Apprenticeships (Small Businesses)

Esther McVey Excerpts

Thursday 9th June 2011 Westminster Hall

[Esther McVey (Wirral West) (Con)]

I want to add some personal knowledge as someone who has had an apprentice since last October and as the owner of a small business. It is the cost that concerns small businesses. What can the Government do to incentivise them to take on apprentices? We need to look at the cost to employ one and the payroll costs.

[Richard Graham]

My hon. Friend is absolutely right to raise those points. The incentives—the carrots—to encourage more small businesses are a crucial part of the argument, which I will come on to. May I take the opportunity to congratulate her? She has helped a number of us to take on our own apprentices, demonstrating the local and national leadership that she is renowned for in her constituency.

--- Later in debate ---

[Richard Graham]

The hon. Gentleman raises an interesting point about the ways in which we can get people back into work. The Work programme is starting this week. I am sure that he is already in touch with both the contractors and sub-contractors in his own constituency. Working closely with those who are rolling out the Work programme offers the best chances of getting older people back into the workplace. What we are really talking about today is apprenticeships that are focused specifically on the 16-to-24 age group. I acknowledge the hon. Gentleman’s general point, but I think that it ranges wider than today’s debate, although the Minister might want to comment on that.

I will return to the obstacles for small businesses and quote from the NAS in Gloucestershire, which works with hundreds of SMEs on a daily basis. We know that the definition of an SME can include businesses that, on a constituency basis, are really quite large. Companies employing 250 employees are big employers as far as I am concerned, but they are categorised as SMEs. One of the challenges for the NAS, which is resourced by one representative per county, is to engage with the small businesses that we are discussing today, which would technically be called micro-businesses. I do not use the term “micro” because I do not think that companies enjoy being called “micro”—they do not relate to that word. We are talking today predominantly about companies with fewer than 12 employees.

The NAS in Gloucestershire has spoken to more than 15,000 small businesses in the past five months. That is an astonishing achievement, and I pay tribute to its hard work in spreading its tentacles so widely among small businesses in our county. Its experience has shown that it has been able to spread the word about apprenticeships and their role.

As hon. Members have said, the role of the media and further education colleges has also been critical in spreading the word, but it can be very difficult to reach businesses of the size that we are discussing today. Many people

“simply don’t have the time to come out of their businesses”

to attend events. Such companies—often one man, one woman or a family working together—do not have the sort of people who typically sit on the committees of their local Federation of Small Businesses. We are fortunate if we can persuade them to come to an event, a lunch or a supper to discuss topical issues.

There are some breakfast clubs for very small businesses—I have certainly been to them, as have other hon. Members. They are quite good at doing business-to-business with each other, but the process of filling in forms, searching on websites, discussing with training providers and working out whether to go to the further education college or a more specialist training provider is quite time-consuming for people who are dealing with customers minute by minute in their shops.

To try to ensure that very small businesses get the opportunities to incorporate apprenticeships into their companies, the Department and the NAS are therefore supporting projects among group training associations and apprenticeship training agencies. In response to a letter that I wrote him, the Minister highlighted that

“recently, Group Training Association and Apprenticeship Training Agency models have been proving successful in making it easier for small business to take on apprentices.”

I hope that the Minister will share some examples of those successes with us, whether they are geographical or sectoral, and share with us how we can help him to promote GTA and ATA models in our own constituencies, as a way of helping small businesses to overcome the apparent obstacle of administration.

It is true, for example, that the South West Apprenticeship Company in my own constituency is able to provide the legal ownership of apprentices taken on by small businesses should there be future employment law concerns with an apprentice who has not worked out. Many of us will know that the business of finding the right apprentice is the single most important thing and often a very hard thing for a small company to do. As far as employment law is concerned, ownership of the apprenticeship is with the training provider, which can be enormously helpful to small businesses.

The next stage covers what sort of carrots might be offered to very small businesses as part of the incentive to take on an apprentice. I start from the presumption that if we were all able to persuade half the small companies in our constituencies to take on one apprentice each, we would have solved the youth unemployment problem in this country by that step alone. The opportunity, if we were able to seize it, would be enormous. The goal would be considerable, so how can we get closer to achieving it? We could consider two or three things, the first of which is to provide a financial incentive. In March 2010, there was an apprenticeship grant for employer scheme—AGE—which gave a straightforward cash amount of £2,500 to employers taking on their first apprentice. As a result of that incentive, which was offered for a limited period of three months, 5,000 unemployed 16 to 17-year-olds were taken on during that time.

It is right to ask ourselves whether that incentive was entirely motivated by a long-term solution for youth unemployment or by a short-term concern to keep teenagers off the unemployment statistics in the run-up to a general election. It is also right to ask whether cash incentives for taking on a first apprentice, without necessarily a time commitment on how long that apprentice will work, will always generate good long-term results, or whether that is a very short-term way to enhance small business profitability without necessarily leading on to career opportunities for 16 to 17-year-olds, but it is something on which perhaps the Minister might comment today.

A slightly different thought offered to me by the chairman of the FSB in Gloucester was to look at ways to subsidise apprentices over a three-year period. For example, when a company takes on an apprentice for the first time, a percentage of the amount paid by the employer could be reimbursed by the Government at the end of the first year. A smaller amount would be reimbursed in the second year, and in the third year all the cost would be absorbed by the company. That is a slightly different and more interesting model to look at, were the Government able to offer financial compensation for some of the employment costs of taking on new apprentices for small businesses.

Other ways to help small businesses to take on apprentices could be considered. One of them could be to rationalise the training costs for 18 to 24-year-olds as well as 16 to 18-year-olds. The Government have previously differentiated between the two age groups on the basis that getting people started is the most important thing and that, by the time people are 19 to 24, they should have more experience and more maturity to offer employers. But we know that that is not always the case. Some 19-year-olds and older people might still need considerable investment of time and effort by very small businesses to bring them to a stage where they can contribute to the growth of that company. The cost of that investment in time is as important to the smallest companies as the financial cost of paying apprentices for however many hours a week they are employed.

[Esther McVey]

I totally agree. If there is one thing that small companies have told me about the hurdles to taking on apprentices and about why they want incentivising to do so, it is that the hidden cost of spending time with a person, bringing them on, encouraging them and making them work-ready cannot be underestimated.

[Richard Graham]

I am grateful to my hon. Friend for making that point. She has direct experience of these things, as do so many Members here today. It is absolutely true that the smallest companies’ greatest fear on the administrative or bureaucratic side relates not necessarily to the paperwork involved in filling in an application form or designing an advert, but to the fact that a huge amount of time and effort may be required, hour by hour and day by day, to manage the apprentice. The worry is that the investment that will need to be made over a year or two before the apprentice can make a significant contribution to the business may not be rewarded at the end of that time because the apprentice might leave, might be recruited by somebody else or might not be able to deliver the return that the small business is looking for on its investment.

I want now to raise a few of the points that the FSB has raised with me, which it believes are relevant to the promotion of apprenticeships in the smallest businesses. On the promotion of ATAs to help small business, one advantage of such agencies is that they would employ the apprentice in the same way that the training company I mentioned in my constituency does. The ATA would deal with issues such as employer compulsory liability insurance, and help of that kind with modern administrative requirements would be useful.

On skill recognition, GTAs could provide an effective route for solving the problem I raised in answer to the point about tailoring the training of apprentices to companies’ requirements. GTAs might well be able to help design new training programmes for specific companies to meet their requirements. Component manufacturers in the engineering sector, for example, which are an important employer in my constituency, may have more concerns and requirements regarding training than we realise. There might be small businesses out there that need something like a GTA to help them design the appropriate training course.

Perhaps I can bring that point alive with an anecdote. In my constituency, we have two makers of high-quality shirts; in fact, when I made my maiden speech in the House last year, I was delighted to be wearing a shirt made in Gloucester. Their shirts are made from high-quality English cotton and sometimes cotton from abroad. They are made in England, but one of the firms is increasingly taking on workers from Poland, where there is a high-quality sewing qualification. People arriving here with that qualification can immediately be put on the factory floor to contribute to the making of high-quality English shirts. It appears that this country does not yet have a similar qualification, which could easily provide the basis for a new form of apprenticeship with shirt manufacturers in my constituency and elsewhere.

I have also touched base with the British Chambers of Commerce, and it is important to recognise its remarks on the take-up of apprentices among small businesses. It believes that there is a case for better marketing to businesses of the resources that are available to them and of the benefits of apprenticeships. If we follow the suggestion of my hon. Friend the Member for North Swindon (Justin Tomlinson), such issues could be covered in what would, effectively, be a marketing flyer. Indeed, it could be designed by the company that he used to run in Swindon. That could be done at very low cost—possibly even pro bono—and the Department could distribute the details with information on business rates.

The British Chambers of Commerce also wants to place greater emphasis on the relevant agency sifting through candidates to find the right ones, rather than simply box-ticking. It says that small businesses have

“a greater fear than larger companies of the wrong candidate”.

From my own experience, I know that finding the right candidate and spending time taking them through an induction programme before offering them a job, which is difficult for a small business, will be increasingly relevant.

Two weeks ago, I presented certificates to people on an apprenticeship course in a large distribution company in my constituency. I asked the gentleman in charge of recruiting apprentices how he did it. He explained that he took all the people who applied, and who had not been ruled out because of a criminal background, on a one-day induction course in his warehousing company. He made a point of having an escorted walk through the company, which was led by a manager who explained the business as the group went through the various parts of the company. A lot of candidates were ruled out early on because they simply were not paying attention or contributing. When the group sat down later for a PowerPoint presentation on the business and what it was trying to achieve, some of those at the back of the room were texting on their mobiles or BlackBerries—something, Mr Davies, I am sure would never happen in this Chamber. In effect, there was a series of soft hurdles, which, by the end of the day, had reduced the number of candidates from about 40 to 15.

The vast majority of our teenagers do not realise how important such things are and what an impact they will have on their job opportunities. There is therefore a duty on us all as constituency MPs, and possibly on the National Apprenticeship Service, to ask employers to lay out in schools, before teenagers leave after their GCSEs or A-levels, exactly what is involved in getting a job, because it is not just about writing a CV. The NAS and the Department for Education could do something on that. The Minister wears the hats of two Departments, and he might want to comment on the way in which the Department for Education could co-operate more with employers to promote apprenticeships for businesses and, indeed, for small businesses that decide to take them up, so that school leavers really understand the challenges ahead.