No sipping of Pina Coladas by the pool for those of us working on apprenticeships this August. Instead the Education and Skills Funding Agency (ESFA) launched a new procurement exercise on Friday for apprenticeships in non-levy employers, with a bid deadline of early September.
The previous procurement in November 2016 didn’t achieve national cover despite oversubscription of the £440million budget. The ESFA is addressing those national reach issues in this new round, but based on new evidence from providers I’m increasingly worried about a drop in demand for non-levy apprenticeships.
The new Skills Minister, Anne Milton, has confirmed we are still chasing the 3 million apprenticeships target. However, HE providers are describing a definite slowdown in non-levy apprenticeship starts since the ESFA paused the original procurement exercise in April. In this blog I explore the extent of this slowdown and some of the possible factors for it.
With thanks to sixteen HE providers who responded to a rapid request for information in June, HEFCE has evidence which shows that this group alone expected 591 non-levy starts this academic year, but only 66 of those have survived.
Why is this? Based on our evidence there are a range of factors contributing to the slowdown in the small to medium-sized enterprise (SME) market:
Employer hesitancy or lack of access to funding?
Six months ago, enquiries from SMEs about degree apprenticeships were plentiful across England, according to our evidence. In April, the ESFA announced allocations to fund apprenticeships in non-levy paying employers, based on historical track records of delivery. Since degree apprenticeships are new products, and most providers offering them are also new to the apprenticeship space, historic delivery has been small scale.
According to providers, the low availability of funding for non-levy starts on degree apprenticeships has been a major factor in the reduction in apprentice starts amongst non-levy payers. HEFCE has shared this evidence with ESFA, and reported how providers have responded by knocking back non-levy employers on their waiting lists and concentrating on levy business.
There are specific risks for regions where local economic partnership (LEP) strategies are geared towards small business growth and higher level skills, according to our analysis. For example, non-levy employers in Leeds city region seeking a degree apprenticeship in LEP priority areas such as Digital will have to look outside the city because none of the Leeds HEIs were allocated funding to deliver provision. And non-levy employers in the South West looking for degree apprenticeships have had access to a total allocation of £6,000 awarded to Exeter University.
The uncertainty of when funding might open up is also affecting growth. One London provider marketed degree apprenticeships extensively to the 2,460 SMEs on their database, and then had to contact them in April to explain why they could not fund provision – jeopardising the university’s reputation and straining existing relationships between those employers and other departments in the university.
Our sample reports that most non-levy employers have shelved their plans to recruit. Others have paused their plans, preferring to wait for their favourite provider to receive funding rather than look for provision further afield. Providers do seem to be working together, and with Further Education Colleges, to signpost alternatives but there is an inevitable impact on local growth.
There are other issues affecting demand. We understand some non-levy employers are hesitant because their productivity can’t afford the new requirement for 20 per cent off-the-job training, particularly where potential apprentices are existing staff. Others are hedging bets that the 90:10 co-investment model will be scrapped and hope for a return to 100 per cent funding (the Government appears firm this will not happen, I must add).
The productivity of UK workers has dropped back to pre-financial crisis levels, according to figures released in July. Hourly output fell 0.5 per cent in the first three months of the year, says the Office for National Statistics (ONS).
When the economy slows, SMEs tend to bear the brunt of reduced business confidence which can often take the form of postponed future business, cuts in existing orders and less availability of credit. Smaller firms seem highly aware that taking on an apprentice is an important commitment, and the corresponding cost to the wage bill this entails.
New standards coming through
Our evidence signals that standards approvals may be a factor in a reduction in demand for apprenticeships amongst non-levy employers. According to data given to ‘Construction News’ by the Construction Industry Training Board, less than 10 per cent of the 70 new apprenticeship standards promised for the sector have been signed off as ‘ready to be used’ by training providers.
Large numbers of employers are involved with trailblazers because Government wants them to shape the products they need. But until the standards are approved, they cannot access those products. With 240 standards in the pipeline (40 per cent at the higher level) and greater scrutiny now being applied by the Institute for Apprenticeships (IfA), it does not seem like there is a quick fix.
Perhaps starts are simply delayed?
Employers and providers report the new requirement for having a direct apprenticeship contract is adding an extra layer of complexity and delay to starts. Anecdotal reports suggest contract sign-off takes around three months, which creates a lead-in time to apprenticeship starts. This timescale can be doubled in some sectors where a preferred supplier list is a pre-contracting requirement.
Is this affecting degree apprenticeships alone?
In the 2015/16 academic year, apprenticeship starts totalled 509,400. Degree apprenticeships made up 0.2 per cent of total starts in September 2016, according to a report for the House of Commons.
This is important. It puts into context any concerns that degree apprenticeships are going to ‘eat up’ the levy pot. However, if apprenticeship reforms are going to influence an increase in UK productivity, we need to see growth at the higher levels.
It seems the dip in non-levy demand is not particular to level 6/7. A spokesperson for the Association of Education and Learning Providers (AELP) confirms they are seeing the same picture:
“Training providers have reported to AELP a massive drop in apprenticeship starts across the board since the beginning of May and there is no doubt that the outcome of the first non-levy tender was a major factor behind the fall.”
I hope policymakers are not interpreting the dip as a lack of interest from SMEs in degree apprenticeships. It feels like a false assumption based on our reports of promising early interest. Our analysis also showed that HE providers have active and extensive local employer relationships and could play a more significant role in bringing non-levy employers to market.
As an economy we need the three million starts target to reflect the needs of all employers, large and small. If the non-levy employer is left out in the cold, this raises great questions about how well the reforms meet the explicit aims of increasing productivity and social mobility across the whole country.
All our evidence suggests that interest from non-levy payers in apprenticeships has been stunted. And although the factors are complex, there is widespread agreement about what they are.
I know our sample of sixteen providers reflects just a small slice of the current provider market. If you have a different view, or would like to endorse any of the points made here, I’d like to hear from you.