Westminster Hall debate on Apprenticeships: SMEs - Feb 13

Mr Tanmanjeet Singh Dhesi (Slough) (Lab)

I beg to move,

That this House has considered apprenticeships in small and medium-sized enterprises.

It is a pleasure to serve under your chairmanship, Mr Davies.

Apprenticeships should be the perfect vehicle for meeting the challenges of social mobility, bridging the skills gap and raising productivity. With the most recent Office for National Statistics data showing that productivity is 30% higher in France and 35% higher in Germany, our widening productivity gap cannot be ignored if we are to compete successfully and obtain the supposedly easy post-Brexit trade deals promised by the Government. Having run my own small start-up construction business in Scotland, I know full well the importance of small and medium-sized enterprises investing in their people. Those that fail to do so stagnate and start to go backwards.

In previous years, employer spending on training in the UK had fallen and was low compared with other advanced economies, so there was a clear need to take action to move more employers towards investing more in the skills of their workforce. It was also vital to improve progression in apprenticeships. Only 4% of our 25-year-olds hold a level 4 or level 5 technical qualification as their highest qualification, compared with 20% in Germany, where apprenticeships are taken up by many more young people and are viewed as a high-status option for school leavers. Sadly, the Government’s rushed implementation of the apprenticeship levy resulted not in an increase in apprenticeships and opportunities for the most disadvantaged, as was hoped and very much needed, but in the exact opposite. That is devastating, especially considering the huge impact that apprenticeships can have on young people’s lives.

Just last week, I met brilliant apprentices working in my constituency. I know that their input is hugely appreciated by the many businesses in Slough. Slough is a huge business hub, with the largest singly owned trading estate in the whole of Europe and more corporate headquarters than Scotland, Wales and Northern Ireland put together, so we know a fair bit about businesses and the importance of apprenticeships. Unfortunately, far from turbo-charging our businesses and helping them further, the levy has left many of them hobbled and unable to fill vacancies, address their skills shortages or meet opportunities for expansion.

Since the introduction of the levy, apprenticeship starts in large employers—those with 250 or more employees —have fallen by 9%, but the impact on small and medium-sized enterprises has been disastrous. Apprenticeship starts have fallen by 34% in small businesses and 42% in medium-sized enterprises. Even in my constituency, despite the excellent Slough Academy, which supports growth in high-demand areas such as social care and planning in the council, overall apprenticeship starts have not reached the level they were at before 2017-18. That reflects the trend across the country. It is estimated that between 30,000 and 40,000 SME apprenticeship vacancies remain unfilled, and 75,000 apprenticeships in SMEs could be lost by the end of the year. That is 75,000 people who will be denied the opportunity to work, train and gain the confidence that comes with successfully completing qualifications.

The failure of the levy for SMEs is compounded by the fact that those “disappeared” apprenticeships were most likely to have been taken up by young people who were starting with much lower qualifications—the very group we might imagine that a revamped apprenticeship scheme should help the most. The latest Government data show that the proportion of apprenticeship starts at level 2 fell from 63% in 2011-12 to a mere 36% in 2018-19, and the proportion of people aged under 19 on an apprenticeship has fallen to a mere 25%. In the context of participation in the apprenticeship system being at its lowest level since 2010-11, with 72,400 fewer people participating in 2018-19 than in 2017-18, those figures further underline the inadequacies of the Government’s implementation of the levy. The largest reductions have been in the north-west and the north-east—areas that are in desperate need of job opportunities and economic growth.

What is behind the decline? Under the levy in England, employers are required to pay 0.5% of their payroll above £3 million per year into a so-called ring-fenced digital account to be spent on apprenticeships. That is topped up by a 10% public contribution. If levy funds are not used within two years, they expire. The system was based on the expectation that many employers would not spend all their levy funds. Those unspent funds were intended to cover most of the costs of apprenticeships for the SMEs that do not pay the levy. At the time, the Government estimated that around 50% would remain unspent and so available to non-levy payers.

Some levy payers found ways—some might say predictably—to increase their spending. Indeed, the Sutton Trust warned in November 2017 that an estimated two thirds of businesses’ apprenticeship schemes merely converted existing employees and certified existing skills, and that the levy may encourage more of that so-called conversion and rebadging as a way for large employers to reclaim their money. That looks to be what has happened.

A recent Ofsted report on employees on an Institute of Leadership and Management course stated:

“Most apprentices and their line managers do not know that they are on an apprenticeship. Too many apprentices do not develop the…knowledge, skills and behaviours needed to progress in their careers…Most apprentices do not develop substantial new knowledge and skills or build on what they already know…They just complete their management qualification.”

That is a testament to what has gone wrong. That case and others led Ofsted chief inspector Amanda Spielman to declare:

“We have seen examples where existing graduate schemes are in essence being rebadged as apprenticeships. This might meet the rules of the levy policy, but it falls well short of its spirit.”

That is why, last year, the National Audit Office expressed its concern that the use of the levy for new high-level apprenticeships was really

“public money…being used to pay for training that already existed in other forms.”

Even where higher-level qualifications are appropriate and well designed, they are expensive, so the money the Government expected to be available for SMEs to fund apprenticeships simply is not there—to the tune of around £1 billion, according to best estimates.

With the introduction of the levy came the development of new apprenticeship standards to replace existing frameworks. Those standards were designed by employer groups and are intended to establish more robustly the skills and competencies that an apprentice is expected to achieve. Again, however, the Government underestimated the cost of implementation, which has simply added to the financial pressures SMEs face in funding their apprenticeships. That has prompted calls for a proper review of what is and what is not an apprenticeship, and how the different kinds of in-work training are best targeted and delivered.

Given the reports by Ofsted, the National Audit Office and others, such a review is certainly required. Many stakeholders make the case for a more flexible approach, such as a skills levy that allows employers to invest in other forms of high-quality training. Such an approach would need extra funding from widening the levy to cover more employers, from raising contribution rates or from Government. However, the burning issue is that there is a crisis in apprenticeships for SMEs that is depriving those who most need either a solid start to their working life or a helping hand to get up and out.

As I said, disadvantaged people of all ages are disproportionately clustered at the lower levels of apprenticeships and are significantly more likely to be studying for level 2 or level 3 than for higher or degree-level apprenticeships. The levy has led not only to a dramatic fall in level 2 and level 3 apprenticeship provision, but to people from deprived communities being squeezed out of higher-level apprenticeships. In 2015-16, before the introduction of the levy, the most deprived 20% of the population accounted for 21.9% of apprenticeship starts at level 4 or higher, but by 2018-19 the figure had dropped to a mere 16.4%. That is why the Social Mobility Commission warned that

“a two-tier system…based on apprentices’ backgrounds”

may be emerging.

Almost one in five young people does not achieve five GCSEs at grades 4 to 9—A* to C in old money—or the equivalent in alternative qualifications. They will naturally face greater challenges moving from level 1 to level 2, but maths and English provision in apprenticeships—functional skills—is funded at only half the rate that would apply to any other learner. Employers want to be able to deliver and provide young people with the opportunity to succeed, but the current funding arrangements make that extremely difficult. The Minister must respond to that funding deficit, and it must be met. The Government need to acknowledge the extra challenges that those young people face, and the extra provision that they need from their employers and training providers, by increasing financial support for level 1 and 2 apprenticeships.

If we truly wish to close the skills gap and raise the floor of our nation’s skills, we must go further. There have been calls from all sides to increase the flexibility of the levy to stimulate more high-quality and accessible apprenticeships. One such change would be to allow employers to spend a portion of their levy funds on pre-apprenticeship programmes and other initiatives such as outreach programmes, with the aim of widening access to apprenticeships in under-represented groups. Further, the entitlement to attain skills at level 3 should be as accessible through the apprenticeship system as it is for young people taking college courses. The Trades Union Congress has suggested introducing a new right to progress for apprentices who have completed a level 2 apprenticeship, which would entitle them to study for a level 3 apprenticeship and trigger the necessary funding.

The lack of proper funding for some apprenticeships is, as I said, having a disastrous effect on entire sectors of our economy, such as the care sector. Many care homes are SMEs. The sector is typically low margin and low wage, and it relies on apprenticeships for the development of new and existing staff. The funding for adult care worker level 2 and level 3 apprenticeships is simply not enough to provide a quality apprenticeship programme and is leading to an over-reliance on untrained staff. It is forcing some providers out of business altogether.

I am led to believe that a monthly online apprenticeship reserve funding system is being trialled for SMEs. It has been likened to someone trying to buy a ticket for a concert, sitting at a computer, hitting refresh and hoping that this time they will get lucky. That is no way to run a programme. On top of that, the name of the apprentice is required before funding is reserved, so if an employer wants to hire an apprentice, they must do so, or at least make an offer, before funding has even been secured. That makes it easier to grant apprenticeships to existing employees instead of hiring in, as we should be looking to do. It is another barrier to those who are seeking a fresh start.

The unanimous view of SMEs is that the levy, as currently constituted, is failing—and that is to put it mildly. It is failing them, and it is failing their current and future employees. It is failing tens of thousands of the people who most need help and, by extension, the communities in which they live. The Government must listen to the broad coalition of voices—including Labour, businesses and training providers—calling for a guarantee of Government funding for SME apprenticeships, independent of the levy, through the provision of a funded pot for SMEs. I very much look forward to hearing the shadow Minister, my hon. Friend the Member for Kingston upon Hull West and Hessle (Emma Hardy), further explain the excellent work that she and her team have undertaken in that respect. We need the Government to step up to the plate. The level of funding needs to be guaranteed to give certainty to SMEs and training providers alike, so that both parties can provide the apprenticeships that are needed and plan effectively for the future.

Education can provide equality of opportunity for everyone, at every stage of life, if there is an accessible progression pathway for everyone. It is vital that the opportunity presented by the reform of apprenticeships is used to create such a pathway. The current system prevents young people from starting their career journey, because the system fails to provide the support they need. Such a lack of support is denying SMEs opportunities to recruit the apprentices they require to help to address the productivity gap.

National Apprenticeship Week has just ended. I hope the Minister used it to listen carefully to those in the sector who have been lobbying the likes of my hon. Friend and me, and I hope that the Minister will take that advice on board to improve the system that the Government created. In this post-Brexit world, our country cannot afford to get this wrong.

1.47 pm

Mr Khalid Mahmood (Birmingham, Perry Barr) (Lab)

It is always a privilege to serve under your stewardship, Mr Davies. I thank my hon. Friend the Member for Slough (Mr Dhesi) for raising this crucial debate. It is particularly important to me, as a former engineering apprentice who came through this process.

I left school with CSEs, and I walked into the careers office one day and they said, “What do you want to do?” I was not sure whether I wanted to stay on or do something else. My dad worked for BSA in Birmingham, where they made motorcycles and firearms. It was one of the biggest motorcycle manufacturers in the world at the time, but unfortunately only a few are now made, in Meriden—not as many are manufactured in the United Kingdom as we would like. I explained what my dad did as a capstan setter operator—that is probably a foreign language to most people in the Chamber, but he operated a repetitive component-manufacturing machine. They said, “Oh, right. Do you want to go into an engineering apprenticeship scheme?” and I said yes, so they offered a year of off-the-job full-time training at Garretts Green Technical College, a local college that no longer exists. Within six months of starting, we were offered interviews, and I was privileged to be offered an apprenticeship at Delta Metals, Delta Tubes as it was then, which unfortunately no longer exists, either. I made my way through various phases of that and ended up at Birmingham Polytechnic, which also no longer exists in that form and is now Birmingham City University. I learned a huge amount about engineering and afterwards I was able to set up a small manufacturing and engineering company with my friend Mr Olley, who is a great friend to this day. That allowed us to move forward. As my hon. Friend the Member for Slough said, it allowed me to move forward as an individual, perhaps above the position that I had been in, and to grow up, both physically and in terms of my skills. It was a huge opportunity.

I concur with my hon. Friend the Member for Slough about what the Government are doing at the moment with the levy, and about the onerous conditions the levy puts on the employer, as it stands. Employers are under a huge amount of pressure to try to conform to something that they cannot. They find it very difficult to come to terms with some factors, as eloquently explained by my hon. Friend.

If we are going to look at upgrading more people, particularly post Brexit, we need a far greater understanding of the engineering and manufacturing sector. Of course, the services sector is important, but we cannot rely on it alone given the downturns we have had in overall GDP when the financial sector collapsed. Germany does not suffer as much because it has a huge engineering and manufacturing sector, which acts as a boost and a steady hand. Now, with our independent status, we need to have more of that independence ourselves, to be able to move forward.

I will say a couple of things about a success story in my constituency, Mr Davies. The Engineering Employers’ Federation has a training school for engineers that takes on young people, both with and without qualifications, and provides apprenticeships that take them to the highest level. The engineering college was set up almost seven years ago by EEF using a levy from its members, above the apprenticeship levy, to provide the capital costs. I am happy to show the shadow Minister and the Minister around, should they wish to visit; a number of Ministers and others have already done so.

The initiative is a tribute to engineering and manufacturing. It started with about 300 apprentices; there are now four times that number. The majority of the commitment has come from local employers in the sector, who have put in a huge amount of the capital costs. The college still cannot get capital costs from the Government. As one would imagine, training in engineering requires practical lessons so people can operate the different machinery and equipment. Those involved have done a superb job putting the college together. I encourage the Minister to look at how we support engineering and manufacturing to move forward with the right sort of apprenticeships.

Our technical colleges used to do that, but there are now very few of them. There is only one real college, South and City College, Birmingham, that does any real manufacturing, engineering and building construction training at all. We are at a loss to get new engineers to come forward and to develop an understanding of the practices needed for people grow their skills. Two or three people from different disciplines in engineering can set up a company to create something, just as I did with my friend Mike Olley. That makes the growth; it is what makes the country grow.

We have not had that type of training for too long—since the 1980s, when Delta Metals was closed down and bought up by a company for its order book. I am not being parochial about this at all, but all our equipment was bought up. At that time, there were three manufacturers of copper tubes: IMI, Wednesbury Tube and Delta Tubes. We were sold because we were the most advanced. All of our equipment was taken to China and installed there. We were years ahead of Wednesbury Tube, which is now owned by a Swiss company. IMI still just about exists. We lost our capacity, but then there are complaints about being flooded with foreign goods. If we do not train our own people and if we do not have the capacity in engineering and manufacturing, that is what happens. We lose that market.

Following the comments made by my hon. Friend the Member for Slough, I am pleading for us to have that capacity. We want to move our people forward, and for our country to have a strong base in engineering and manufacturing in the economy. That is important because we are now independent and moving forward on our own. The shadow Minister has done some great work in this job; I commend her for the interest she has taken. I am sure she will continue to do that, particularly in engineering and manufacturing, which is a subject close to my heart. I again thank my hon. Friend the Member for Slough for raising this issue and for his great work.

1.55 pm

Alan Brown (Kilmarnock and Loudoun) (SNP)

It is a pleasure to serve under your chairmanship, Mr Davies. I thank the hon. Member for Slough (Mr Dhesi) for bringing forward the debate. Westminster Hall may not be as busy as he would like; I am sure that is not because it is Thursday and the day the House rises. It is probably because there was a debate earlier in the weak about the apprenticeship levy. Just like buses, we get two debates in one week, following National Apprenticeship Week.

The hon. Member for Slough set out the issues around the apprenticeship levy, and the challenges for small and medium enterprises, very well. I was interested to hear him say that he had his own start-up construction company, so maybe I need to have a chat with him about his experiences at some point. I was concerned to hear the numbers that he gave, including 30,000 to 40,000 current vacancies and the prediction that 75,000 places will disappear, going forward. We need to hear what the UK Government will do to rectify that.

We also heard about what was described as a downward trend in the number of apprentices since the apprenticeship levy came in. That is not replicated in Scotland, where there has been an increase in the number of apprenticeships created year on year for eight years; I will come back to that.

A big concern was raised—again, I want to hear what the Minister says about it—about what is happening with unspent levies, and the fact that there is manipulation of people’s classification within their work environment, so that companies can draw down the levy money without creating the net benefit and additional positive outcomes, which are key when accessing money from the levies. We need to hear more about the governance of that.

I was struck by the opening remarks by the hon. Member for Birmingham, Perry Barr (Mr Mahmood), who said that he did not know what he wanted to do when he left school. I was like that myself at one point. We have taken very different career paths, but I do not know what it says about the calibre of politicians, Mr Davies, when there are two of us here who did not know what we were going to do, but have somehow ended up in this place.

The hon. Gentleman highlighted a good success story with the training offered by EEF. It is fantastic that it has managed to get together, and provide, the capital funding for the college, and that the number of apprentices has increased from 300 to 1,200. That shows what can be done when employers work together and are not seen as being in competition with one another. I hope that that collaborative approach can be replicated elsewhere. The UK Government have not provided the capital funding, which is something the Minister needs to consider. Interestingly, in his closing remarks the hon. Gentleman spoke about the negative effects of globalisation, with the UK suffering by losing skills because they, and machinery, are going elsewhere and the UK market is being flooded.

I am sure we all agree that the principle of apprenticeships is a good thing. From one perspective, in recent years there has been a change in attitude. For a while the prevailing attitude was that young people went either into further education or on to the scrapheap. Clearly, further education is not for everybody. We need to retain our manufacturing base, and in terms of that, and in terms of the construction industry, apprenticeships are clearly a fantastic route into the workplace. They get people trained in the work, provide suitable qualifications and increase productivity, which is the right way to do it.

As the hon. Member for Slough said, apprenticeships should not be used to plug temporary employment gaps. They should only be used when an apprenticeship can lead to a full-time position, and apprenticeships should be matched to skills shortages. That was not always the case in the construction industry. My dad used to work for a plumbing company, so this is not a new thing; at the time it would often happen that somebody would serve their apprenticeship and once that came to an end, they were basically paid off and had to try and find a job elsewhere. Sure, they had a qualification, which was good, but they did not have the relevant work experience, which made finding a job more difficult.

We need to ensure that any apprenticeships that are created and funded lead to positive destinations. I know that the business outlook can change, so there might not be the same opportunity for somebody once they are qualified at the end of the apprenticeship; but, that being the case, no company should be able to continue to replace apprentices if it is not keeping the original ones on in permanent positions.

We have heard that since the introduction of the apprenticeship levy there has been a drop in the number of apprenticeships in England. One third of businesses reportedly view the apprenticeship levy primarily as a tax, without the actual training benefits. If that is the perception out there in the real world, it is not a good one. The British Retail Consortium has said that the levy is failing retailers, and the hospitality trade has voiced similar concerns for its sector.

It appears that the apprenticeship levy is a clumsy tool and is not doing everything that it should, or bringing in the support that was heralded. The Library briefing notes that the Centre for Vocational Education Research report confirms that the drop in apprentices is due to the levy and the funding arrangements. The research identifies the cost, complexity and inflexibility of the levy as the key issues. Indeed, the British Chambers of Commerce has reported that,

“for SMEs in particular, the new rules have added to the barriers, complexity and cost of recruiting and training staff”.

While the UK Government had a laudable target of 3 million new apprenticeships by 2020, in June 2019 they had to admit that they would miss that target. It would be good to hear from the Minister what the UK Government are doing to rectify that situation.

As I mentioned earlier, Scotland is making excellent progress to ensure that our young people have the skills they need to exploit current and future opportunities. That is despite the fact that, in introducing the apprenticeship levy, the UK Government stepped on a devolved responsibility; companies and large organisations in Scotland pay the levy, but the actual training aspect is devolved and falls within the remit of the Scottish Government, who have to work with employers to mitigate that unwelcome tax.

In so doing, the Scottish Government have had discussions with key stakeholders and have established a national retraining partnership, with the aim of helping workers and businesses to prepare for future changes in their markets by enabling the workforce to upskill and retrain where necessary. This ambitious commitment to skills builds on a number of initiatives already in place to boost employment and create positive pathways for young people. That has meant extending the £10 million flexible workforce development fund to continue to support investment in skills and training. Employers are encouraged to link with colleges to learn more about the opportunities available to them. That happens with my local college, Ayrshire College, which tailors its courses to suit the needs of local employers, helping to fill that skills gap and ensuring that people going through college courses achieve the qualification that best suits them so that they can continue successfully in the workforce.

All that work is paying dividends: the Scottish Government have now exceeded their apprenticeship target every year for eight years in a row; there are clear lessons there for the UK Government. Skills Development Scotland statistics show that the Government’s commitment to increasing apprenticeships to 30,000 by 2020 is on course to be met as well. In Scotland, apprenticeships currently on offer include 900 graduate opportunities, up from 270 in the previous year, and that figure will rise to 1,300.

Some 93% of Scotland’s young people now go on to positive destinations—the highest percentage of anywhere in the UK. That is the most important thing: access to apprenticeships, training or whatever else is about a positive end destination. We must ensure that small and medium-sized enterprises are able to gain access to that and provide those positive destinations.

We also need to consider how Government procurement should be used to enhance the development of apprenticeships. Companies building new schools in my local authority area are providing new apprenticeships through the contractual arrangements. That is a good thing: we are getting new schools, which will enhance the education of young people, while some of our local young people are getting the necessary apprenticeships out of it, which will hopefully lead to lifelong careers in the construction industry.

The UK Government also need to look at that idea when it comes to the contracts for difference auctions in the energy market. I have long argued that the bid process should have a quality assessment aspect that incentivises the use of local supply chains, which obviously includes the use of small and medium-sized enterprises. That quality assessment could go further and incentivise local supply chain and job creation, namely apprenticeships, in these smaller companies.

That is a process that is doable. Sometimes the Government argue that it cannot be done, because of the European procurement rules, but that is nonsense. As long as there is a transparent system for quality assessment, it falls within European procurement rules—and of course we are going to hear about the Brexit dividend, so maybe that is something that UK Government could do quite quickly, now that they say Brexit is done.

We, as energy bill payers, are funding the CfD mechanism; while price is important, it seems ridiculous that at the moment the decision is down to price alone when, with a very small increase in what we pay, we could create apprenticeships, create a sustainable local supply chain and grow skills. We heard earlier about a skills drain; if we did that, we would attract and grow those skills and be able to export them worldwide. I call on the Minister to take cognisance of that and have discussions with other members of our Government. I look forward to hearing what the shadow Minister and Minister have to say.

2.06 pm

Emma Hardy (Kingston upon Hull West and Hessle) (Lab)

It is a pleasure to serve under your chairmanship, Mr Davies. I thank my hon. Friend the Member for Slough (Mr Dhesi) for securing this debate. I must say it is also a pleasure to see the Minister still there in her place opposite me, to continue our discussions from Tuesday.

I will start by commenting on my hon. Friend’s speech. He started with an interesting point about the differences between Germany and England in the status of apprentices and how they are viewed. I saw that when the Education Committee went to Germany, and I was struck by how fantastic the system is there. Of course, there are structural differences that mean we cannot replicate it here in this country, but I think we can all agree that we need to keep selling the idea of apprenticeships, talking them up and explaining what a good thing they are for our country.

My hon. Friend made a very good point about the falling apprenticeship numbers in small businesses. Out of all the figures that he mentioned, the one that struck me was the figure of 34% in small businesses. Small businesses have been hit even harder than medium-sized businesses by the apprenticeship levy. He spoke passionately about apprenticeships in Slough; in fact, I was at the event with him where he talked to some of his fantastic apprentices from Slough, and I was really impressed by their passion and dedication to their training.

My hon. Friend was right to highlight the falling numbers of level 2 and level 3 apprenticeships. Very few people know at 16, or even at 18, what they want to do when they move on in life, so we need to start where people are at. If people are not ready to start at level 3 —if they have not been able to achieve as successfully as we would all like them to in school—they need that level 2 start to enable them to make progress and to fulfil their ambition and achieve social mobility. I am sure that we all agree with that.

My hon. Friend is also right to point out that a question was raised in the debate on Tuesday about the levy for businesses—I am in favour of that levy—and whether the Government expected all businesses to use it. There seem to be conflicting evidence and statements about that, and I would be interested to hear the Minister’s thoughts. Are businesses expected to use all of the levy themselves, or was the intention behind the design that a certain amount of the levy would be kept and used by SMEs? There seems to be a lack of clarity over whether it is a tax that larger businesses contribute to, which can be distributed to small businesses, or whether it is just a system to allow individual businesses to get the money back for themselves.

I am particularly pleased that my hon. Friend raised the question of maths and English and the extra support that is needed. This might not be the right debate in which to talk about that, but I hope that the Department will take it seriously, because we have created a system where the insistence on having people resit their qualification in their first year, even when they are on a two-year course, is causing many people to fail. We have to explore ways to enable everybody to succeed. I would like the Department to go away and think about why it insists that people on a two-year level 2 course should resit at the end of their first year. Why not give them that extra year to practise and develop their skills before they have to sit their exam? Can we not be a little bit more open-minded and creative in coming up with solutions to enable everyone to achieve the maths and English qualifications that we all agree they need?

I really enjoyed the speech of my hon. Friend the Member for Birmingham, Perry Barr (Mr Mahmood)—he has gone, but I will let him know. It was nice to hear him talk about how his father’s interest in engineering got him involved, and how he was not sure what he wanted to do. It was a heart-warming speech. I look forward to visiting his constituency and seeing the examples he gave. He is quite right: we need to invest in engineering and manufacturing skills, and support the making of British goods here in Britain. It has been a source of frustration to me for a long time that we continue to import more and more when we could grow our own, and develop and make things in this country, giving people high-skilled jobs and helping to grow our economy. I hope the Minister will comment on how the apprenticeship levy can do that.

I do not usually comment on the remarks of Scottish National party spokespeople, but I really liked the interesting point that the hon. Member for Kilmarnock and Loudoun (Alan Brown) made about the retention of apprentices, which I had not considered before. If we fund apprenticeships, as a Government or through the levy, should we not expect businesses that have had access to those public funds to retain the apprentices? That is an interesting idea to explore, and I look forward to the Minister’s comments on that.

I think we all agree about the importance of apprenticeships, not only for the productivity of our country but for individuals and social mobility. We all agree that SMEs are really valuable to our economy. In fact, during the debate on Tuesday, one Member pointed out that in Northern Ireland, where their constituency is, there are few large, levy-paying businesses, so it is nearly all SMEs. I have not yet had the chance to crunch the data on this, so it will be interesting to see whether the Department has analysed the areas of the country where there are fewer levy-playing businesses, and looked at whether we have therefore created coldspots and areas in which people lack opportunities to access apprenticeships.

Alex Sobel (Leeds North West) (Lab/Co-op)

One industry prevalent in small business is hair and beauty. Routes into hair and beauty and other apprenticeships include the level 3 qualification, which the Government just cut thousands of, and T-levels. T-Levels will be the major route into higher-level apprenticeships, but they are not yet ready, and in the hair and beauty industry they will not be ready for years. The pathway to these apprenticeships needs to be solid, small businesses need to know what is happening and the funding needs to come through. Otherwise, we will see an even further drop in apprenticeships, on top of the challenges of the apprenticeship levy.

Emma Hardy

My hon. Friend is absolutely correct. I have questioned the whole concept of T-levels before. If they are a solution to a problem, what problem were they trying to solve? I have not quite been able to figure that out yet. They almost seem to be trying to ram themselves into a system where they might not necessarily be needed or, indeed, wanted. He makes an important point: if we take away existing qualifications before establishing the T-level, we will leave a gap. What will happen to the people who want to access those qualifications during the gap? Perhaps we might debate T-levels after recess and dig into the question in a lot more detail.

My hon. Friend the Member for Slough mentioned the fall in SME apprenticeships, which has come about as a direct result of the levy. There has been a fall of 23% overall, with a fall of 171,000 in SME apprenticeships. That is down an estimated 49% since the levy was introduced, and it is a huge fall. Particularly concerning to me, as I mentioned on Tuesday, is the quite shocking 20% fall in 16-to-18 apprenticeships. From the reports I have seen, SMEs receive only half as much apprenticeship funding compared with April 2017, when the levy was introduced. Traditionally, SMEs have been the largest recruiters of young apprentices, and they have generally been the recruiters of apprentices at a starter level. It will impact on our ability to grow our own talent if we cut off opportunities for young people and cut off the lower levels that we need.

On Tuesday, the Minister said:

“The apprenticeship levy is helping businesses large and small to access the high-quality training that they need.”—[Official Report, 11 February 2020; Vol. 671, c. 258WH.]

I have to say that the Minister may be a little bit mistaken, because I am not sure that the apprenticeship levy is helping small businesses to access the high-quality training that they need. As I just said, I do not think that they can actually access all the funding that they need.

In Tuesday’s debate, the hon. Member for Stoke-on-Trent Central (Jo Gideon) pointed out that 300 potential SME apprenticeships have been lost at Staffordshire University because of the current funding system. Not only are the apprenticeships not helping people at the beginning of their career, at level 2 and 3, but they are not helping those at university and at the other end of their career, at level 6 and above.

As mentioned, the Centre for Vocational Education Research report says that the fall in apprenticeships is because of the introduction of the levy. The report says:

“For smaller enterprises which are less likely to be directly impacted by the Levy, the strong decline in starts may be linked to a combination of adapting to the new funding system, the constraints on the pool of funding actually available for apprenticeship training, and the ongoing switch”.

It is because we do not have the funding needed to actually move them forward.

The Minister also spoke on Tuesday of the award-winning digital service, saying that it would

“support employers to manage their funds and choose the training they need from a register of approved providers”,

and pointed out that that would benefit smaller employers by

“moving away from the previous procured contract system to give SMEs more choice than ever”.—[Official Report, 11 February 2020; Vol. 671, c. 258-59WH.]

With the greatest respect to the Minister, as my hon. Friend the Member for Slough pointed out, putting SMEs on the digital platform will put them in a similar position to someone who is trying to buy concert tickets, and who has to jump on as early possible and press the buy button before someone else gets there. Even increasing the numbers by 15,000 will not be enough to cover the 49% decrease that we have already seen. Giving people more access to a system that does not have enough money just means that they have greater access to having no money; it does not solve the problem. If the Government are to put them on the digital system, they need to fund the digital system to enable it to work.

The levy money is, indeed, running out. There is not enough money, which is why, as has been confirmed by the Minister with responsibility for skills, the National Audit Office, the permanent secretary at the Department for Education and, more recently, the new CEO of the Institute for Apprenticeships and Technical Education—IFATE; there are too many acronyms in this job—apprenticeships in SMEs will not go back to pre-levy numbers. That is why I keep pushing this. There is a joined-up message from businesses, the Labour party, the Confederation of British Industry, the Federation of Small Businesses—from everybody—that the Government have to put in £1.5 billion in funding for SMEs. The digital solution that has been mentioned will not suffice.

The Minister may have seen a letter in the Financial Times that highlights the point I was making. Surprisingly in education, because it does not always happen, lots of people agree and are saying the same thing:

“The chief executive of the employer-led Institute for Apprenticeships and Technical Education also believes that the apprenticeship levy needs to be topped up with additional Government funding to address the shortage of funds available for apprenticeships offered by smaller businesses. Her comments follow similar concerns expressed by Ofsted’s chief inspector that the levy is not working in a way which would satisfy the Government’s ‘levelling up’ agenda across the UK regions.”

The letter was signed by Mike Cherry of the Federation of Small Businesses; Mark Dawe of the Association of Employment and Learning Providers; David Hughes of the Association of Colleges; Doctor Sue Pember CBE from Holex; and more. These people all say the same thing: the Government need to put money into the SME budget to enable SMEs to offer apprenticeships.

The Minister said on Tuesday that she is

“keeping the apprentice system and levy under constant review to understand how it works for employers of all sizes, and most importantly how it can deliver for our economy and for social mobility.”—[Official Report, 11 February 2020; Vol. 671, c. 258WH.]

Will she dig into that a little bit more and explain what review has been undertaken, its timescale, who is included in it, when we should start to see its outcomes and whether we should expect it to have occurred before the 11 March Budget? Will we see anything in the Budget to address the ongoing crisis in SMEs?

I point out a good example of local SME support in Manchester, which used a grant of £3,000 for non-levy paying SMEs in the region that have not employed an apprentice in the past two years. Creative solutions are starting to come out, and I hope that the DFE will explore this and find ways to offer such support.

I shall keep my request quite simple. In a nutshell, what we—in business, in the Labour party and in this unity of voice—would like to see is the Government committing to a ring-fenced and guaranteed non-levy budget of at least £1.5 billion and separate, segregated funding approaches between levy and non-levy paying employers. I am not saying that that will solve all the problems overnight, but it will alleviate the most immediate concerns and it will open up access for young people and people wanting to start at lower levels who want to work in SMEs.

This will be the last minute of my speech, because I have been talking for quite a long time. And now for something completely different, as they say. I want to mention the Back a Bid campaign: we are looking for the UK to host the 2027 WorldSkills championships. It is like an Olympics for skills whereby we have Team GB going abroad to compete and show the talents and skills that there are in this country. I hope that the UK will look at being one of the hosts for that. I hope that the Minister will press the new Chancellor of the Exchequer hard to enable the funding for a Government feasibility study to come through, to show how we can stand on the world stage as Global Britain and show off the skills and talents in our country by hosting the championships here in the UK and showing what brilliant, talented people we have. I hope that by 2027 many of those brilliant, talented people with great skills will be coming from SMEs.

2.20 pm

The Parliamentary Under-Secretary of State for Education (Michelle Donelan)

I congratulate the hon. Member for Slough (Mr Dhesi) on securing the debate. I warmly welcome his keen interest in apprenticeships and am particularly grateful for his work to celebrate local apprenticeships last week, which, as he pointed out, was National Apprenticeship Week. I believe that he visited a number of his constituents, including those completing apprenticeships in companies such as KFC. As he kindly highlighted, last week was a fantastic opportunity to bring the whole apprenticeship community together and shine a spotlight on how amazing apprenticeships are for social mobility, for our economy and for moving people forward.

It is fantastic that more than 8,000 people in Slough alone have started an apprenticeship since 2010, and that is over a range of areas, ages and sectors within Slough’s community. The hon. Gentleman may also be aware of a Slough-based company called Resource Productions, an SME that does an excellent job working in the film industry, with clients such as Disney and Pixar. Dominique Unsworth is its CEO and also a Government SME apprenticeship ambassador. Her work is vital in order to connect more SMEs with apprenticeships. She has recognised just how important it is to employ apprentices and spread that message. I am pleased to note that, at Ms Unsworth’s request, the National Apprenticeship Service is hosting an event with Slough Aspire on 31 March. If I am still in post, I shall try to come along, and I am sure that the hon. Gentleman will also attend.

As was pointed out, this is the second debate on apprenticeships this week. The first focused on the effectiveness of the apprenticeship levy. We should not forget that the apprenticeship levy funds apprenticeships for employers of all sizes, including SMEs that do not pay the levy. The Government recognise the need to ensure that our programme delivers for employers of all sizes—I know that that point was laboured by the hon. Gentleman and by other hon. Members. For that reason, we are making changes to benefit small employers, so that they can get the most out of apprenticeships. In fact, last month, we began to transition small employers that do not pay the levy on to the digital programme, which was mentioned. I will promise to meet the hon. Member for Slough so that we can look at the portal together to address some of the issues that he raised.

We are providing additional funding that will allow up to 15,000 more starts in the first three months of this year with smaller employers. That marks the start of the transition of smaller employers to using the apprenticeship service, allowing us time to listen to their feedback and time for smaller employers to become more familiar with our approach. We have already seen them take advantage of that in relation to early years education, pharmacy work and so on. The change will give employers a real choice of high-quality training provision and the opportunity to become more engaged in the process, as not having that has been one of the criticisms to date. Smaller employers will have access to a larger pool of training providers to deliver training that meets their needs and supports growth in their sector. To ensure that the transition is as simple and easy as possible for employers, we have worked with SMEs to test the service and have engaged with a range of employers and providers, acting on their feedback and instigating improvements.

We recognise that SMEs provide many people with their first step on to the career ladder, and we want to ensure that neither younger people nor smaller employers are denied the opportunity to participate in apprenticeship schemes. That is precisely why we provide £1,000 to both employers and training providers if they take on somebody aged 16 to 18. We know that younger people can face additional challenges in starting and applying for apprenticeship schemes. Social mobility is something that I am particularly focused on ensuring that we do better on, as is driving up the number of young apprentices on schemes, which the hon. Gentleman mentioned. We also pay 100% of the cost of training for the smallest employers—those with fewer than 50 employees—for that age group. Last month, we extended the use of levy transfers to cover the full cost of training for 16 to 18-year-olds and for receiving employers with fewer than 50 employees, helping more small employers to support apprenticeship starts.

We are proud to have launched, in January, the third phase of our Fire It Up campaign, which is aimed at changing the way people think about apprenticeships by demonstrating that they are an aspirational choice for anyone with passion and energy, and that they can enable them to go so very far.

We are ensuring that the message of apprenticeships is being heard in schools. That was touched on in the debate earlier this week. The National Apprenticeship Service has developed Amazing Apprenticeships—a website and resource portal for schools and teachers. Meanwhile, our Apprenticeship Support and Knowledge project is ensuring that teachers can promote apprenticeships to their students and have information available.

Just like the hon. Gentleman, we want more people to be able to benefit from the positive changes that we have made to apprenticeships, and across sectors—a point raised by the hon. Member for Birmingham, Perry Barr (Mr Mahmood). I want to let him know that 200 of the 510 standards are for construction, engineering and manufacturing, and they have been designed in conjunction with businesses. That pool is growing all the time.

Mr Khalid Mahmood

I appreciate what the Minister has said, but the central question is this. When these apprenticeship training schools or colleges are set up, the capital support that they need for the equipment is more important. Will she look at that?

Michelle Donelan

I thank the hon. Gentleman for his comment. IfATE does evaluate the cost of putting on each apprenticeship scheme, and I regularly meet its representatives. In fact, I met them this week. I know that it is their priority for this year to look at the budgets that they set per standard.

The hon. Member for Kingston upon Hull West and Hessle (Emma Hardy) mentioned the question of money, and whether we had originally anticipated that all businesses would use all of the fund. We do not and did not anticipate that all businesses that paid the levy would need or want to use all the money; but we have put them in the driving seat to ensure that it works for them and their individual business model. We have been pleased to see the number of businesses that have transferred some of their unspent money to support smaller businesses within their supply chain.

The apprenticeship levy means that more money is available than ever—a big point to labour. This year we have increased available investment in apprenticeships to more than £2.5 billion—double what was spent in 2010-11 in cash terms. Our reforms mean that apprentices starting apprenticeships today benefit from apprenticeships that are of higher quality. Apprentices now receive substantial and sustained training, with their apprenticeships lasting a minimum of 12 months and featuring 20% off-the-job training and an assessment at the end.

We are pleased that the new apprenticeship standards across all levels are being designed and driven with industry, because they have to work for the employers. In fact, starts on standards represented more than 63% of all starts reported in 2018-19, showing that employers are already making the switch.

Quality is key. Today we have talked a lot about quantity and access, but we did not labour the point about quality. That is a priority of the Government, and has to be a priority for the businesses that the apprentices feed.

Alan Brown

On quality, will the Minister address the point about ensuring that when companies take on apprentices, there is a long-term future for them? What are the Government doing to ensure that there is not a continual churn of apprentices, as companies may use them to fill short-term labour gaps?

Michelle Donelan

Of course, an apprenticeship is a job. We want to ensure it stands out on any CV as a gold standard, lasting that apprentice throughout their career, whichever employer they go to in the future. Longevity within companies is important. I am happy to meet the hon. Gentleman to discuss how we can better foster the retention of apprentices. Our data to date is extremely promising.

To ensure that apprentices receive a high-quality training, we have strengthened the register of apprenticeship training providers. Any provider that receives an inadequate Ofsted assessment for apprenticeships will be removed altogether from the register. We realise that we must go further to ensure that these opportunities are accessible to people from all backgrounds, whether they are starting a job or progressing in their career.

Small and medium-sized enterprises, most of which do not pay the apprenticeship levy, are integral to our economy, as was mentioned. The hon. Member for Kilmarnock and Loudoun (Alan Brown) mentioned Government procurement. That is an essential issue. In the December 2019 Conservative party manifesto, we committed to a significant number of apprenticeships in every big infrastructure project that this Government undertake. In the next year, thousands of smaller employers will transition to the apprenticeship service, giving them more control over their apprenticeship needs.

We are listening to the concerns of businesses, including SMEs, about the apprenticeship levy, and we are committed to ensuring that the apprenticeship programme continues to provide opportunities for people of all backgrounds, fulfil the needs of employers of all sizes and deliver for the economy more broadly. I thank the hon. Member for Slough for highlighting apprenticeships in this debate and encouraging further focus on SMEs as we continue to improve the apprenticeship system. I assure him that we will continue to listen to all stakeholders, including SMEs, to ensure that the apprenticeship system works for everyone.

2.31 pm

Mr Dhesi

It has been a pleasure to serve under your chairmanship, Mr Davies, and to engage in this important debate. I am particularly thankful to my hon. Friend the Member for Birmingham, Perry Barr (Mr Mahmood). My experience running an SME pales into insignificance compared with his considerable experience, not only as an apprentice, but in the engineering industry. Therefore, the Minister and the Department should listen to his points, which he made with great passion, to inform effective changes accordingly.

I also thank the Scottish National party spokesman. He passionately explained the long-term future for apprentices and highlighted the problem of a competitive gap appearing, not only between us and our European and global partners, but between England and Scotland, because of the different routes we have taken.

I thank the shadow Minister. I know she is passionate about this subject and has been since long before she came to this place, given her background in education. She spoke about the need to ring-fence the sizeable £1.5 billion budget and the request to host the WorldSkills championship. The Minister did not respond to that last point, but I hope we can give the shadow Minister some good news soon.

I thank the Minister for her kind words and compliments about not only my Slough constituency, but the work of Resource Productions and my good friend Dominique Unsworth, whom I know is an excellent ambassador. The Minister also highlighted the plethora of apprentices in Slough. As I explained earlier, the explanation is that Slough is a huge business hub. It is the most productive town or city per capita in the entire country. I could wax lyrical about my constituency all day, but I can see you are yawning, Mr Davies, so I shall move swiftly on. I look forward to joining the Minister on 31 March. I thank her for her interest. I also look forward to meeting her, as she kindly suggested, and I hope the shadow Minister will accompany me to that meeting, so that we may look further into improving the current digital offer for apprentices and SMEs.

Overall, I am disappointed that, despite the disastrous figures we face, the Government are not looking to make a sea change in their approach to apprenticeships. I hope the Minister, with due consultation with others, will remove those restrictions infringing upon SMEs’ operations and introduce the necessary flexibility and funding. If we do not do that, we shall fail to address not only social mobility, but the huge productivity gap, and we shall let down that broad coalition of voices from industry, business, apprentices and political parties. It is important for the Minister to consider that; not to do so would be to let down not only those businesses but, more importantly, those young people, and thereby our country.

I thank you, again, Mr Davies, for chairing this debate, and I thank all hon. Members for their incredible contributions.

Question put and agreed to.

Resolved,

That this House has considered apprenticeships in small and medium-sized enterprises.