Apprenticeships

Baroness Drake Excerpts

Thursday 14th October 2010 Lords Chamber

[Baroness Drake]

My Lords, the case for increasing apprenticeships is compelling. The seminal report by the noble Lord, Lord Leitch, in 2006 confirmed that the UK’s skill base remained weak by international standards, holding back growth, productivity and social justice. It stated clearly that, if the UK was not to slip down the league table and if businesses were to compete globally, a radical step change was necessary. It stated that skills were no longer a driver of success but the key driver of success. The noble Lord’s report set a series of tough ambitions for 2012, including half a million apprenticeships. The 2010 Ambition 2020 report by the Commission for Employment and Skills measures progress against those ambitions. It confirms that, without collaborative intervention by the Government, the UK labour market will face a shortfall of more than 3 million skilled people by 2020 and that, although the UK remains a significant economic force internationally, our productivity rate is outside the upper quartile of OECD countries and needs to increase by 13 per cent—that is some way when one reflects that a 1 per cent increase in productivity generates about £11 billion in additional GDP.

Recent OECD figures show that, in terms of skills, the UK is improving absolutely but not relatively. At the higher skills level, we hold our position, but in basic and intermediate skills, although we have clearly improved in absolute terms, our ranking has fallen slightly from 21st to 23rd. Yes, significant progress has been made, but other countries have made progress, too—some at a higher rate. We have to push ahead—no pause, no hesitation. Public spending decisions need to recognise that.

Apprenticeships are one of the skills success stories of the past decade. By 1997, apprenticeship starts had collapsed to 76,000. Compare that to the recent figures emerging of the strong growth in 2009-10, with about 280,000 starts and with successful completion rates at an all-time high of more than 72 per cent. However, it is not sufficient to arrest the decline; the UK must jump on the trajectory to world class. In an environment of public sector reductions, the Government are looking to the private sector to deliver employment growth, but that is unlikely to happen without a sustained commitment to delivering skills transformation.

About 80 per cent of employers offering apprenticeships report that they provided higher productivity, that they made them more competitive and that investment is normally recouped within two to three years. The CES estimates that, for the economy, apprenticeships return on average between £16 and £17 for every £1 of state investment and a 90 per cent employment rate.

I want to highlight three concerns. First, it is important to get the correct mix of apprenticeships as well as the correct volume. It would be wrong to maintain the latter at the expense of the former. Expenditure decisions should recognise the real need for higher-level apprenticeships. To do otherwise would provide a poorer match to industry needs and fail to recognise the impact of technology, automation and the knowledge economy. However, sectors have varying needs and the Government must secure an increase in higher-level apprenticeships while maintaining sufficient volumes of foundation apprenticeships, particularly in the service sectors. Inefficient trade-offs for political purposes between apprenticeship volumes and mix would ensure the delivery of suboptimal outcomes for productivity and competitiveness and should be resisted.

Secondly, decisions must be well informed and targeted by both company size and sector. We are all well aware of the skills challenges in science, technology, engineering and maths. Small and medium-sized enterprises do a lot of apprenticeship training. It is a myth that they do little. They account for the majority of places: 80 per cent of apprenticeships are provided by companies with fewer than 100 employees, with the majority in firms with fewer than 25 employees. The early data emerging on places in 2009-10 suggest that an additional 30,000 employers provided 40,000 extra places last year, with the vast majority being SMEs. There are still many more small companies to target.

Companies with more than 500 employees offer 5 per cent of apprenticeship places overall, so larger companies need to be encouraged to increase places, even to overtrain, and feed their supply chain. A major challenge to growth in apprenticeships will be the availability of employer places in key sectors. As so many other noble Lords have said, to drive up business demand apprenticeship frameworks must reflect up-to-date skill needs. Funding methodologies, delivery rules and audit regimes should balance guaranteeing quality and value for the public purse with the need for simplicity, which is often so important to so many employers.

Thirdly, it is essential to anticipate how the major skills challenges will evolve over the next five years. For example, there are cliff edges in those industries where the workforce is ageing and where apprenticeship starts are insufficient. As other noble Lords have said, engineering technicians and construction trades are just two. As has also been said, it is important to tackle this from both the demand and supply sides, to utilise labour market intelligence to inform young people where future skills demands are likely to be and to target firms where future skills challenges will be.

As many noble Lords have said, skills are a key driver of fairness. Lack of skills contributes to inequality, but acquisition of skills acts as a solution. Qualifications are correlated with stronger employment and higher wages. Young people have experienced the largest percentage increase in unemployment rates, which is why it is so important to see a clear expenditure commitment from the Government on increasing apprenticeships. The necessary drive to increase the number of young people entering university should not lead to the relative neglect of vocational education. Both the academic and the vocational are essential. The advantages of different learning programmes should be made clear to young people. An apprenticeship at level 2 provides a wage premium of 20 per cent for males and 4 per cent for females compared with lower-level qualifications. At level 3, the premium is 22 per cent for males and 14 per cent for females relative to level 2 qualifications. Employment rates for apprentices on completion are around 90 per cent, which is significantly higher even than degrees.

Finally, I shall refer to a point raised by the noble Lord, Lord Taylor. There is also a need to address continuing occupational segregation—the concentration of men in certain occupations and women in others. When I was an EOC commissioner, I chaired an investigation into occupational segregation, which showed that the greatest skill shortages were correlated with male concentrations. Such segregation was found to pervade the apprenticeship system. Unless the causes, such as cultural pressures, stereotyping and inadequate careers guidance, continue to be addressed, labour market inefficiencies will remain and young people will be denied access to opportunities.

I thank my noble friend Lady Wall for securing this debate, which is critical to the interests of the UK, employers and young people. The case for increasing apprenticeships is compelling. To hesitate will be to fail to grasp the prize of taking the UK up the rankings and making us world class in skills.