Adult Apprenticeships: Funding the User

by Mark Corney

The signs are that the Coalition Government is intent on routing public funding for adult apprenticeships through the user rather than the provider.

The question Whitehall must resolve in Spending Review 2013, due to be published on the 26th June is whether the user is defined as the individual or the employer.

At present, there is a mixed system of grant funding to providers and loan funding to individuals for adult apprenticeships (see AELP Manifesto 2013).

In order to maintain provision but reduce the fiscal deficit, a key decision taken in Spending Review 2010 was to turn grant funding to providers for 24+ level 3/4 apprenticeships into fee-loans taken out by adult apprentices.

In 2014/15, some £130m will be available to adult apprentices aged 24 and over to fund level 3/4 apprenticeships through income contingent loans.

This Treasury-led policy has in effect defined funding the user for adult apprenticeships in terms of the individual. Individual loans are placing purchasing power into the hands of adult apprentices.

As part of Spending Review 2013, the Treasury is naturally pressuring BIS to go the whole way and turn the remaining £650m of grant funding for adult apprenticeships paid to providers into individual loans.

Under Treasury rules, turning £1 of grant funding into loan funding reduces revenue spending – so-called RDEL - by a full £1.

If BIS does indeed face a £1.1bn cut in revenue spending in 2015/16, turning the remaining adult apprenticeship budget into individual loans would reduce RDEL by £0.65bn, almost two thirds of the total level of savings. 

A current Treasury rule, however, is that if the cost of offering subsidised income contingent loans to the taxpayer – the so-called RAB charge - is above 70%, grant funding cannot be turned into loan funding. Presumably, the RAB charge for 24+ level 2 apprenticeships and 19-24 level 2 and 3 apprenticeships is less than 70%. Alternatively, the Treasury might conveniently forget the rule. Either way all remaining grant funding for adult apprenticeships could be turned into individual loans.

The Treasury will also have spotted that no new ‘national’ administrative system needs to be created or modified. A system to manage individual loans already exists. The Student Loan Company pays providers on behalf of individuals, who in turn repay their loan through the PAYE system.

By contrast, despite empowering adults through individual loans for 24+ level 3/4 apprenticeships, BIS appears to back the routing of public funding for apprenticeships through each employer.

The leading option for direct employer payment for apprenticeships is redistributing grant funding to each employer through the PAYE system. The fall back seems to an extension of direct contracting with large companies to small and medium-sized enterprises.

For consistency, each option would require ending individual loans for 24+ level 3/4 apprenticeships. Both also assume each employer reclaims ‘grant’ funding. Unless there is a significant fall in unit funding, no savings will necessarily flow to the Treasury compared to extending individual loans. Indeed, little has been heard of employer loans to fund adult apprenticeships repaid via the PAYE system or to the Skills Funding Agency.

There is also the question of bureaucracy and administration. Small firms might be concerned about taking on the role of purchaser and using the PAYE system under the employer tax credit model, whilst more staff might be required at SFA to extend direct contracting to potentially 90,000 employers.

The merits of individual loans and direct employer payments for adult apprenticeships at least need to be weighed up very carefully. Funding the user, however, seems to be the direction of travel.  Even so, what must be avoided at all costs to ensure a streamlined system is a mixed arrangement of individual loans for higher level adult apprenticeships and employer payments for lower level adult apprenticeships.

Mark Corney is policy adviser to CfL and writes in a personal capacity.
 
*Manifesto on Skills Acquisition, Economic Recovery and Jobs, Association of Employment and Learning Providers, June 2013)