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How to Fund Apprenticeships: past, present and future

In May 2017, the planned changes for the way apprenticeships are funded were launched. In this guide we explore what caused the changes, what they mean for training providers and how the impact can be managed effectively. 
Apprenticeship funding: the history 
In May 2017 Further Education funding was subjected to a revolution with employers now holding the purse strings. Where do the changes stem from? What caused such a dramatic turnaround? Is it welcome? Will it work? 
To decide this we must take a journey back to 2012 to explore the origins of the new scheme. 
‘The Richard Review of Apprenticeships’ was an independent investigation carried out by Doug Richard, an entrepreneur and Government adviser, into the state of apprenticeship education. The findings were varied but generally critical of the way things had become, and promoted a more puritan view of what an apprenticeship was. Historically, apprentices were at their very heart a relationship between an apprentice and an employer, years spent in service with an esteemed master, training in an art or trade, ‘accredited’ by a guild. 
The May 2017 apprenticeships ‘renaissance’ is rooted in rediscovering this original, close employer relationship and the changes were closely inspired by the Richard report’s findings. 
The Richard Review recommends: 
·      Government funding must create the right incentives for apprenticeship training 
·      The purchasing power for investing in apprenticeship training should lie with the employer 
·      Government should contribute to the cost, but this should be routed via the employer, in order to ensure relevance and drive up quality 
·      The price should be free to respond to and reflect employer demand. Government should only contribute to the cost of training that supports the apprentice in reaching the industry-agreed standard 
·      The payment should be linked, in part, to the apprentice passing a competence test 
·      A preferred approach would be to fund apprenticeships using the National Insurance or tax system – for example through a tax credit, similar to the R&D tax credit. The funding system should be kept simple and accessible, 
What were the changes that happened on 1st May 2017? 
Until recently, prime providers were set a contract budget for the academic year and delivered apprenticeships to the value of this budget, or via growth requests for over delivery. They did this through a mechanism of direct delivery to employers and a vast network of independent training provider subcontractors. 
The May 2017 changes mean that now, instead of apprenticeships being funded through direct contract from the Education and Skills Funding Agency (ESFA) as they were before , for a select group of prime providers, the government has ushered in this brave new world of an employer led funding regime. 
The new regime was well intentioned but the repercussions for training providers have been largely overlooked or not prepared for. The changes are reflective of the drive towards ‘efficiency’ in the sector, alongside staffing cuts and a programme of FE College area reviews pushing for college rationalization. They do place greater importance on the employer-provider-learner relationship, but at what price? 
The new taxation funded system, levied on employers with a salary bill of over £3M is designed to generate enough cash in the system to pay for all apprenticeships in future. In one fell swoop the ESFA have both reduced their spending and, theoretically, generated the extra cash required to fund the government target of three million apprenticeships by 2020. 
However, whilst successfully ensuring a degree of simplicity and incentive for employers, as demanded by Doug Richard, the new regime has actually served to create a whole new range of problems for providers. There are operational and logistical challenges that run deeper than the deliberations of the ESFA. These challenges go beyond training provider’s stresses over their applications to be listed on the Register of Apprenticeship Training Providers (RoATP). 
The new funding regime creates some real operational and financial challenges for providers: 
·      Providers must collect contributions from the employer in order to receive funding from the ESFA 
·      Time consuming credit control needs to be undertaken on a large number of employer clients 
·      Training providers must establish if employers are creditworthy 
Training providers will have new things to consider: 

·      What happens if employers don’t pay and you can no longer afford to keep the apprentice on programme? 
·      When an employer’s levy pot runs out how will you transition to a contribution model? 
In summary, the onus on the provider to be savvy and skilled for business transactions has increased tenfold. The administrative burden and the potential upskilling and staff resourcing issues are at odds with the streamlining and efficiency policy which has seen colleges forced to try to reduce their overheads, staffing costs and administrative teams. 

For more information, a question and answer session with our expert Phillip Speed and some great finance solutions tailored to the education sector, download our booklet.


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