Monday, 9 September 2013

Mandatory Cash Contributions to 16-18 Apprenticeships

In advance of the Campaign for Learning's seminar on the Government's current consultation reform for Apprenticeships, 19th September, Mark Corney asks whether the funding model for 16-18 apprenticeships will include mandatory cash contributions from employers.

Mandatory cash contributions by employers is a common element of the Direct Employer Payment Model, the PAYE Employer Payment Model and the Provider Payment Model outlined in the apprenticeship funding consultation.*

But the critical question is whether employer cash contributions are required as a pre-condition for the release of public funding for 16-18 apprenticeships as well as adult apprenticeships.

The case for concluding that the Coalition Government is indeed considering the proposition of mandatory employer cash contributions to 16-18 apprenticeships is compelling.

The reforms aim to ensure employers and training providers agree the price of apprenticeships, with the critical caveat that “the government will fund a proportion of this but only after employers have paid their share” (Paragraph 1, Page 5).

Additionally, the reforms aim to maintain an all age apprenticeship programme. The paper recognises that the cost of getting 16-18 year olds to the required apprenticeship standard is greater than that for adult apprentices.

Thus, the Government is exploring ways of funding 16-18 year-olds more generously than older apprentices – such as providing an additional fixed one-off payment - “whilst maintaining the incentives for employers to demand relevant, high-quality training from providers” (Paragraph 2, Page 5).

Page 5 would have been the obvious point in the consultation paper to state that employer cash contributions are not required towards 16-18 apprenticeships and the cost will be fully funded by the taxpayer. But it does not.

Later in the consultation paper, however, an illustrative example is worked out for each of three payment models on the assumption that the price is £1,000.

In each case, the gross taxpayer contribution is £700, with £560 on programme and £140 on achievement. Thus, the mandatory gross cash contribution by employers is 30%.

At present, the implied cash contribution from employers towards adult apprenticeships is 50%. Given that the reforms are moving from implied cash contributions to mandatory cash contributions, the illustrative percentage would surely have to be less than 50%. Hence, 30% is a reasonable percentage to start the debate with.

But these are examples of funding for adult apprenticeships. The extra one-off fixed payment is restricted to 16-18 year olds.

Importantly, however, there is no fully worked out example of 16-18 apprenticeship funding. Only a description is made as part of the core model in the paper.

The wording is as follows: “The government will fund 70% of the price of eligible Apprenticeship training up to a maximum of £3,000. The government will also make a one-off payment of £1,000 for this apprentice” (Page 11).

So, assume the price for a 16-18 apprenticeship is £1,000. The government will fund 70% and the employer contribution is 30%. But in addition, the government will make an extra one-off payment of £1,000.

Thus, the total cost is £2,000 rather than £1,000 (as in the adult apprenticeship examples). And the £300 employer contribution as a proportion of £2,000 is equivalent to 15% of the total cost.

The introduction of a one-off fixed payment is a neat way to reduce the gross employer cash contribution to 16-18 apprenticeships without spelling this out.

Pure politics dictates that the contribution to 16-18 apprenticeships (15%) would have to be lower than to adult apprenticeships (30%). For the very first time, employers would be expected to make a cash contribution to the public subsidy for 16-18 apprenticeships.

Mandatory cash contributions by employers for 16-18 apprenticeships as well as adult apprenticeships goes to the very heart of what the Coalition Government is trying to achieve, namely downward pressure on prices.

By contributing their own cash towards the cost of the public subsidy for 16-18 apprenticeships, as well as claiming back the actual public subsidy, employers have every incentive to pay a lower price.  For a given 16-18 apprenticeship, 15% of £2,000 is lower than 15% of £4,000.

If, on the other hand, 16-18 apprenticeships are fully funded by the taxpayer, there are no in-year price benefits to be derived from the Direct Employer Payment Model or PAYE Employer Payment Model.

Assuming the price is fixed and fully funded by the taxpayer, the primary benefit of placing purchasing power into the hands of the employer would be to increase the quality of apprenticeships as firms shop around.

Maybe, however, the above analysis is an incorrect interpretation of the consultation paper and the policy intention is for 16-18 apprenticeships to be fully funded. If so, not stating this explicitly is a critical and almost unforgiveable omission. Often, it is what is not in a consultation that really matters.

From a policy perspective, however, there is no case for mandatory employer cash contributions to apprenticeships started before the 18th birthday.

16-17 apprenticeships are the weakest sector of the publicly funded apprenticeship market. Even with fully funded provision, fewer than 6% of 16-17 year olds are on apprenticeships, and the bulk of the fall in pre-19 apprenticeship starts in the first quarter of 2013 is more likely to be accounted for by reductions at age 16 and 17 than at age 18. 

Mandatory cash contributions will inevitably reduce the number of apprenticeships offered by employers to 16 and 17 year olds.

And yet, everything must be done to maintain and indeed increase apprenticeship starts by 16 and 17 year olds. Apprenticeships begun before the 18th birthday count under the participation age which both the Coalition and Labour agree should be raised to the 18th birthday in September 2015.

*A Consultation on Funding Reform for Apprenticeships in England, BIS/DfE, July 2013. Closing date - 1st October 2013.

Mark Corney is policy adviser to CfL. He will be speaking at the CfL seminar on apprenticeship funding reform to be held on the 19th September 2013.

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