Apprenticeship levy A submission from the Association of Colleges: October 2015

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1 Apprenticeship levy A submission from the Association of Colleges: October 2015

2 About Colleges Further education colleges provide high-quality technical and professional education and training for young people, adults and employers. They prepare over three million students with valuable employability skills, helping to develop their career opportunities. Colleges are inspirational places to learn because education and training is delivered by expert teaching staff in industry-standard facilities. From basic skills to postgraduate degrees, colleges offer first rate academic and vocational teaching, in a range of professions including engineering, hospitality, IT, construction and the creative arts. Sixth form colleges provide high-quality academic education to 16 to 18-yearolds enabling them to progress to university or higher level vocational education. AoC Response to Apprenticeship Levy Consultation Introduction The Government s proposed apprenticeship levy creates the possibility to develop a new independent funding stream for apprenticeships. Using Government statistics, we estimate that there are 9,055 employers with more than 250 staff and that they employ 15.9 million people. We estimate that a 0.5% payroll levy paid by all of these organisations could raise 2 billion a year. 1,000 of these organisations are in the public sector and employ 4.7 million people. There will be pressure from some quarters to exempt public sector organisations and charities from the levy. Colleges are charities with strong public duties which stand to make substantial levy payments because of the large number of staff they employ. College finances are under significant strain. Nevertheless AoC considers that the status of organisations or their financial position should not be reason for exemption from the levy because this would send the wrong signal about the scheme. Its strength will be that it is universal. Government will nevertheless need to monitor its impact. The apprenticeship levy will need a robust set of rules to ensure that it contributes to genuine training. Experience in recent years shows that this needs to guarantee transferable skills provided by reputable training organisations which are quality assured. 1

3 Government must not use the levy as a reason to reduce its own 1.5 billion annual spending on apprenticeships on a 1 for 1 basis because this will leave average funding at just 2,000 per apprentice and will stall the necessary progress towards a high quality programme focused on developing skills. Government will need to continue to provide apprenticeship funding for younger apprentices (under the age of 19), for training in small and medium sized enterprises and to support apprenticeships in high value but high cost sectors. Government has taken the decision to implement an employer-routed funding system for apprenticeships which is currently planned as the vehicle for the levy. AoC understands the reasons why the levy and vouchers are linked but considers that there is still a case for Government to directly fund colleges for certain apprenticeships to avoid market failure. Paying the levy 1. Should a proportion of the apprenticeship funding raised from larger companies be used to support apprenticeship training by smaller companies that have not paid the levy? Yes The main purpose of the levy is to increase the volume of apprenticeship training by securing a new sustainable source of funding from large employers. For companies, the levy will be introduced at the same time as Government plans to cut corporation tax and remove employer s national insurance for apprentices under the age of 25. It is right to use levy funds where they will have the best effect. For Government, councils, public sector organisations and charities, the levy will be an additional cost with no off-setting corporation tax reduction. HM Treasury will need to model the impact this has across the public services. The consultation paper explains that large companies may benefit if smaller companies in their supply chains engage in more training. There will be other cases where levy-paying companies have no need or wish to train apprentices because they are reducing headcount or are focused on graduate recruitment. The Government is right to anticipate the need to transfer levy funds from one employer s account to another employer and also to consider ways in which large companies can redirect their levy to smaller suppliers. It may be necessary to ensure that this relationship is not abused. A smaller company may well be supplying to more than one large employer and if both insist on apprenticeships within the smaller 2

4 company it is not hard to imagine a range of potential problems and abuses that could occur. It would be necessary to ensure that smaller companies who become involved, do so voluntarily and that there are no negative consequences to them opting out. 2. Do you have any comments on the proposed mechanism for collecting the levy via PAYE? We think that the PAYE system is probably the best way to collect the levy particularly if it is calculated as a percentage of eligible payroll. We think that a 0.5% levy on pay is simple, understandable and fair. This is the rate that has been used by the Construction Industry Training Board for many years and is a similar level to levies in other OECD countries. There will be a number of complex issues in defining the eligible payroll, for example how to deal with earnings which sit outside PAYE or how to deal with earnings in large partnerships. We think it would be sensible for HM Treasury or HMRC to set out proposals at an early stage so that these issues can be identified, discussed and addressed without causing any delay to implementation. 3. In your opinion, how should the size of firm paying the levy be calculated? The UK Government currently defines a large employer as one with 250 employees. Using Government statistics, we estimate that there are 9,055 large employers (including private, public and non-profit organisations). There is an obvious risk that some organisations close to the threshold will attempt to avoid paying the levy by dividing its staff between two or more companies. Recent experience in implementing pension auto enrolment provides relevant experience in classifying companies to ensure that groups or franchise operations are included in the right way. We also think it is worth considering whether the Government should publish the names and size of the levy paying employers. Public companies, public sector organisations and not-for-profit organisations already publish this sort of data in their annual financial statements (though do not necessarily separately identify UK based employees). Publication of employer data would allow third parties to cross-check the levy coverage. More importantly it would help Government, sector organisations, colleges and training organisations to identify gaps and opportunities in apprenticeship training the result of which would be more apprenticeship training. 3

5 4. Should employers be able to spend their apprenticeship funding on training for apprentices that are not their employees? Yes We agree that it would be helpful for employers to be able to spend their levy funding for apprentices who are not their employees but care will need to be taken to avoid abuse. The amount that any one employer can spend in levy funds should be capped. In addition a robust set of rules is needed to ensure that levy funds contribute to genuine training. Experience in recent years shows that this needs to involve transferrable skills, registered training organisations and quality assurance. 5. How should the England operations of employers operating across the UK be identified? We suspect that the majority of the large employers (for example most of the public sector organisations and many of the mid-sized private companies) employ staff in one of the four parts of the UK only (ie only in England, Scotland, Wales or Northern Ireland). We believe that the default position should be that the levy funds are applied only to the employer s HQ location unless there is a self-declaration that a share of employees are in one of more of the other countries so that a fair four-way distribution of funds can be made. 6. How long should employers have to use their levy funding before it expires? Three years in the first instance In the long term, one year may be a reasonable time for any employer that makes no use at all of its levy funds but to begin with there needs to be time to set the scheme up. There may be a case to allow employers who have used most of the funds to carry forward the remaining balance into the next financial year. Given that 0.5% of payroll is a fairly small sum to spend on training, the Government should start with a fairly flexible approach but should consider adjusting the rules once it has monitored implementation. 7. Do you have any other view on how this part of the system should work? There is a gap between the education level of a large proportion of 16 year olds and the skills requirements of many employers. In too many towns and cities, a key stage 4 cohort leaves school and is not yet ready for jobs 4

6 which are set at level 3, 4 and above. The Government needs to sustained effort and investment in the education system to tackle this issue but change will not happen overnight. There is therefore a case for tackling the talent pipeline to apprenticeships and how the levy might support programmes that are designed to prepare young people to take up an apprenticeship. Any pre-apprenticeship delivery would need to be clearly linked to genuine and specific apprenticeship opportunities to be valid. The use of funds in this way would need to be limited to registered training organisations like colleges, apprenticeship training agencies and group training associations. Apprenticeship Levy 8. Do you agree that there should be a limit on the amount that individual employer s voucher accounts can be topped up? Yes We believe that it would be sensible to set the cap at 200% of an employer s contribution while the system settles down with a plan to review this limit for Year 3. There will be some large employers with the capacity to carry out more training, for example because they run dedicated training centres or because they operate wholly or partly in the education, training or business services sectors. In these cases, the employer could apply to become a registered training organisation. 9. How do you think this limit should be calculated? In as simple a way as is possible as a percentage of their levy contribution. 10. What should we do to support employers who want to take on more apprentices than their levy funding plus any top ups will pay for? See answer to question 8. The issue here is whether the employer is employing or training so many additional apprentices that it is actually diversifying their own business model and becoming a provider. If so, this is good news but there needs to be suitable protection for the apprentice and for the reputation of the system. If they are effectively becoming a training organisation, then they should register as one so that they can be regulated in the same way as other training organisations. 5

7 11. How can we sure that the levy supports the development of high-quality apprenticeship provision? The best way to ensure the levy supports high quality apprenticeship provision is to build on what has worked in recent years. Apprentices need to be following programmes that equip them with relevant skills which are also transferable. The new trailblazers have been designed to achieve this but care will be needed to ensure that standards do not slip and also that there are appropriate programmes (apprenticeship or pre-apprenticeship) at level 2. Registration of training organisations and colleges will help maintain high quality training particularly if there is appropriate quality assurance. The consultation paper explains that the levy will be incorporated in the voucher system so that there is one set of processes and rules for employers to deal with. Similarly there should be one set of rules on apprenticeship programmes, training organisation registration and quality assurance. This may mean changes to the SFA and Ofsted role in this area. 12. How should these ceilings be set, and reviewed over time? We agree that a ceiling on the spending of levy funds per individual apprentice should be set and we suggest that the starting level is based on the existing SFA apprenticeship funding tariff. There will need to be a mechanism to increase the cap in line with inflation. It may also make sense to plan a review of the level for Year 3. All standards would thus be subject to a funding cap that would require minimal adjustment from the current transition model. Apprenticeship Levy 13. How best can we engage employers in the creation and wider operation of the apprenticeship levy? Government has already created opportunities for employers to be involved in designing trailblazers, has offered time-limited financial incentives like the AGE grant to employ apprentices and will now be creating a new mechanism to force their involvement. Our proposal that the names and size of large employers become a publicly available list would allow Government to step back a little and let colleges and registered training organisations engage directly with employers. Giving employers real control 14. Does the potential model enable employers to easily and simply access their funding for apprenticeship training? 6

8 Unclear The model appears to be easy and simple to access but much depends on whether employers can find a suitable apprenticeship programme and a responsive training organisation. Much will also depend on the effective operation of the voucher system which is currently being designed and which will need to balance accessibility with adequate controls to protect both the apprentice and public funds. 15. Should we maintain the arrangement of having lead providers or should employers have the option to work directly with multiple providers and take this lead role themselves if they choose to do so? No If an employer is genuinely an employer and not an employer/provider than they should not be burdened with this supply chain activity. Employers should however be free to contribute to the process of selection to as great a degree as they wish but, as the recipient of the direct public funding, it is the lead provider who has responsibility for quality and they should therefore be able to demonstrate their control over all aspects of quality in delivery (as is required by the existing funding rules) which includes the selection of appropriate partners and proper application of public funds with application of clawback if necessary. Indeed, if a lead provider has agreed a price with the employer then it should follow that the partners are already in place, including for assessment. Employers should be free to select different lead providers for different cohorts and provision of course and should also be free to establish themselves as providers. 16. If employers take on the lead role themselves what checks should we build in to the system to give other contributing employers assurance that the levy is being used to deliver high quality legitimate apprenticeship training? If an employer wishes to take on the lead role, they must in turn assume responsibility for the quality of the provision which means in turn, they must become registered training organisations. If this is not an established principle the quality of apprenticeship delivery will be almost impossible to manage. 17. Should training providers that can receive levy funding have to be registered and/or be subject to some form of approval or inspection? 7

9 Yes If an organisation is delivering the same programme as another, they should all be treated the same whether they are an employer/provider, a college, a university or any other type of training organisation. The Government will need to maintain a register (adapted from SFA s current register) and to ensure that there is a form of risk-based inspection that protects both apprentices and public funds. 18. If providers aren t subject to approval and inspection, what checks should we build in to the system to give contributing employers assurance that the levy is being used to deliver high quality legitimate apprenticeship training? We explained in answer to questions 11 and 17 that there should be a single system of registered training organisations and a single system of quality assurance alongside the single voucher system. This will keep the system simple, understandable and fair to all parties. 19. What other factors should we take into account in order to maximise value for money and prevent abuse? The levy will create a choice for large employers. They can either let the money they contribute be used by other, more qualified, organisations or they can use the levy funds they contribute to employ and train apprentices themselves. Government needs to ensure that the system involves transferable skills, registered training organisations and is quality assured. It also needs to ensure that data is collected, analysed and, where possible, made available publicly. Where the data suggests that things are not progressing as one would expect, then the challenge should be swift and any abuses dealt with severely. If not then there is every likelihood that there will be widespread abuse. The levy is simple 20. How should the new system best support the interests of year olds and their employers? The number of 16 to 18- year-old apprentices has been static for years at around 4-5% of the cohort despite Government efforts and incentives to increase numbers. The obstacles in the way of increasing the number of young apprentices include the belief that it is better to keep options open by staying in education, the lack of effective careers advice and guidance in schools and the tendency of more prestigious employers to recruit 18 year 8

10 old apprentices. The introduction of the levy will make more large employers think about apprentices and may create new demand. Government needs to make sure that apprenticeships are a sufficiently attractive option for 16 to 18-year-olds by ensuring that its own financial support is maintained, by ensuring that English and maths teaching is appropriate and by ensuring there are pre-apprenticeship routes. 21. Do you agree that apprenticeship levy funding should only be used to pay for the direct costs of apprenticeship training and assessment? Yes, in so far as the levy should cover the direct costs associated with apprenticeship delivery (and this should include access costs for apprentices with special educational needs), but no in that we believe the levy should also be able to cover the direct costs of the delivery of preapprenticeships programmes, such as traineeships, that prepare individuals for specific apprenticeship opportunities. 22. If not, what else would you want vouchers to be able to be used for and how would spending be controlled or audited to ensure the overall system remains fair? See answer to questions 19 and Are there any other issues we should consider for the design and implementation of the levy that haven t been covered by the consultation questions we have asked you? No. 9