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Apprenticeships: SMEs — [Philip Davies in the Chair]

Part of the debate – in Westminster Hall at 1:30 pm on 13th February 2020.

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Photo of Tan Dhesi Tan Dhesi Labour, Slough 1:30 pm, 13th February 2020

I beg to move,

That this House
has considered apprenticeships in small and medium-sized enterprises.

It is a pleasure to serve under your chairmanship, Mr Davies.

Apprenticeships should be the perfect vehicle for meeting the challenges of social mobility, bridging the skills gap and raising productivity. With the most recent Office for National Statistics data showing that productivity is 30% higher in France and 35% higher in Germany, our widening productivity gap cannot be ignored if we are to compete successfully and obtain the supposedly easy post-Brexit trade deals promised by the Government. Having run my own small start-up construction business in Scotland, I know full well the importance of small and medium-sized enterprises investing in their people. Those that fail to do so stagnate and start to go backwards.

In previous years, employer spending on training in the UK had fallen and was low compared with other advanced economies, so there was a clear need to take action to move more employers towards investing more in the skills of their workforce. It was also vital to improve progression in apprenticeships. Only 4% of our 25-year-olds hold a level 4 or level 5 technical qualification as their highest qualification, compared with 20% in Germany, where apprenticeships are taken up by many more young people and are viewed as a high-status option for school leavers. Sadly, the Government’s rushed implementation of the apprenticeship levy resulted not in an increase in apprenticeships and opportunities for the most disadvantaged, as was hoped and very much needed, but in the exact opposite. That is devastating, especially considering the huge impact that apprenticeships can have on young people’s lives.

Just last week, I met brilliant apprentices working in my constituency. I know that their input is hugely appreciated by the many businesses in Slough. Slough is a huge business hub, with the largest singly owned trading estate in the whole of Europe and more corporate headquarters than Scotland, Wales and Northern Ireland put together, so we know a fair bit about businesses and the importance of apprenticeships. Unfortunately, far from turbo-charging our businesses and helping them further, the levy has left many of them hobbled and unable to fill vacancies, address their skills shortages or meet opportunities for expansion.

Since the introduction of the levy, apprenticeship starts in large employers—those with 250 or more employees —have fallen by 9%, but the impact on small and medium-sized enterprises has been disastrous. Apprenticeship starts have fallen by 34% in small businesses and 42% in medium-sized enterprises. Even in my constituency, despite the excellent Slough Academy, which supports growth in high-demand areas such as social care and planning in the council, overall apprenticeship starts have not reached the level they were at before 2017-18. That reflects the trend across the country. It is estimated that between 30,000 and 40,000 SME apprenticeship vacancies remain unfilled, and 75,000 apprenticeships in SMEs could be lost by the end of the year. That is 75,000 people who will be denied the opportunity to work, train and gain the confidence that comes with successfully completing qualifications.

The failure of the levy for SMEs is compounded by the fact that those “disappeared” apprenticeships were most likely to have been taken up by young people who were starting with much lower qualifications—the very group we might imagine that a revamped apprenticeship scheme should help the most. The latest Government data show that the proportion of apprenticeship starts at level 2 fell from 63% in 2011-12 to a mere 36% in 2018-19, and the proportion of people aged under 19 on an apprenticeship has fallen to a mere 25%. In the context of participation in the apprenticeship system being at its lowest level since 2010-11, with 72,400 fewer people participating in 2018-19 than in 2017-18, those figures further underline the inadequacies of the Government’s implementation of the levy. The largest reductions have been in the north-west and the north-east—areas that are in desperate need of job opportunities and economic growth.

What is behind the decline? Under the levy in England, employers are required to pay 0.5% of their payroll above £3 million per year into a so-called ring-fenced digital account to be spent on apprenticeships. That is topped up by a 10% public contribution. If levy funds are not used within two years, they expire. The system was based on the expectation that many employers would not spend all their levy funds. Those unspent funds were intended to cover most of the costs of apprenticeships for the SMEs that do not pay the levy. At the time, the Government estimated that around 50% would remain unspent and so available to non-levy payers.

Some levy payers found ways—some might say predictably—to increase their spending. Indeed, the Sutton Trust warned in November 2017 that an estimated two thirds of businesses’ apprenticeship schemes merely converted existing employees and certified existing skills, and that the levy may encourage more of that so-called conversion and rebadging as a way for large employers to reclaim their money. That looks to be what has happened.

A recent Ofsted report on employees on an Institute of Leadership and Management course stated:

“Most apprentices and their line managers do not know that they are on an apprenticeship. Too many apprentices do not develop the…knowledge, skills and behaviours needed to progress in their careers…Most apprentices do not develop substantial new knowledge and skills or build on what they already know…They just complete their management qualification.”

That is a testament to what has gone wrong. That case and others led Ofsted chief inspector Amanda Spielman to declare:

“We have seen examples where existing graduate schemes are in essence being rebadged as apprenticeships. This might meet the rules of the levy policy, but it falls well short of its spirit.”

That is why, last year, the National Audit Office expressed its concern that the use of the levy for new high-level apprenticeships was really

“public money…being used to pay for training that already existed in other forms.”

Even where higher-level qualifications are appropriate and well designed, they are expensive, so the money the Government expected to be available for SMEs to fund apprenticeships simply is not there—to the tune of around £1 billion, according to best estimates.

With the introduction of the levy came the development of new apprenticeship standards to replace existing frameworks. Those standards were designed by employer groups and are intended to establish more robustly the skills and competencies that an apprentice is expected to achieve. Again, however, the Government underestimated the cost of implementation, which has simply added to the financial pressures SMEs face in funding their apprenticeships. That has prompted calls for a proper review of what is and what is not an apprenticeship, and how the different kinds of in-work training are best targeted and delivered.

Given the reports by Ofsted, the National Audit Office and others, such a review is certainly required. Many stakeholders make the case for a more flexible approach, such as a skills levy that allows employers to invest in other forms of high-quality training. Such an approach would need extra funding from widening the levy to cover more employers, from raising contribution rates or from Government. However, the burning issue is that there is a crisis in apprenticeships for SMEs that is depriving those who most need either a solid start to their working life or a helping hand to get up and out.

As I said, disadvantaged people of all ages are disproportionately clustered at the lower levels of apprenticeships and are significantly more likely to be studying for level 2 or level 3 than for higher or degree-level apprenticeships. The levy has led not only to a dramatic fall in level 2 and level 3 apprenticeship provision, but to people from deprived communities being squeezed out of higher-level apprenticeships. In 2015-16, before the introduction of the levy, the most deprived 20% of the population accounted for 21.9% of apprenticeship starts at level 4 or higher, but by 2018-19 the figure had dropped to a mere 16.4%. That is why the Social Mobility Commission warned that

“a two-tier system…based on apprentices’
backgrounds” may be emerging.

Almost one in five young people does not achieve five GCSEs at grades 4 to 9—A* to C in old money—or the equivalent in alternative qualifications. They will naturally face greater challenges moving from level 1 to level 2, but maths and English provision in apprenticeships—functional skills—is funded at only half the rate that would apply to any other learner. Employers want to be able to deliver and provide young people with the opportunity to succeed, but the current funding arrangements make that extremely difficult. The Minister must respond to that funding deficit, and it must be met. The Government need to acknowledge the extra challenges that those young people face, and the extra provision that they need from their employers and training providers, by increasing financial support for level 1 and 2 apprenticeships.

If we truly wish to close the skills gap and raise the floor of our nation’s skills, we must go further. There have been calls from all sides to increase the flexibility of the levy to stimulate more high-quality and accessible apprenticeships. One such change would be to allow employers to spend a portion of their levy funds on pre-apprenticeship programmes and other initiatives such as outreach programmes, with the aim of widening access to apprenticeships in under-represented groups. Further, the entitlement to attain skills at level 3 should be as accessible through the apprenticeship system as it is for young people taking college courses. The Trades Union Congress has suggested introducing a new right to progress for apprentices who have completed a level 2 apprenticeship, which would entitle them to study for a level 3 apprenticeship and trigger the necessary funding.

The lack of proper funding for some apprenticeships is, as I said, having a disastrous effect on entire sectors of our economy, such as the care sector. Many care homes are SMEs. The sector is typically low margin and low wage, and it relies on apprenticeships for the development of new and existing staff. The funding for adult care worker level 2 and level 3 apprenticeships is simply not enough to provide a quality apprenticeship programme and is leading to an over-reliance on untrained staff. It is forcing some providers out of business altogether.

I am led to believe that a monthly online apprenticeship reserve funding system is being trialled for SMEs. It has been likened to someone trying to buy a ticket for a concert, sitting at a computer, hitting refresh and hoping that this time they will get lucky. That is no way to run a programme. On top of that, the name of the apprentice is required before funding is reserved, so if an employer wants to hire an apprentice, they must do so, or at least make an offer, before funding has even been secured. That makes it easier to grant apprenticeships to existing employees instead of hiring in, as we should be looking to do. It is another barrier to those who are seeking a fresh start.

The unanimous view of SMEs is that the levy, as currently constituted, is failing—and that is to put it mildly. It is failing them, and it is failing their current and future employees. It is failing tens of thousands of the people who most need help and, by extension, the communities in which they live. The Government must listen to the broad coalition of voices—including Labour, businesses and training providers—calling for a guarantee of Government funding for SME apprenticeships, independent of the levy, through the provision of a funded pot for SMEs. I very much look forward to hearing the shadow Minister, my hon. Friend Emma Hardy, further explain the excellent work that she and her team have undertaken in that respect. We need the Government to step up to the plate. The level of funding needs to be guaranteed to give certainty to SMEs and training providers alike, so that both parties can provide the apprenticeships that are needed and plan effectively for the future.

Education can provide equality of opportunity for everyone, at every stage of life, if there is an accessible progression pathway for everyone. It is vital that the opportunity presented by the reform of apprenticeships is used to create such a pathway. The current system prevents young people from starting their career journey, because the system fails to provide the support they need. Such a lack of support is denying SMEs opportunities to recruit the apprentices they require to help to address the productivity gap.

National Apprenticeship Week has just ended. I hope the Minister used it to listen carefully to those in the sector who have been lobbying the likes of my hon. Friend and me, and I hope that the Minister will take that advice on board to improve the system that the Government created. In this post-Brexit world, our country cannot afford to get this wrong.