Apprenticeships: SMEs

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 the Member for Kingston upon Hull West and Hessle (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.

It is always a privilege to serve under your stewardship, Mr Davies. I thank my hon. Friend the Member for Slough (Mr Dhesi) for raising this crucial debate. It is particularly important to me, as a former engineering apprentice who came through this process.

I left school with CSEs, and I walked into the careers office one day and they said, “What do you want to do?” I was not sure whether I wanted to stay on or do something else. My dad worked for BSA in Birmingham, where they made motorcycles and firearms. It was one of the biggest motorcycle manufacturers in the world at the time, but unfortunately only a few are now made, in Meriden—not as many are manufactured in the United Kingdom as we would like. I explained what my dad did as a capstan setter operator—that is probably a foreign language to most people in the Chamber, but he operated a repetitive component-manufacturing machine. They said, “Oh, right. Do you want to go into an engineering apprenticeship scheme?” and I said yes, so they offered a year of off-the-job full-time training at Garretts Green Technical College, a local college that no longer exists. Within six months of starting, we were offered interviews, and I was privileged to be offered an apprenticeship at Delta Metals, Delta Tubes as it was then, which unfortunately no longer exists, either. I made my way through various phases of that and ended up at Birmingham Polytechnic, which also no longer exists in that form and is now Birmingham City University. I learned a huge amount about engineering and afterwards I was able to set up a small manufacturing and engineering company with my friend Mr Olley, who is a great friend to this day. That allowed us to move forward. As my hon. Friend the Member for Slough said, it allowed me to move forward as an individual, perhaps above the position that I had been in, and to grow up, both physically and in terms of my skills. It was a huge opportunity.

I concur with my hon. Friend the Member for Slough about what the Government are doing at the moment with the levy, and about the onerous conditions the levy puts on the employer, as it stands. Employers are under a huge amount of pressure to try to conform to something that they cannot. They find it very difficult to come to terms with some factors, as eloquently explained by my hon. Friend.

If we are going to look at upgrading more people, particularly post Brexit, we need a far greater understanding of the engineering and manufacturing sector. Of course, the services sector is important, but we cannot rely on it alone given the downturns we have had in overall GDP when the financial sector collapsed. Germany does not suffer as much because it has a huge engineering and manufacturing sector, which acts as a boost and a steady hand. Now, with our independent status, we need to have more of that independence ourselves, to be able to move forward.

It is a pleasure to serve under your chairmanship, Mr Davies. I thank the hon. Member for Slough (Mr Dhesi) for bringing forward the debate. Westminster Hall may not be as busy as he would like; I am sure that is not because it is Thursday and the day the House rises. It is probably because there was a debate earlier in the week about the apprenticeship levy. Just like buses, we get two debates in one week, following National Apprenticeship Week.

The hon. Member for Slough set out the issues around the apprenticeship levy, and the challenges for small and medium enterprises, very well. I was interested to hear him say that he had his own start-up construction company, so maybe I need to have a chat with him about his experiences at some point. I was concerned to hear the numbers that he gave, including 30,000 to 40,000 current vacancies and the prediction that 75,000 places will disappear, going forward. We need to hear what the UK Government will do to rectify that.

We also heard about what was described as a downward trend in the number of apprentices since the apprenticeship levy came in. That is not replicated in Scotland, where there has been an increase in the number of apprenticeships created year on year for eight years; I will come back to that.

A big concern was raised—again, I want to hear what the Minister says about it—about what is happening with unspent levies, and the fact that there is manipulation of people’s classification within their work environment, so that companies can draw down the levy money without creating the net benefit and additional positive outcomes, which are key when accessing money from the levies. We need to hear more about the governance of that.

I was struck by the opening remarks by the hon. Member for Birmingham, Perry Barr (Mr Mahmood), who said that he did not know what he wanted to do when he left school. I was like that myself at one point. We have taken very different career paths, but I do not know what it says about the calibre of politicians when there are two of us here who did not know what we were going to do, but have somehow ended up in this place.

It is a pleasure to serve under your chairmanship, Mr Davies. I thank my hon. Friend the Member for Slough (Mr Dhesi) for securing this debate. I must say it is also a pleasure to see the Minister still there in her place opposite me, to continue our discussions from Tuesday.

I will start by commenting on my hon. Friend’s speech. He started with an interesting point about the differences between Germany and England in the status of apprentices and how they are viewed. I saw that when the Education Committee went to Germany, and I was struck by how fantastic the system is there. Of course, there are structural differences that mean we cannot replicate it here in this country, but I think we can all agree that we need to keep selling the idea of apprenticeships, talking them up and explaining what a good thing they are for our country.

My hon. Friend made a very good point about the falling apprenticeship numbers in small businesses. Out of all the figures that he mentioned, the one that struck me most was the figure of 34% in small businesses. Small businesses have been hit even harder than medium-sized businesses by the apprenticeship levy. He spoke passionately about apprenticeships in Slough; in fact, I was at the event with him where he talked to some of his fantastic apprentices from Slough, and I was really impressed by their passion and dedication to their training.

My hon. Friend was right to highlight the falling numbers of level 2 and level 3 apprenticeships. Very few people know at 16, or even at 18, what they want to do when they move on in life, so we need to start where people are at. If people are not ready to start at level 3 —if they have not been able to achieve as successfully as we would all like them to in school—they need that level 2 start to enable them to make progress and to fulfil their ambition and achieve social mobility. I am sure that we all agree with that.

One industry prevalent in small business is hair and beauty. Routes into hair and beauty and other apprenticeships include the level 3 qualification, which the Government just cut thousands of, and T-levels. T-Levels will be the major route into higher-level apprenticeships, but they are not yet ready, and in the hair and beauty industry they will not be ready for years. The pathway to these apprenticeships needs to be solid, small businesses need to know what is happening and the funding needs to come through. Otherwise, we will see an even further drop in apprenticeships, on top of the challenges of the apprenticeship levy.

My hon. Friend is absolutely correct. I have questioned the whole concept of T-levels before. If they are a solution to a problem, what problem were they trying to solve? I have not quite been able to figure that out yet. They almost seem to be trying to ram themselves into a system where they might not necessarily be needed or, indeed, wanted. He makes an important point: if we take away existing qualifications before establishing the T-level, we will leave a gap. What will happen to the people who want to access those qualifications during the gap? Perhaps we might debate T-levels after recess and dig into the question in a lot more detail.

My hon. Friend the Member for Slough mentioned the fall in SME apprenticeships, which has come about as a direct result of the levy. There has been a fall of 23% overall, with a fall of 171,000 in SME apprenticeships. That is down an estimated 49% since the levy was introduced, and it is a huge fall. Particularly concerning to me, as I mentioned on Tuesday, is the quite shocking 20% fall in 16-to-18 apprenticeships. From the reports I have seen, SMEs receive only half as much apprenticeship funding compared with April 2017, when the levy was introduced. Traditionally, SMEs have been the largest recruiters of young apprentices, and they have generally been the recruiters of apprentices at a starter level. It will impact on our ability to grow our own talent if we cut off opportunities for young people and cut off the lower levels that we need.

On Tuesday, the Minister said:

“The apprenticeship levy is helping businesses large and small to access the high-quality training that they need.”—[Official Report, 11 February 2020; Vol. 671, c. 258WH.]

I have to say that the Minister may be a little bit mistaken, because I am not sure that the apprenticeship levy is helping small businesses to access the high-quality training that they need. As I just said, I do not think that they can actually access all the funding that they need.

I congratulate the hon. Member for Slough (Mr Dhesi) on securing the debate. I warmly welcome his keen interest in apprenticeships and am particularly grateful for his work to celebrate local apprenticeships last week, which, as he pointed out, was National Apprenticeship Week. I believe that he visited a number of his constituents, including those completing apprenticeships in companies such as KFC. As he kindly highlighted, last week was a fantastic opportunity to bring the whole apprenticeship community together and shine a spotlight on how amazing apprenticeships are for social mobility, for our economy and for moving people forward.

It is fantastic that more than 8,000 people in Slough alone have started an apprenticeship since 2010, and that is over a range of areas, ages and sectors within Slough’s community. The hon. Gentleman may also be aware of a Slough-based company called Resource Productions, an SME that does an excellent job working in the film industry, with clients such as Disney and Pixar. Dominique Unsworth is its CEO and also a Government SME apprenticeship ambassador. Her work is vital in order to connect more SMEs with apprenticeships. She has recognised just how important it is to employ apprentices and spread that message. I am pleased to note that, at Ms Unsworth’s request, the National Apprenticeship Service is hosting an event with Slough Aspire on 31 March. If I am still in post, I shall try to come along, and I am sure that the hon. Gentleman will also attend.

As was pointed out, this is the second debate on apprenticeships this week. The first focused on the effectiveness of the apprenticeship levy. We should not forget that the apprenticeship levy funds apprenticeships for employers of all sizes, including SMEs that do not pay the levy. The Government recognise the need to ensure that our programme delivers for employers of all sizes—I know that that point was laboured by the hon. Gentleman and by other hon. Members. For that reason, we are making changes to benefit small employers, so that they can get the most out of apprenticeships. In fact, last month, we began to transition small employers that do not pay the levy on to the digital programme that was mentioned. I will promise to meet the hon. Member for Slough so that we can look at the portal together to address some of the issues that he raised.

I appreciate what the Minister has said, but the central question is this. When these apprenticeship training schools or colleges are set up, the capital support that they need for the equipment is more important. Will she look at that?

I thank the hon. Gentleman for his comment. IfATE does evaluate the cost of putting on each apprenticeship scheme, and I regularly meet its representatives. In fact, I met them this week. I know that it is their priority for this year to look at the budgets that they set per standard.

The hon. Member for Kingston upon Hull West and Hessle (Emma Hardy) mentioned the question of money, and whether we had originally anticipated that all businesses would use all of the fund. We do not and did not anticipate that all businesses that paid the levy would need or want to use all the money; but we have put them in the driving seat to ensure that it works for them and their individual business model. We have been pleased to see the number of businesses that have transferred some of their unspent money to support smaller businesses within their supply chain.

The apprenticeship levy means that more money is available than ever—a big point to labour. This year we have increased available investment in apprenticeships to more than £2.5 billion—double what was spent in 2010-11 in cash terms. Our reforms mean that apprentices starting apprenticeships today benefit from apprenticeships that are of higher quality. Apprentices now receive substantial and sustained training, with their apprenticeships lasting a minimum of 12 months and featuring 20% off-the-job training and an assessment at the end.

We are pleased that the new apprenticeship standards across all levels are being designed and driven with industry, because they have to work for the employers. In fact, starts on standards represented more than 63% of all starts reported in 2018-19, showing that employers are already making the switch.

Quality is key. Today we have talked a lot about quantity and access, but we did not labour the point about quality. That is a priority of the Government, and has to be a priority for the businesses that the apprentices feed.

On quality, will the Minister address the point about ensuring that when companies take on apprentices, there is a long-term future for them? What are the Government doing to ensure that there is not a continual churn of apprentices, as companies may use them to fill short-term labour gaps?

Of course, an apprenticeship is a job. We want to ensure it stands out on any CV as a gold standard, lasting that apprentice throughout their career, whichever employer they go to in the future. Longevity within companies is important. I am happy to meet the hon. Gentleman to discuss how we can better foster the retention of apprentices. Our data to date is extremely promising.

To ensure that apprentices receive high-quality training, we have strengthened the register of apprenticeship training providers. Any provider that receives an inadequate Ofsted assessment for apprenticeships will be removed altogether from the register. We realise that we must go further to ensure that these opportunities are accessible to people from all backgrounds, whether they are starting a job or progressing in their career.

Small and medium-sized enterprises, most of which do not pay the apprenticeship levy, are integral to our economy, as was mentioned. The hon. Member for Kilmarnock and Loudoun (Alan Brown) mentioned Government procurement. That is an essential issue. In the December 2019 Conservative party manifesto, we committed to a significant number of apprenticeships in every big infrastructure project that this Government undertake. In the next year, thousands of smaller employers will transition to the apprenticeship service, giving them more control over their apprenticeship needs.

We are listening to the concerns of businesses, including SMEs, about the apprenticeship levy, and we are committed to ensuring that the apprenticeship programme continues to provide opportunities for people of all backgrounds, fulfil the needs of employers of all sizes and deliver for the economy more broadly. I thank the hon. Member for Slough for highlighting apprenticeships in this debate and encouraging further focus on SMEs as we continue to improve the apprenticeship system. I assure him that we will continue to listen to all stakeholders, including SMEs, to ensure that the apprenticeship system works for everyone.

It has been a pleasure to serve under your chairmanship, Mr Davies, and to engage in this important debate. I am particularly thankful to my hon. Friend the Member for Birmingham, Perry Barr (Mr Mahmood). My experience running an SME pales into insignificance compared with his considerable experience, not only as an apprentice, but in the engineering industry. Therefore, the Minister and the Department should listen to his points, which he made with great passion, to inform effective changes accordingly.

I also thank the Scottish National party spokesman. He passionately explained the long-term future for apprentices and highlighted the problem of a competitive gap appearing, not only between us and our European and global partners, but between England and Scotland, because of the different routes we have taken.

I thank the shadow Minister. I know she is passionate about this subject and has been since long before she came to this place, given her background in education. She spoke about the need to ring-fence the sizeable £1.5 billion budget and the request to host the WorldSkills championship. The Minister did not respond to that last point, but I hope we can give the shadow Minister some good news soon.

I thank the Minister for her kind words and compliments about not only my Slough constituency, but the work of Resource Productions and my good friend Dominique Unsworth, whom I know is an excellent ambassador. The Minister also highlighted the plethora of apprentices in Slough. As I explained earlier, the explanation is that Slough is a huge business hub. It is the most productive town or city per capita in the entire country. I could wax lyrical about my constituency all day, but I can see you are yawning, Mr Davies, so I shall move swiftly on. I look forward to joining the Minister on 31 March. I thank her for her interest. I also look forward to meeting her, as she kindly suggested, and I hope the shadow Minister will accompany me to that meeting, so that we may look further into improving the current digital offer for apprentices and SMEs.