Will apprenticeship vouchers work?

On 17 March, Government ministers announced plans to implement a system of apprenticeship vouchers by 2017. The idea is to put employers in control of the funding of apprenticeships by giving them a voucher which can be used to secure a discount on apprenticeship training which they purchase from approved providers. The proposal looks simple and involves the following stages: The employer registers details onto a online system and obtains a discount code. The employer uses the code when they make payments to a learning provider. The provider (which could include a college) reclaims the value of the voucher from the Skills Funding Agency (SFA). Apprenticeship Vouchers app vouchers.png The plan is to develop the online system over the next two years as part of a "larger employer facing digital apprenticeship resource". The Department for Business, Innovation and Skills have provided no more information beyond a one page briefing but have made three promises: the new scheme will not cost any extra money because it is simply a change to the distribution mechanism, there will be no winners or losers the new plans are much simpler than other approaches considered recently. AoC's statement on the plans is here https://www.aoc.co.uk/news/aoc-unconvinced-apprenticeship-voucher-scheme. This note sets out our concerns about voucher administration in more detail. 1. Protecting the rights of apprentices The new scheme puts the employer in full control of the Government funding for apprenticeship training. In most cases this is right but there is a risk that some employers will abuse the trust placed in them and waste the money given to them by Government and the time of the apprentices they employ. The consequences for the apprentice are that public funding will have been devoted to their training but they may secure no benefit. In a time of limited public spending, their participation on the programme could well disqualify them from further support. The significant point here is that putting the employer in sole control of the decision-making makes it harder for a college, Government or the individual themselves to act as a check. Government's SFA currently monitors apprenticeship quality via the data it collects, the qualifications it approves and the evidence it receives from occassional audits and Ofsted inspections. SFA has difficulty keeping track of 1,000 training providers. Monitoring 200,000 employers will be a big step up. Colleges and training providers act as another check because they have a reputation and track record to protect with Government and employers. The vast majority of employers will also have good reasons to act properly but where they don't, there are few obvious checks to stop them. Once they have signed up a number of young people on the system as apprentices and secured a batch of discount codes, they can effectively take the money and run. Finally the apprentice themself has a role in ensuring they get their training that they are entitled to. A system driven exclusively by employer needs is one that assumes the employer and apprentices interests are always aligned. The current model seems to give the voucher to the employer rather than to the apprentice. 2. Targeting apprenticeship funding Issuing an apprenticeship registration number and voucher will encourage employers to sign up. There are five million employers in the UK, two million of whom are registered for PAYE and VAT and 200,000 of whom employ apprentices. The Coalition Government wished to increase employer participation in apprenticeships and it is very likely that the new system will help persuade more employers to sign up. It will cost them nothing to register the details and it is reasonable to assume that lots of vouchers will be issued fairly quickly. The issue will then turn to voucher use and actual apprenticeship activity. There are a couple of issues to consider: Although employers will spend nothing when they sign up to obtain a voucher, they will need to part with their own cash to pay for training when they actually come to use it. This, plus the logistics of organising the training, is likely to result in the stockpiling of vouchers. Like air miles, quite a large number of vouchers will be issued but not used immediately. the introduction of the voucher system happens at a time when Government is also trying to shift the balance of apprenticeships towards higher quality, longer programmes at Level 3 and above. Employers who currently employ apprentices may find that there is not a suitable framework because the programme has shifted into areas where they do not have existing employment or training needs. 3. Controlling public spending The original selling point for routing apprenticeship funding via employers was made by UK Commission for Employment and Skills and suggested that Government would apply looser budget controls to tax credits for apprenticeships than to training grants. This option was ruled out by the Coalition Government and it is worth noting that there are now tighter controls on most tax credits (to use technical terms, they are now being shifted within Departmental Expenditure Limits). Unless things change, spending on apprenticeship vouchers will be tightly controlled with an expectation that overspends or underspends are less than 1% of the original budget which covers the period from April to March. Managing this will be a real challenge, particularly if there is a growing stockpile of uncashed vouchers resting with employers. Government will face a choice between suspending further employer registrations or adjusting the money that colleges and training providers can reclaim. Neither is attractive. Any action that Government takes on registrations will affect employer confidence. When registrations next open, it is likely that there will be a rush to sign up. The alternative approach of adjusting payments to colleges and training providers risks hitting their cashflow and could force some of them to lay off staff. A stop-start approach would send the wrong message about the nature of high quality training. Employers who can afford to pay for training and will have a financial incentive to use up vouchers quickly. Providers will also have an incentive to front load training. These budgeting and timing issues are very real problems in the current apprenticeship funding system but they are less acute because of economies of scale. Responsibility for balancing supply, demand and cashflow partly rests with colleges and training providers who manage allocations worth tens or hundreds of thousands of pounds or even more. 4. Prices The idea behind presenting the employer voucher as a discount code is that it reinforces the notion that an employer must pay for training, that Government funding is a partial contribution and that there are no fixed prices. The hope is that employers will drive prices down. Making this happen will be a challenge for those large employers who have linked training centres but experience also shows that education markets often see prices drift up to the maximum. Employers will also want to make maximum use of the Government money available. If they do secure a lower price for training, employers will want to re-use the voucher again to secure maximum benefit. The administration will be more complicated if an employer uses the same voucher several times with several providers. A more immediate problem will be the work involved in setting the maximum Government contribution to different apprenticeships. There are currently three different apprenticeships ratecards: the rates paid to the new Trailblazers the rates paid to the more recently approved apprenticeship frameworks (using SFA's formula introduced in 2013) the rates paid to older apprenticeship frameworks (which were maintained at their old prices in 2013). There are also a variety of supplements and discounts relating to age, the postcode of the apprentice (to identify disadvantage), the size of the employer and the type of programme. Bringing all of these rates into a single, simple list of maximum Government contributions while avoiding turbulence associated with winners and losers will be difficult. Doing it at a time when there are large numbers of new trailblazers (more than 290 at the last count) and uncertainty over the future of existing frameworks (another 200) will be a very big challenge. 5. Keeping it genuinely simple A key assumption is that the registration process will work smoothly. Government experience with large citizen/employer facing IT systems (HMRC tax collection, student loan applications etc) are that matters can get quite complicated: the user doesn't always have the right information at the time they sign up. This is less of an issue with systems used repeatedly (for example PAYE) than with systems used infrequently (eg Self Assessment) ID checks and passwords are needed to protect systems from fraud and hacking. Government funding for apprenticeships currently involves checks on identity, residence, age and employment status which might disqualify an apprentice from funding. The Government will not want to pay for the same apprentice twice; will want to avoid spending the apprenticeship budget on 14 year olds or 74 year olds both of whom can legally be in work) and will want to direct money to those with three years ordinary residence in the UK or EU. DWP issues about 500,000 new national insurance numbers a year to EU and non-EU citizens but possession of an number is not sufficient. The student loan system has a link across to the Passport system which allows some automatic cross checking but it’s highly secure, took several years to set up and still leaves about 10% of loan applicants needing to send in their passports or residence documents. Finally, part-time employees cannot become apprentices. Large employers with a substantial throughput of apprentices will manage more complex registration systems. Smaller employers may well find themselves using brokers to navigate the process. One feature of current privately run voucher systems is the way in which intermediary websites act as online brokers. It is easy to imagine some of these online entrepreneurs promising to secure a batch of vouchers for a medium sized employer by offering to take their payroll data to navigate the registration system in return for a commission. 6. Ensuring the online system works The apprenticeship voucher scheme will be more complicated than the long established or new voucher schemes run by the private sector for several reasons: additional checks on identity, residence and eligibility associated with public funding. calculations of the value for each voucher depending on the type of apprenticeship and the characteristics of both the apprentice and employer. adjustments needed when employers make a mistake or change their mind. Vouchers will be based on the characterstic of the apprentice and the standard they’ll take. the need to manage budgets and reconcile data. The Coalition made great progress in cutting the cost of new system development but big systems are still quite expensive. The Student Loan Company is currently spending more than £100 million on a comprehensive system upgrade. HMRC and DWP both have substantial IT budgets. The apprenticeship voucher system may not be quite so big but it will still involve spending of more than £1.5 billion, more than 500,000 apprentices records at any point and as many as 200,000 employer accounts. There will also be a need to reconcile the data with SFA training data collected from colleges and providers. This makes it as least as complicated as the Education Maintenance Allowance system which had an annual administration cost of around £15 million for a caseload of 500,000 young people. Government is quite good at putting customer facing national IT systems in place these days but it will be necessary to develop rock-solid policy and processes. 7. Gathering accurate data The college or training provider acts in this process as a sub-contractor yet is presumably expected to collect and provide data via the Individual Learner Record (ILR) to ensure that activity can be monitored and official statistics collected. Reconciling ILR data with the voucher data will be a challenge. Will the new apprenticeship registration number differ from the Unique Learner Number which BIS has spent 10 years developing. Without data, it will be hard to make any progress in breaking down stereotyping by gender or ethnic origin or providing access to apprenticeships for those with special education needs. 8. Managing training procurement The new system promises more choice for employers but vouchers can only be used with approved training providers. The current SFA process contains lots of rules to provide assurance that the provider meets minimum standards in terms of governance, financial viability and track record. For employers covered by EU procurement rules (public sector, utilities – around six million people), the fact that SFA runs a procurement exercise means they don’t have to. A system that is more flexible for employers could also raise state aid issues if officials aren’t careful. In conclusion All of the obstacles listed in this note are surmountable but only if there is effective programme management. This, in turn, will require fixed policy, decisions taken according to a clear timetable, up front investment in system development and discussion about how changes to the distribution mechanism will affect employer, individual and provider behaviour. The last three years has seen a great deal of rhetoric about employer ownership of apprenticeship funding but too little discussion of the practicalties. Details matter.