UPDATE ON FUNDING & POLICY LANDSCAPE Lawrence Rowley Funding Manager City & Guilds June 2014 Overview: Will employers engage Apprenticeship Reforms – summary Funding – Trailblazer pilots Consultation – future outcome? APPRENTICESHIP REFORMS

Over 400 Employers already involved in redesigning Apprenticeships Over 1.6m Apprenticeship starts this Parliament. We are committed to delivering at least 2 million. Over 700 Different job roles where you can already do an Apprenticeship. £117k Extra income earned by someone who completes a Level 3 Apprenticeship Apprenticeships – Interesting Facts Amount we invested in Apprenticeships last year Return for every pound that Government invests in Apprenticeships £1 £28 84% Level of employer satisfaction with Apprenticeships £1.5 bn Over 220,000 Workplaces already offering Apprenticeships At least 12 months Duration for new Apprenticeships 8 out of 11 Industrial Strategy sectors already covered by our Trailblazers New Higher Apprenticeships In occupations like space engineer and pilot 49,000 Apprenticeships in smaller businesses supported by the Grant for Employers Over 20,000 Apprenticeships pledged during National Apprenticeships Week 2014 By 2017/18 All Apprenticeship starts will be on new employer-led standards £1.8bn Added to economy by apprentices

APPRENTICESHIPS – EMPLOYER ENGAGEMENT FIGURES -UKCES EMPLOYER SURVEY Employers invested £42.9b in training in the last 12 months Around half of this £21.6b was in wages for those being trained £3.3b was spent on external providers (around £450m to colleges) 66% % 2011 The proportion of employees trained 55% 62% The number being trained has increased during this time from 55%-62% Employer spend…… The wage contribution is one reason why many small firms are reluctant to take on apprentices An average apprentice cost for employers could be £50K in wages and attributed costs over 3 yrs – so new funding reforms in particular year olds where a contribution is now required, could be a real barrier.

EMPLOYER ENGAGEMENT Employer engagement – can it succeed (Federation of Small Business view) Barriers for employers: Time - when focused on own business issues Costs to run/deliver training Perceived lack of expertise Employers understandably do not understand the qualification system, particularly with so much change Employers know what they don’t want, not too sure that’s the case knowing ‘what they want’ if its not their core business Lack of agreement amongst employers, except on the need for employability skills? THE HOLY GRAIL

NEW APPRENTICESHIP STANDARDS SUMMARY OF PROPOSALS The new Standards puts the employer in the driving seat Increase the quality of Apprenticeships, including a higher expectation of English and Maths Simplify Apprenticeships by introducing standards described simply by employers – one /two page document Employers will have greater control over funding for Apprenticeships, including the price (negotiating with providers on costs) Independent assessment

TRAILBLAZERS THEIR ROLE AND TIMELINES Trailblazers are leading the way in implementing the reforms. Trailblazers are led by large and small employers. They are leading the way in developing new Apprenticeship standards and assessment approaches for key occupations in their sectors. Over 400 employers are involved in the Trailblazers so far, who will build on what already exists in the vast majority of cases. The Trailblazers will pave the way for full implementation of the reforms during 2015/16 and 2016/17. With the aim all new Apprenticeship starts from 2017/18 will be on the new programme. As the new standards are developed and agreed, the SFA will cease funding Apprenticeships under former frameworks (how has still to be agreed)

GOVERNMENT CONTIBUTION For clarity, whilst employers will have discretion as to how to use any flat rate payments that they receive, the government will only co-invest in the costs of external training and assessment – in reality no change from current practice The government will not co-invest in: Apprenticeship wages, subsistence, travel to work or places of learning; Employers’ internal costs such as line management time, planning, coaching, normal performance management reviews or mentoring; The costs of recruitment of apprentices (although employers will continue to have access to support for recruitment through Apprenticeship vacancies); Any internal or external training not specifically listed in the standard and/or not covered by external assessment The costs of registration with professional bodies Restrictions on HE quals WHATS NOT INCLUDED

New Apprenticeships Changes to Assessment Apprenticeships will be graded for the first time. All new apprenticeships will have an end-point assessment - apprentice will be required to demonstrate competency across the whole standard. End-point assessment will be synoptic – assessing skills and knowledge in an integrated way – and will be graded. Trailblazers will set out their high level approach to the end-point assessment –what, how and who should assess. Successful completion of an apprenticeship will require passing pre-requisite qualifications, as stated on the standard, and passing the end-point assessment. Apprenticeships viewed with the same esteem as University. All Apprenticeships will last a minimum of 12 months

New Apprenticeships OVERVIEW

TRAILBLAZERS The first 8 Trailblazers were in the following sectors: More than 80 employers are involved in the first phase of Trailblazer projects They have successfully produced the first Apprenticeship standards and can be viewed on: Trailblazers will pave the way for full implementation of the reforms during and The proposal is all new Apprenticeship starts will be on new ‘standards’ by PHASE 1 Aerospace AutomotiveDigital Industries Electrotechnical Energy & Utilities Financial Services Food and Drink Manufacturing Life &Industrial Sciences

TRAILBLAZERS These are the industries involved in Trailblazers Phase 2 Anyone interested in getting involved, can PHASE 2 AccountancyActuary Adult Social Care Airworthiness Automotive Retail AviationButcheryCinemaCivil ServiceConstruction ConveyancingCraftDental HealthEarly Years Emerging Technologies Hair and Beauty Horticulture Hospitality and Tourism HousingInsurance Land-based Engineering Law MaritimeMedia Nursing Property Services Rail Design RetailTravel

TRAILBLAZER PILOTS – FUNDING OF NEW TRAILBLAZERS Apprenticeship Funding (Trailblazers) Value 66%Value 33%Additional (incentive) paymentsFixed BandingGovernment Contribution Employer Contribution 16-18Small Firms < 50 Achievement element English & Maths 1£18,000£9,000£5,400£2,700 £942 2£8,000£4,000£2,400£1,200 £942 3£6,000£3,000£1,800£900 £942 4£3,000£1,500£900£500 £942 5£2,000£1,000£600£500 £942 For every £1 that an employer invests in training an apprentice, the Government will pay £2. Incentives - for completion (10 per cent), for small businesses (10 per cent and defined as fewer than 50 staff, paid to the employer) and for apprentices aged 16 to18 (20 per cent). English and maths funding for apprenticeships, worth close to £1,000 per learner, would be in addition to these figures and would come entirely from the government – paid directly to the provider in this case Providers involved in trials will have to agree on a price with the employer and the employer will have to pay the provider a cash contribution of at least one third of the agreed delivery cost

TRAILBLAZER FUNDING WHAT WOULD THE PROVIDER RECEIVE? Apprenticeship Funding (Trailblazers) BandingGovernment Contribution Employer Contribution Potential Provider Payment 1£18,000£9,000£27,000 2£8,000£4,000£12,000 3£6,000£3,000£9,000 4£3,000£1,500£4,500 5£2,000£1,000£3,000 Additional payments will depend on size of business, age of individual and English & Maths requirements Payment will be buy PAYE or Apprenticeship Credit – this detail has still to be determined (recent consultation) Apprenticeship Credits – is a system where it would pool government and employer funds in an online account which employers can use to buy training for their apprentices. The government has said it wants employers to shop around so that they might lower their own — and therefore the taxpayers’ — actual contribution If the agreed level with a provider is above the maximum government contribution it must come from the employer Additional Payments: Small Business Achievement English and Math’s

SUMMARY OF BENEFITS Within the Maximum Government Contribution Additional to the Maximum Government Contribution Proportion of the costs of external training met by government Proportion of the costs of external training met by the employer Proportion of the costs of independent assessment met by government Proportion of the costs of independent assessment met by the employer Small business and young person recruitment payments made by government to the employer Completion payment made by government to the employer Funding for maths, English and support for apprentices with learning difficulties and/or disabilities QUICK REFERENCE POINT

EMPLOYER FEE COST TO EMPLOYER Banding12345 Employer Contribution£1,000£1,500£3,000£4,000£9,000 Large employer (50+ staff) ‘achieved’ 19+ incentive£500 £900£1,200£2,700 Net cost to large employer (50+ staff) -£500 -£1000-£2,100-£2,800-£6,300 Large employer (50+ staff) with achievement incentive - Example band 1 - £500 + £600 = £1,100 £1,100£1,400£2,700£3,600£8,100 Net cost to large employer (50+ staff)£100-£100-£300-£400-£900 Small employer (<50 staff) with ‘achieved 19+ incentive Ie £500 + £500 = £1,000 £1,000 £1,800£2,400£5,400 Net cost to small employer (<50 staff) with completed 19+ £0 -£500-£1,200£1,600-£3,600 Small employer (<50 staff) with achieved incentive Ie. £600, £500 + £500 = £1,600 £1,600 £1,900£3,600£4,800£10,800 Net cost to small employer (<50 staff)£600£400£600£800£1,800 In truth it’s the small employers who will benefit most from the system – a small firm can gain more than their original outlay once the incentives kick in – therefore whilst all the concerns are about small employers if the system is not too bureaucratic the system might just work if sold/marketed in the right way?

In the majority of cases most apprenticeships will be in the lower bands – therefore once incentives are taken into consideration small firms will pay no or minimal cash contribution post rebates. On average the government currently pays c£3,000 for 19+ apprenticeship with the employer expected to pay 50% - which in practice they never do and c£6,000 for year olds. Examples - using these averages: Under new proposals if £6,000 banding (band 3) the government would pay £6,900 for adult in a large firm (£6,000 + £900 achievement) rising to £9,600 for year old if also a small company. The employer would make a cash contribution of £3,000 - £2,100 net or - £600 (net cash gain) once incentives paid out and apprentice completes. If in £3,000 band the government would pay £3,500 for adults in large firms (£3,000 + £500 achievement) to £4,900 for small firms (all incentives). With a cash contribution of £1,500 if 19+ it’s a net cash payment of £1,000 or if 16-18(small firm) - £400 (net cash gain) IS IT REALLY A BARRIER? EMPLOYER FEE Apprenticeship Funding (Trailblazers) BandingGovernment Contribution Employer Contribution 16-18Small Firms < 50 Achievement element English & Maths 3£6,000£3,000£1,800£900 £942 4£3,000£1,500£900£500 £942

TRAILBLAZER FUNDING There is a lot of debate over the effectiveness of the proposed new funding system for apprenticeships – lets look at some of the concerns/conditions…… For the new reformed system to work, it should be simple, easy to navigate and the phasing of payments and grants must be designed in a way that does not harm cash flow and it must avoid unnecessary administrative burdens – what’s the chances the government will get this right? The ‘one off’ payments are pretty clear and the employer is free to spend these amounts on whatever they wish. This is a bit concerning because they may ‘wish’ to retain all the amounts for internal use, rather than passing a portion on to their provider? Over the next few weeks SFA will allocate each of the 11 trailblazer standards to a band – this will make it easier to look at more detailed examples of funding. Providers involved in trials will have to agree on a price with the employer and the employer will have to pay the college a cash contribution of at least one third of the agreed delivery cost It is hard to envisage how large employers with their own training organisations will behave in negotiating a rate for the job – they will look to maximise any incentives or look to reduce employer payments? HOW GOOD OR BAD ARE THE NEW FUNDING CONDITIONS

TRAILBLAZER PILOTS – KEY ISSUES The funding rate includes delivery and assessment – split dependant on standards? Assessment plans vs delivery requirements could be completely different from current framework – its possible qualifications will not feature (although expected under most standards) How will employers view payments to providers if work based and training mostly done on the employers premises by the employer. All new Standards will have independent ‘end point’ assessment and grading (forms of grading will vary across standards but seen as an integral element by the government) End point assessment will synoptic – assessing skills and knowledge in an integrated way – and will be graded How will the delivery model be different and need to adapt to new standards – what support will be required Delivery funding can only be paid to a provider who is a direct contract holder on the Register of Training Organisations. The government funding will only be released once there is evidence of the employer contribution (precisely what evidence, particularly in the case of employers who deliver directly has yet to be shared) It is not necessarily the case that all the money is paid up front, payment schedules are likely to be agreed between the provider and the employer and the government contribution will match the schedule agreed – this might help with cash flow issues? DELIVERY AND ASSESSMENT ISSUES FOR PROVIDERS

TRAILBLAZER FUNDING There is a lot of debate over the effectiveness of the proposed new funding system for apprenticeships – lets look at some of the concerns/conditions…… Firstly – get used to the name - Maximum Government Contribution (MGC) or the ‘cap’ -sounds like a film company? Income and apprentice salaries will not go towards employers’ one-third share of the costs In terms of the employer co-investment, or employer co-payment, the government will not change its position this must be a cash contribution. Any increase of the administrative burden on small businesses, or any problems with the implementation of the reforms and/or any increase in the overall cost of apprenticeships for small businesses will increase the risk of reducing the volume of apprenticeships, particularly in the short term. There is currently no cost to employers for 16 to 18-year-olds, but the new government one-off payment shows they recognise that employers may need support to invest in additional training for young apprentices – it just begs the question why add complexity? Matthew Hancock has assured the sector following the consultation the system will be ‘super simple’ Yet - BIS research has found, there is a risk that setting the employers’ contribution too high will put some businesses off hiring an apprentice – this is one reason for the additional/incentive payments. These additional payments could neutralise the cash contribution - not sure all this sounds or looks simple? HOW GOOD OR BAD ARE THE NEW FUNDING CONDITIONS

TECHNICAL REFORMS How is the final assessment of apprenticeships going to work? - Two thirds of the assessment should be at the end of the programme. The methods of doing these tests can include written tests, assessments, projects and skills tests. Each sector will decide how these assessments will work and how they might fit within qualifications Sub – Contracting - If funding goes direct to employers they will decide who to contract with. It should still be possible for a main training contractor to sub-contract with other providers Employer Demands - By making a direct financial contribution towards the cost of training, will employers have a greater incentive to demand relevant high-quality training and good value? Why would an SME engage -The government intends to offer additional financial support to the smallest businesses that take on apprentices (<50 SMEs) working towards the new standards. How will assessment be paid -To give employers on-going leverage over assessment of competence at the end of the Apprenticeship, the costs of assessment will be subject to the same co-investment percentage as external training, and employers will receive the government’s contribution in exactly the same way as delivery through drawdown. How are banding calculated -There are 5 bandings with each standard being allocated based solely on the anticipated cost of the external training and assessment needed for the apprentice to achieve the standard. How is English and Maths paid – this is paid separate to the MGC (max gov contribution) and will be paid direct to providers. TYPICAL QUESTIONS

APPRENTICESHIPS REFORM - CONSULTATION Funding methods for new Apprenticeship Standards Funding Options – PAYE or Apprenticeship Credit (90% of providers and majority of employers rejected the PAYE option in the first consultation) An “enforced” employer’s fee for 16 and 17-year-old apprenticeships under the funding reforms could spell the end of the apprenticeships for this age group? It could lead to an 18 to 24 English apprenticeship system? What sectors will fall under which banding – should hear by the end of June The consultation suggests a simple one-off payment to be awarded to the employer after the apprentice’s first three months. In the reformed system, where qualifications form part of the standard, the government will contribute to the costs of qualifications and licences to operate, provided these are required by the standard and they constitute the training required to achieve the standard. For clarity, whilst employers will have discretion as to how to use any flat rate payments they receive, the government will only co-invest in the costs of external training and assessment, under a co-investment contribution. SUMMARY OF KNOWN FUNDING CONDITIONS

QUESTIONS & ANSWER SESSION TRUST YOU FOUND THE INFORMATION USEFUL Any Questions