skills minister Gordon Marsden (Labour MP for Blackpool) described the proposals as a “major strategic blunder” creating “perverse incentives in the apprenticeship programme” and working against small employers.

In the same article, the former minister for Higher Education David Lammy (Labour MP for Tottenham) criticised the proposed funding rules as “devastating”. He accused the Government of “shafting working class kids”, especially 16-18 year-olds in deprived areas because of the new upper limits to funding bands and the discontinuation of the disadvantage uplift top-up.

Under the current system, employers are able to claim up to £5,400 of ‘additional incentive payments’ if they hire a 16-18 years old apprentice. The Government now proposes to cap this payment at £2,000: £1,000 for the training provider and £1,000 for the employer. For learners in the most deprived areas of the country, a disadvantage uplift based on the learner’s postcode used to warrant up to 34% more funding to training providers. The latest proposals do not mention the continuation of the disadvantage uplift. Instead, employers are encouraged to apply for an AGE or Apprenticeship Grant for Employers.

Training providers:

The Association of Colleges cautioned of a “risk in the short term that the complexity of the change, the parallel running of new and old systems and implied cuts in funding levels per apprentice will result in a reduction rather than expansion in numbers.”

They believed “this may make it harder to reach the 3 million target” and suggested that “rather than focusing on numbers, it might be better to spend more per apprentice and think hard about the programmes themselves.”

The consultation period ended on 5 September. Commentators from a range of backgrounds have asked the Government to delay and re-think the funding rules. Others are in favour of the plans as they are. The Department for Education will publish the final policy details between October and December.

Picture credit: Apprenticeship report launch at Bridgend College / Lansiad adroddiad prentisiaethau yng Ngholeg Pen-y-bont by National Assembly for Wales, Creative Commons Attribution 2.0 Generic (CC by 2.0)

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