Institute for Apprenticeships and Technical Education (Transfer of Functions etc) Bill [Lords]

Debate between Neil O'Brien and Luke Murphy

2nd reading
Tuesday 25th February 2025 Commons Chamber

[Neil O’Brien]

I will come on to what businesses are saying in one second. The Government are doing two things that are going to be very bad for apprenticeship numbers. First, while apprentices are exempt from national insurance, the Budget—particularly its £25 billion increase in national insurance contributions—is cutting hiring and leading to job losses across the board. What employer groups are saying about that is pretty damning; be it the Institute of Directors, the Federation of Small Businesses or the Chartered Institute of Personnel and Development, they are warning of serious job losses as a result of the Budget. That tax increase, and the damage it is doing, is focused on exactly the type of jobs that apprentices might traditionally get, so apprenticeships are being hit by the backwash from the Budget.

Secondly, the Government are planning to move funding from apprenticeships to other areas. In opposition, Labour talked about allowing employers to spend 50% of their apprenticeship levy funds on other things. As the election drew nearer, that commitment seemed to be disappearing. On 20 November, the Minister said that the commitment to 15% was “currently being reviewed”, but just weeks later, on 9 December, the Secretary of State said that the Government were still committed to “50% flexibility for employers”. It would be interesting to hear from Ministers whether that 50% still stands now.

Given that the levy funds £2.5 billion of spending, 50% is a lot of money to potentially move out of apprenticeships. We can argue about whether that is desirable, but all things being equal, it will certainly cut funding for apprenticeships. We might also be wary that it will undercut the purposes of the levy and have high dead-weight. In fact, the Institute for Fiscal Studies has pointed out:

“In principle, this could help employers to pay for other forms of training that they and their employees would find valuable. But the history of these wider training subsidies, such as the former Train to Gain programme”—

a programme under the last Labour Government—

“suggests that the result is often that much of the spending goes on training that firms would have provided—and paid for—even without the subsidy.”

The apprenticeship levy, whatever its flaws, did at least attempt to address this problem of dead-weight and discouraged freeriding by large firms, so that firms that invested in their workers did not lose out to those that did not. Since the levy was introduced in 2017, real-terms spending on apprenticeships and work-based training has increased in real terms by about a quarter, from £2 billion to £2.5 billion.

In a written answer to me, Ministers have confirmed that the Department has a forecast for the number of apprenticeship starts, but they have also said that they will not publish it. If it was published, it would surely show that removing possibly half of the funding would lead to a substantial drop in the number of apprenticeships. Perhaps that is why we are not allowed to see it. Those same reasons are why the Government are going back to shorter apprenticeships and away from the higher level, reducing quality and cutting length to try to offset the hit to numbers from other Government policies.

There are bits of this agenda where we share the same goals. We all want to see more SMEs offering apprenticeships and more young people getting apprenticeships. Although on average twice as many people started apprenticeships each year under the last Government as under the previous Labour Government, we still wanted that to be much higher. Although we are interested in the same questions, we have quite different ideas for how we address them. Part of the Government’s answer is to abolish the highest level of apprenticeships in order to redistribute the money.

The level 7 apprenticeships that the Government are axing currently account for just 9% of apprenticeship spending, but a lot of good things will potentially be lost by abolishing them. I have been contacted by firms worried about the abolition of the solicitors apprenticeship, which is a great way into the law for people from less privileged backgrounds. One firm worried about that is Bolt Burdon Kemp, which told me:

“This will really impact social mobility into sectors like law, accountancy, and consulting. The traditional route into law is expensive and therefore without the apprenticeship scheme many would not be able to afford to do so. We also believe it will have a wider detrimental impact on the reputation of apprenticeships.”

It has taken such a lot of effort to get that route going, and it would be a huge shame to lose it.

Likewise, level 7 apprenticeships are opening up great jobs and leadership roles in the public sector, too. Some 56,000 people started apprenticeships in the public sector last year. More than half of management apprenticeships at level 7 are in health and education. In fact, they were identified as having a key role in the NHS’s own long-term workforce plan. Public services will lose out, as will ambitious apprentices.

Because level 7 apprenticeships are a small part of funding, I am worried that the Government will now go after level 6 apprenticeships, which is a much bigger share of spending. A lot of employers are worried about that, too. [Interruption.] The Secretary of State sighs as I say that. Presumably when the Minister gets to her feet, she will promise that they will not do to level 6 what they will do to level 7. It sounds like Ministers will be clear when they stand up, will they not, that they definitely will not do that to level 6 apprenticeships.

The last Government moved to make it more attractive for SMEs to take on younger people. From April, 16 to 21-year-olds have had 100% funding, rather than requiring the 5% employer contribution. We need to build on that by cutting bureaucracy and making it easier and more attractive to take on young people. Building on that would be more sensible than reorganisation, centralisation and the defunding of higher apprenticeships. This Bill abolishes IfATE and gives the Secretary of State significant powers as a result, but it says nothing at all about the new body, Skills England, which is intended to be at the centre of the skills landscape under this Government. That has been a pretty unwelcome surprise to some in industry.

In its briefing on the Bill, the Construction Industry Training Board noted that this was

“contrary to the previous characterisation of Skills England that was outlined in the…King’s Speech…and contrary to the vision for Skills England to be an independent body, established in law, with a cross-governmental role”.

The CITB makes an important point. IfATE existed to serve all employers—public and private—and across every Department. In contrast, Skills England will be a part of the DFE. The CEO of Skills England will be a job share between two civil servants who are currently running post-16 skills at the Department. I am told by former Ministers that they are good officials, but this is a recentralisation into the Department—as was pointed out by both the Chair of the Select Committee, the hon. Member for Dulwich and West Norwood), and the Liberal Democrat spokesperson, the hon. Member for St Neots and Mid Cambridgeshire.

[Luke Murphy]

May I ask the hon. Gentleman a question that I asked some of his colleagues earlier? In 2011 the last Government set up the Standards and Testing Agency, whose predecessor was a non-departmental public body that became an Executive agency, like IfATE. It sets statutory assessments for school pupils and develops professional skills tests for trainee teachers. The last Government did something very similar to this. Why was it okay then, but is not okay now?

[Neil O’Brien]

That is an important question. The hon. Gentleman is tempting me to go into the history of apprenticeship regulation in England, which dates back to 1536. I will not detain the House with all the details, but suffice it to say that that was a move from one arms-length body to another, so it was different from this. None the less, IfATE was better than either of those things, which is why we ended up there.

The very act of a further reorganisation is likely to compound the effects of the Budget and the decision to move apprenticeships money into other projects. Indeed, according to the Government’s own impact assessment, there may be a drop in apprenticeship starts while IfATE’s functions are transferred to the Secretary of State. It says:

“The transfer of function from IfATE to the DfE could potentially cause a temporary slowdown in the growth rate of new apprenticeships and technical education courses due to potential delays in the approvals process resulting from the bill.”

It also says:

“This may disproportionately impact disadvantaged learners, who rely more heavily on these pathways for career advancement.”

So there you have it, Madam Deputy Speaker. The Government are moving money out of apprenticeships, and the Budget will also hit numbers, but instead of focused action to boost numbers for young people, the Government’s response has been to reduce quality, cut length and axe level 7 apprenticeships to try to prop up overall numbers. Now we have yet another reorganisation —one that takes us away from an independent, employer-led system, and one that will risk, in the Government’s own words, cutting apprenticeship numbers and hitting the most disadvantaged. Oh dear, oh dear, oh dear.