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Like many of you who will have read Mark Dawe’s comments on the non-levy apprenticeship allocations. I have worked in the skills sector for over 20 years and I don’t think I ever felt as demoralised and bewildered as I do right now. It must be bad. I’ve never written an article like this before!

I think Mark has it spot on; at best it is total incompetence, at worst a cynical attempt to reduce non-levy apprenticeship delivery particularly from those in the sub-contracting independent sector.

I have been telling myself all day, perhaps naively, no that can’t be true.  I’m not a conspiracy theorist; I work in tech and finance (not much room for conspiracy there), so it must be just a major cock up. I felt compelled to try and make sense of this: what motive could there possibly be for derailing apprenticeship delivery?

I put my finance head on because ultimately, I believe that is what this is all about. Cast your mind back to the announcement of the levy. Imagine how that came about. I have a vision of the Treasury team sat round the table with George Osborne saying, “Okay brainstorm session, how do we further squeeze departmental budgets without committing political suicide”.

One very quiet Treasury official puts a hand in the air and says, “It’s a bit crazy but hear me out, what if we can get business to pay for all the apprenticeship training across the country”

George replies, “like we did with pensions you mean”.

“Yes, let’s introduce a levy on the largest employers, (we won’t call it tax because we said something in the manifesto about not increasing tax) they won’t use it all and the surplus will fund the non-levy paying employers who want apprentices. Oh! And how about this, let’s make it a price driven market, employers will drive down the cost of training and the money we raise will go further. Meaning, we [Treasury] will have a nil cost on the balance sheet and we can shout about the growth in apprenticeships”

“Genius” George shouts! “I’ll announce it in the Autumn Statement”.

If you are in any doubt that this was the driving principle behind the Apprenticeship Levy, read the Commons Library briefing paper ‘Apprenticeship Levy’ published May 6th, 2016.

Then we had the 18 months of rhetoric, more competition in the sector, business in the driving seat, a market driven approach and negotiated pricing that will lead to discounting. Ultimately Treasury getting more bang for someone else’s buck.

I don’t know about you but I’ve sat with several large levy paying employers. Usually it’s Finance and HR in the room. The driver for Finance is get me this money back! For HR it’s how do we do that? Not quite the tough price negotiation the Treasury was hoping for.

Let’s quickly move through time. We are in early 2017. The warning light starts to flash for Whitehall when so many providers, many of who were new to direct contracting, make it on to RoATP. That’s okay, don’t panic; it just means levy paying employers will have a more competitive market to choose from and so price will be driven down (but not if large employers prefer to choose the maximum funding values because they just want levy contributions back as efficiently as possible). Then the warning light starts to flash like a Belisha Beacon when the profiles in the tendering process for non-levy apprenticeship delivery amounted to over a £1.5 billion.

Hang on, there may be a slight flaw in this genius levy plan. It is that we won’t know how much levy is unused for quite some time and this free market economy has allowed a motivated, effective provider base to really gear up for the May launch. The new entrants are likely to be hungry and will drive the market growth quickly. Isn’t that what the government wants I hear you cry; 3 million apprentices and all that!

No, because the Treasury never intended to pay for it. The warning light for Whitehall means they have just realised that non-levy demand will outstrip unused levy contributions, certainly in the short term. The problem is cashflow, that basic commodity we in finance value above all else. The Treasury hasn’t budgeted for this early demand and lack of available levy funds; in fact I would guess that they have reduced budgeted government spend on apprenticeships substantially from May 1st.

Let’s put this in a business context. What might a business do to sort out such a cashflow crisis? You always start with the things you can control and usually that means spend. You would slow down spend in the short term to try and ease cashflow. The revenue for the Treasury, which in this case are levy contributions are fixed and will be paid over a prescribed timeline, so there isn’t much you can do with that.

How best to slow down spend? Easy, disrupt the supplier market by pausing the new non-levy allocation. Added to that you might offer a greatly reduced budget for spend for the immediate and short term, which has manifested itself in an inadequate interim allocation to the current contracted provider base. This means that those motivated, effective providers many of whom are sub-contracting with the current contracted provider base and who would drive growth and so increase spend, will now be starved from doing so. The 3 million apprentices target is for 2020, 3 years away, but the cashflow problem is right now!

There is of course another approach; invest further in your business, beg borrow or steal if you must because this is a short-term problem that has been created not through poor business performance but through poor planning. The long-term payoff is worth it. Do not compound your mistake by starving a supplier base to the point of extinction because that will ultimately destroy your business which in this case is the apprenticeship brand. There are so many potential tragedies here: the human cost in terms of lost opportunities for our current and future workforce, the potential loss of talent from our sector, the damage to the apprenticeship brand which could take a generation to recover, the lack of investment in skills at a time of such uncertainty for UK PLC, but by far the most tragic thing of all is that it was and is completely avoidable.

We in the sector are sometimes guilty of living in our bubble using language and context that is foreign to the outside world. This is a moment that we need to take this message beyond our sector, outside our bubble; so my plea to you, and many of you will be more equipped than I to do so, is let’s get this out there to mainstream media, social media, petitions, politicians, the student union, trade unions and anyone who will give this a voice. It matters too much to be assigned to history as the missed opportunity of the Apprenticeship Levy.

Paul Irving is Managing Director of Skillswork

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