Nida Broughton from the think tank the Social Market Foundation shares her thoughts on whether apprenticeships are good value for money…
Apprenticeships were described as the cornerstone of UK’s skills system in George Osborne’s last Autumn Statement. The Statement also gave additional detail on how apprenticeships are to be funded, with a levy on employers set to raise £3bn a year. But is this good value for money?
There are a number of advantages to apprenticeships. They can provide opportunities for gaining useful training whilst working, thereby improving apprentices’ future career prospects. In turn, a higher skilled workforce can increase the performance of firms and raise overall productivity. However, despite the potential benefits to both firms and employees, under-investment in training is a common problem. Taking on apprentices can be a risky investment if the employer thinks that they may well leave once they have completed their training.
So the Government has, for a number of years now, provided rewards and incentives for taking on apprentices. With a target for 3 million new apprenticeship starts this Parliament, more funding was sorely needed. Yet, simply more funding for any type of apprenticeship is unlikely to result in good value for money.
Worries about the quality of apprenticeships are long-standing. Last year, an Ofsted report found that of those inspected, a third of apprenticeships “did not provide sufficient, high quality training that stretched the apprentices and improved their capabilities”. Completing tasks such as making coffee and cleaning floors were being accredited as skills, and some learners were unaware they were on apprenticeship programmes.
Evidence such as this suggests that some apprenticeships have not yet got the balance right between provision of valuable training and on-the-job experience. Admittedly, the new levy system has the potential to bring in the magnitude of funding needed to improve quality. And a new employer-led institute – the Institute for Apprenticeships – is to be set up to oversee quality levels.
However, to really understand which schemes are valuable and which are not, we need to understand what types of apprenticeships make a significant difference to career opportunities and firm performance. Inevitably, this will be tied to the demand for skills. Indeed, the government recognises that it is the “critical need for high numbers of new technical and professional skilled workers” that presents a strong case for a high quality apprenticeship system in the UK.
It is clear that the value of apprenticeships varies widely. Research by the Social Market Foundation (SMF), and others, finds that Level 3 apprenticeships tend to be more valuable than Level 2, in terms of the wage boost they provide to apprentices undertaking them. The SMF study finds that Level 3 apprenticeships boost hourly earnings by around 16%, consistent with other studies. It finds little earnings boost attached to Level 2. This is in contrast to other studies which look at different time periods and use different data sources. However, there is a common thread running through all studies, which is that the value attached to undertaking a Level 3 apprenticeship is consistently higher than the value attached to Level 2. Directing funding towards encouraging more Level 2 apprentices to progress onto Level 3 apprenticeships is therefore likely to make a positive difference to job prospects. There is also wide variation by occupation and sector. Apprenticeships in areas such as engineering and manufacturing tend to provide higher returns than retail, for example. To really create value for money, it is important that funding is targeted towards areas that generate real returns, for employees, firms, and the wider economy.
Of course, over time as sectors grow and contract, the pattern of skills demand will change. The best sector to do an apprenticeship in a few years’ time will not necessarily be the same as it was a few years ago, or even the same sector as it is today. However, a vital role for the new Institute for Apprenticeships will be to track these changes and ensure that funding for apprenticeships meets the evolving needs of firms and the wider economy. That means capturing information on how well former apprentices from different programmes go on to do, and publishing that data to help both prospective apprentices and the Institute to decide how funding can best be used. Apprenticeship investment has the potential to improve the UK’s productivity performance. And the money needed for high quality programmes is coming through. It would be a great shame now, if having found a way to make the funds available, we do not invest them wisely in training that will make a genuine contribution to improving skills, pay and productivity.
Nida Broughton
Social Market Foundation (SMF)
nida@smf.co.uk
www.smf.co.uk