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28 April 2016

  |  CBI Press Team

Update

'Radical rethink' required for Apprenticeship Levy

Business concerned about levy, but committed to skills.

Image of 'Radical rethink' required for Apprenticeship Levy

The Government must collaborate with business to ‘radically rethink’ the design of the apprenticeship levy, if it is to deliver the quality skills training needed to support a more prosperous society, CBI Director-General Carolyn Fairbairn, will today (Thursday) warn.

She will highlight that businesses are committed to raising skill levels and support the Government’s ambition to boost apprentice numbers, but that there are growing concerns among firms about the current design and viability of the system.  Carolyn will say that the Government has the opportunity to create a “once-in-a-generation revolution” in skills, but it is currently only likely to deliver another “once-in-an-administration shake-up.”

Speaking to an audience of business leaders in the City of London, she will say that “firms are passionate about apprenticeships, and it’s this passion which drives deep frustration over the levy plans as they currently stand.”

She will emphasise that the Government must “take the time to draw on business' vast experience to make sure that the levy works for everyone, rather than rushing out a poorly thought through plan.  This isn’t what businesses want, and we don’t believe it is what Government wants either." 

The CBI is calling for:

  • A stronger role for the new Institute for Apprenticeships - include measuring and managing the system around the levy;
  • More flexibility in how firms can spend the levy – including on existing training and high-quality support for apprentices;
  • The digital system which manages levy spend must be ready and able to support the delivery of apprenticeship training which businesses need, in full and from the start. 

In her speech Carolyn Fairbairn, CBI Director-General, will say:

“Firms across the UK are emphatic that tackling skills shortages is the only way to succeed and create prosperity. They want to create quality apprenticeships and they’re ready to work with the Government to do this.

“But as it stands that’s not what the levy is doing.  We need to change that, which is why we are calling for a ‘radical rethink’.”

On the objective of the Apprenticeship Levy and the Government’s 3 million target, Carolyn will say:

“As a nation, what outcome are we trying to achieve on skills?  The Government has set out a target to create three million apprenticeships by 2020 and it deserves credit for its level of ambition.

“Business shares this goal to raise numbers - yet - despite the Government’s good intentions - the target could have unintended consequences.

“What’s being counted is three million started apprenticeships, not three million qualified apprentices. There’s a big difference.  Indeed, measuring success by the number of starts tells us little about whether the system is really delivering and could even drive the wrong outcomes. We don’t want this and I’m confident that the Government doesn’t either.”

On the design of the Apprenticeship Levy, Carolyn will add:

The Institute for Apprenticeships

“The Institute risks being an afterthought, a mere ‘standard-setter’, rubber-stamping standards in a system where key decisions have already been made. Instead of this, we think the Institute should be a ‘standard-bearer’, with the authority to shape big decisions on design.

“These would include measuring and managing the system around the levy, establishing success criteria which measure how it supports careers and closes the skills gap.”

Design flaws

“It is crucial firms get closer to doing what the Government promised - being able to get your money back if you have a good programme. 

“Currently, the levy misunderstands training only as apprenticeships and the current design encourages firms to rebadge their existing programmes.

“Companies are having to change the ‘spec’ of graduate or management training schemes - programmes that are working perfectly well - just to fit apprenticeship standards.

“When it comes to training – business knows best.  They should have the flexibility to choose the kind of training which is right for them, whether it’s labelled an ‘apprenticeship’ or not.

“Other levy systems in Ireland, Germany, Denmark, France and Quebec, give greater flexibility on spend than the UK Government is proposing. So it can be done – and this is how our levy should work too.

“It is also placing the value of apprenticeships only in ‘off-the-job’ training, restricting eligible spend to training with an external provider.  It risks devaluing the very thing that makes apprenticeships great. Learning in work, on the job, from someone who knows the ropes. 

“That’s why the CBI is pushing for an ‘allowable expenses’ regime for the levy so firms can recover the cost of valuable staff time and capital investment.”  

Transfer or pool funds

“Under the current plans, in the first year only spending within a company would be allowed.  If firms can’t transfer or pool funds, this would have real consequences for their business models and training practices.

“It’s positive the Government have said they eventually want to allow transferring and pooling, but after the levy has started. Committed employers will have to abandon much training that’s already working.”

On the current UK skills landscape, Carolyn will say:

“Skills are the number one business priority. They’re crucial for raising our productivity and staying globally competitive.

“Specific sectors - such as construction, IT and manufacturing - are struggling to recruit. We’ve got a critical shortage of technicians – the area best served by an apprenticeship system.

“Business are up for the challenge. They know that they need to work with Government and civil society to find the right solutions.

“In the last parliament, we saw positive reform to the skills system with apprenticeships really taking off and almost two a half million people being trained. That’s fantastic.  But in this parliament, firms want to see the same progress at higher levels that we’ve seen with level 2 and 3 skills. And business is ready to help do this.”

On the levy timetable, Carolyn will conclude:

“We’re less than 12 months from the levy’s planned start date in April 2017 – and for business, that’s the equivalent of tomorrow. The pressure of the Government’s deadline means that firms lack crucial information about the levy and a realistic lead-in time to prepare for it.

“Today, firms are having to treat the levy as a tax, because the headline cost is all they’re certain of.  Businesses of all sectors and sizes are still in the dark - cutting-corners isn’t in anyone’s interest.

“Government needs to work with business to resolve these issues before the levy launches. This means taking the time to get this right to design a flexible, business-led system – through the Institute – that encourages employers to spend on quality training opportunities.

“Government must also make sure the digital system which manages levy spend is ready to support the delivery of quality apprenticeships from day one.

“Business stands ready to help, advise and design a system that is fit for purpose. So let’s seize this opportunity and create change which will last several generations, not just a single administration.”

Introduction

It’s great to be here this morning.

And I’d like to thank Mark and the City of London Corporation for hosting us in the historic London Guildhall.

Over the centuries, Britain’s leading figures have walked these halls.

One of them was Thomas More – part of the Mercer’s Guild which met in this building.

And who is honoured with a stained-glass window in Guildhall crypt.

This year is the 500th anniversary of the publication of More’s ‘Utopia’.

Yet the fictional society he depicts had a few policies which – frankly – you won’t find the CBI calling for any time soon…

  • These included a ban on lawyers.
  • A ban on private property.
  • And a six hour working day.

But More also had a word to say on skills.

In ‘Utopia,’ all citizens had to learn agriculture along with one other trade.

Either weaving, carpentry, metalworking or masonry.

Fast-forward 500 years and skills are still vital, if rather different!


Today, it’s a great time to be a young person – full of opportunity.

But as change continues at breakneck speed, we also need to make sure everyone can reach their full potential.

Our economy is becoming more hi-tech. Between the 1980s and the end of the last decade, the share of ICT in our economy doubled.

But there’s been another important change.

In 1992 – not too long after I entered the workforce – about a third of jobs required higher skills.

Yet by 2022 – when my youngest child enters the workforce, almost half of all jobs will require some form of higher skills.

Skills are the number one business priority.

They’re crucial for prosperity.

They’re crucial for raising our productivity and for staying globally competitive.

When done right – they’re one of the greatest social contributions firms can make.

Yet today, specific sectors – like construction, IT and manufacturing – really struggle to recruit people with the right skills.

And we’ve got a critical shortage of technicians.  

The area best served by an apprenticeship system.

But businesses are up for the challenge.

Firms know that they need to work with government and civil society to find the right solutions.

For example, business needs to improve the signals it sends to schools, colleges and universities – about current and future needs.

And education must be able to respond.

I recently met a Leeds-based finance company who had expanded to Eastern Europe.

As they couldn’t find the skills they needed, they went to the local Lithuanian universities and defined the course they wanted.

Within a year – just one year – the course was up-and-running.

I’d love to see that happening more in the UK.

Of course, there are many different routes to higher skills – university, apprenticeships and other types of further education.

To solve our skills challenges we need more of them all.  

In the last parliament, we saw welcome reform to the skills system with apprenticeships really taking off.

With almost two and a half million people trained.

That’s fantastic.

But in this parliament, firms want to see the same progress at higher levels that we’ve seen with level 2 and 3 skills.

And business is ready to help do this.

intro

The business vision for skills

So today, I’d like to focus on the Apprenticeship Levy.

If I’ve learnt one thing in my first five months at the CBI, it’s that there is no more passionate champion of apprenticeships than business.

It’s this passion which drives deep frustration over the levy plans as they currently stand.

Just as a quick reminder - the apprenticeship levy will be paid by all firms with a payroll of over 3 million pounds.

Adding 0.5% to firms’ payrolls.

And costing a total of 3 billion pounds.

In past months we’ve been talking to hundreds of firms across the UK.

To be frank – the levy was not their preferred mechanism.

But now we’re in the design phase, business is determined to make it work.

To have its voice heard and concerns acted upon.

To do that we, the CBI, have been working closely with ministers and officials to communicate the business view.

Because unless the Government changes its course, the levy risks being just a ‘once-in-an-administration’ shake up.

Yet the real prize is a ‘once-in-a-generation’ reform that could really change things for the better.

So for the levy to work for apprentices, business and the economy we need to answer three crucial questions:

  • First, as a nation what outcome are we trying to achieve on skills?
  • Second, how can we best achieve this?
  • And third, when could a system that works be up and running?

So today, I want to set out why we need a ‘radical rethink’ on the levy.

And I want to offer a constructive suggestion for how the levy could work better to launch careers and change lives.

skills

What should the levy try to achieve?

So let’s turn to the first question.

As a nation, what outcome are we trying to achieve on skills?

Well, the Government has set out a target to create three million apprenticeships by 2020.

The Government deserves credit for their level of ambition.

And business shares their goal to raise numbers.

Yet – despite the Government’s good intentions – the target could have unintended consequences.

As one CBI member put it “the drive for numbers must not be ‘numbers at all costs.’”

What’s being counted is three million started apprenticeships, not three million qualified apprentices.

There’s a big difference.                                         

Indeed, measuring success by the number of starts tells us little about whether the system is really delivering.

And could even drive the wrong outcomes.

We don’t want this and I’m confident that the Government doesn’t either.


A successful apprenticeship is one which builds a career.

A successful skills system should not focus on whether you’ve started training, but where it takes you.

So businesses are clear:

The right outcome would be three million routes into great careers and three million lives changed. Not just three million starts.

So what does business suggest?

Meaningful success measures which put quality first and really help to close skills gaps.

Decided and overseen by the Institute for Apprenticeships.

achievewhat

How can we best achieve this?

The role of the institute for apprenticeships

So having defined our objective – let’s move to the next question.

How could the levy best achieve this goal?

Well, the levy should be rooted in the needs of business and apprentices.

Firms can’t be ‘just another stakeholder’ in this.

They are experts on training.

They are funding the system.

And the levy needs to be designed by both business and Government.

The Institute for Apprenticeships - which the CBI campaigned for - should be where this happens.

Comparisons have been made between the Institute and the Bank of England’s Monetary Policy Committee.

An expert committee with real authority.

But at the moment this comparison rings hollow.

And the Institute risks being an afterthought.

A mere ‘standard-setter’, rubber-stamping standards when key decisions have been made.

So what does business suggest?

Well, instead of a ‘standard-setter’, we think the Institute should be a ‘standard-bearer’, with authority to shape big decisions on design.

Measuring and managing the system around the levy.

Establishing success criteria, looking at how it supports careers and closes skills gaps and if necessary recommend how it could do this better.

In time, it must have a role in setting the levy.

Giving business a real say over its future direction.


Flexibility to spend on what your business needs

At the moment, there is a welcome consultation taking place.

And many of you are working with us in our ongoing discussions with BIS.

But only so much can be done with a design that’s fundamentally flawed.  

The levy misunderstands where the value of apprenticeships lies.

And as a result it risks driving the wrong behaviours and outcomes.

The first flaw is that the levy misunderstands training only as apprenticeships.  

The current design encourages firms to rebadge their existing programmes.

Companies are having to change the ‘spec’ of graduate or management training schemes. Programmes that are working perfectly well - just to fit apprenticeship standards.

And bringing no obvious benefit to trainees or firms.

So what should be done?

Well, when it comes to training – business knows best.

We’ve got quite a few HR Directors here today.

Choosing how to spend your firm’s money to train your staff is what you do. And you’re good at it!

You should have the flexibility to choose the training that is right for your company.

Whether it’s labelled an ‘apprenticeship’ or not.

The Government has pointed to other levy systems as examples.

And those in Ireland, Germany, Denmark, France and Quebec give greater flexibility on training spend than the UK government is proposing.

So it can be done – and this is how our levy should work too.


Flexibility to spend on creating quality

The second ‘design flaw’ is placing the value of apprenticeships only in ‘off-the-job’ training.

One HR Director from a small manufacturing firm summed it up: “for our electrical apprentices, the valuable learning is on-the-job.”

That’s right. Apprenticeships are about much more than classroom training. They’re about learning in work, on the job, from someone who knows the ropes.  

So – again – what does business suggest?

Well, the CBI is pushing for an ‘allowable expenses’ regime for the levy so firms can recover the cost of valuable staff time and capital investment.

We’d like the Institute to give business a real say on what spending should qualify.

This would help firms get closer to doing what the government promised.

Being able to get your money back if you have a good programme.


Between them, these two ‘design flaws’ risk creating outcomes which directly contradict the levy’s original aim.

At the moment – much of the investment in apprenticeships cannot be met from the levy.

As one MD put it – the levy “penalises people doing the right thing.”

Because it will become more expensive for firms to provide quality programmes than to pay the levy and do nothing.

That’s what economists call a “misaligned incentive”.

Many firms will go ahead regardless.

But many others are in a difficult position.

It’s important to remember this isn’t just about big business.

We’re talking about engineering firms with 140 staff wanting to scale-up.

Some schools will even be hit!

Many CBI members have already told us, with the heaviest of hearts, they will have to cut back the quality or volume of apprenticeships.

The exact opposite of what the levy’s supposed to do!

One engineering firm we talked to - a committed employer of apprentices - has a £2.5 million total training budget.

Their levy contribution will take a quarter of that.

So to find the savings to pay it, they are having to reduce their apprentices by one third.  

It’s important to say that cost is not the only issue.

But the current design is being driven too much by the government’s need for fiscal savings – not creating great careers.

A wider definition for levy spend and an allowable expenses regime would help change this.

bestachieve

Big questions remain

So we’ve looked at the objective and design of the levy.

But when – realistically – could a new system be up and running?

Well – right now – we’re less than 12 months from the planned start date in April 2017.

For business, that’s tomorrow.

Our members plan their people and training needs with lead-in times of years, not months.  

Why? Because it’s vital they get this right.

It matters to their business and everyone who’s part of it.

Today, firms are struggling to do this.

The pressure of the government’s deadline means that firms lack crucial information about the levy and a realistic lead-in time to prepare for it.

And today, firms are having to treat the levy as a tax, because the headline cost is all they’re certain of.

Firms of all sectors and sizes are still in the dark.

  • How much funding can be spent on each apprentice?
    We won’t find out until October, just six months before the planned launch date.
  • Who can levy funds be spent on? We won’t know until October, maybe later.
  • How will the system work in Wales, Scotland and Northern Ireland? We won’t find out until well after elections in the devolved nations.
  • What standards will be needed and can they be written quickly enough? Especially in sectors without established apprentice traditions.
  • How will the system change once it’s up and running? With government talking about adding functions in years to come. That could wreak havoc with business planning.
  • And the big question is – is the government itself actually ready?
questions

When can the system be up and running?

Well, today the government is still busy designing and testing.

The best we can hope for by April 2017 is a minimum viable system with elements still being ‘piloted’ after launch.

Even that is “fingers crossed” planning.

Because the system relies on a new “digital apprenticeship service” –designed, built and tested in year. A colossal and challenging IT project.

And one which needs to work for businesses from the start.

Because companies train in different ways: some pool funds, others spend in their supply chain.

In the last six years – for example – one of our technology members has driven over 11,000 apprenticeship starts in 7,500 different companies.

Yet under the current plans, in the first year only spending within a company would be allowed.

With real consequences for business models and training practices.

It’s positive the Government have said they eventually want to allow transferring and pooling, but it’s after the fact.

Committed employers will have to abandon much training that’s already working.

So – at the moment – business is concerned the systems aren’t ready.  

And the government’s timeline is looking extremely tight.

running

The business proposal

But what does business suggest?

Well – as you’ve heard – this is a complex process.

And cutting corners isn’t in anyone’s interest.

Government needs to work with business to resolve these issues before the levy launches. This means taking the time to get this right.  

To design a flexible, business-led system – through the Institute – that encourages employers to spend on quality training opportunities.

And to make sure the digital system which manages levy spend is ready to support the delivery of quality apprenticeships from day one.

I believe that – together – we can get this right.

Business stands ready to help, advise and design a system that is fit for purpose.

So let’s seize this opportunity and create change which will last several generations, not just a single administration.

proposal

Conclusion

Ladies and Gentlemen,

From the guilds of the Middle Ages to the 4th Industrial Revolution - apprentices have underpinned our economy for more than 500 years.

Today firms are telling me…

They want to tackle skills shortages.

And they want to create quality apprenticeships.

But as it stands that’s not what the levy will do.  

We need to change that.

That’s why we’re calling for a ‘radical rethink’.

We need an apprenticeship levy whose ‘raison d’être’ is producing quality apprenticeships.

  • A levy where firms and apprentices are genuinely front-and-centre in the design process.
  • Which gives firms the flexibility to deliver training that creates careers.
  • And which makes sure the system is ready before it launches.

There won’t be any second chances.

That’s why we’re speaking up now.

So the next generation of British talent won’t face the question of what can be done to address the skills crisis.

For their sake, let’s make sure government and business work together to build a levy which is fit for purpose.

Many thanks.

conclusion

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