Response to the Future of Apprenticeships in England: Funding Reform Technical Consultation

Response To The Future of Apprenticeships in England: Funding Reform Technical Consultation

1  Executive Summary

1.1  AAT welcomes the opportunity to respond to this consultation on the vital issue of the future funding mechanism for apprenticeships. In preparing our response we have drawn on our experience both as an awarding body, working closely with employers delivering apprenticeships and as a professional accountancy body whose members provide expert advice and services in taxation including PAYE.

1.2  In addition we have cooperated with the Chartered Institute of Payroll Professionals (CIPP) and the Chartered Institute of Personnel and Development (CIPD) in surveying members and employers to inform our response.

1.3  The headline messages from our response are:

·  The core principles are correct;

AAT strongly supports the principle of directing funding through employers

·  Lack of Clarity;

Even though this is labelled as a technical consultation there are too many areas where there is insufficient detail on which to base meaningful responses. Most important of these is the uncertainty about levels of co-investment. This is a particular risk in relation to 16-18 provision.

·  The arrangements for ATAs must be resolved as a matter of priority;

ATAs play a vital role in the delivery of apprenticeships and any new system must protect and enhance their position.

·  The need for pilots;

It is vital that whatever system is ultimately adopted is understood by and has the absolute confidence of employers. We argue that only robust pilots engaging all stakeholders can ensure this.

·  The needs of small and micro business must be central;

From our research it is very apparent that there is nervousness about the potential reforms particularly from small businesses who fear additional administrative burdens that they will not have the resources to deal with.

·  There is greater doubt about the PAYE option;

Although AAT does not come down firmly in favour of one option over the other, there is no doubt that there is particular concern about the potential difficulties funding though PAYE would involve. This is most evident in the small business community.

·  Building employer confidence will be paramount

It apparent from our research and contacts that the level of understanding and confidence in the planned changes is low. Addressing this will be key to a successful outcome.

2 Response to Consultation questions

Question 1: Whilst the principles of the new funding system are now firm, please detail any issues relating to their implementation that you believe need to be taken into account and, if so, how?

2.1 The first thing to emphasise from our own discussions with employers and our members is that there remains a great deal of uncertainty about the practical implications of the proposed options. While there is a general understanding and welcome for the principle of employer ownership, there remains no clear consensus on the specific methods of delivery. This is based on a number of factors:

·  The lack of clarity on the level of co-investment;

In our sector employers have historically committed to investment in training, particularly for adults, but employers need to understand about the level of direct cash investment that they will be required to make.

·  Co-investment will be a disincentive;

AAT takes the view that the introduction of any significant co-investment for 16-18 year olds will act as a disincentive to employers considering recruiting apprentices in this age group. In AAT’s experience many employers in our sector are already reluctant to employ apprentices at this age and we are concerned that this will only be increased by the requirement for co-investment.

·  There is a genuine fear of added bureaucracy;

Employers are not confident that either of the options proposed will be simple to navigate and as importantly they remain to be convinced that any new system will be implemented effectively and will work as it should do from day one. This is a particular concern for small employers who feel that they may not have the time or support to navigate the system or to rectify any mistakes.

·  Lack of employer understanding;

It has been clear from our discussions with employers that, despite the best efforts of the Department and the fact that there has been significant publicity generated around this consultation, many employers simply don't feel that they fully understand how the proposals will affect them. Consequently they cannot make an informed judgement on whether the PAYE or Apprenticeship Credit Account model represents the best approach.

·  The response of the provider sector has been almost universally negative;

AAT fully supports that Governments objective to drive up quality by putting buying power in the hands of employers. However, it is important to recognise the vital role good providers have had in development and innovation in apprenticeships. Their role as a partner is highly valued by many employers. This must be recognised in the implementation of funding reform

2.2 There is no single answer to all these concerns but AAT believes that the best way to address the uncertainty that is at the heart of all of them is through:

·  Clarifying the level of the co-funding cash contribution that will be required from employers and providing some worked examples so that employers can get a true understanding of the costs they will face according to age of apprentice and sector/occupation.

·  Building awareness and confidence through running a number of meaningful pilots before any system is implemented across the country, and across all sectors. Such pilots should involve employers, ATAs, and training providers in the development of the new funding mechanism and the infrastructure and supporting systems required to deliver it.

Question 2: Please comment on how, or to what extent, the new funding principles and mechanism can be applied in practice to ATAs, authorised non-employed apprentices and the Armed Forces.

2.3 AAT comments are restricted to on the element of this question that relates to ATAs. ATAs have a very important role to play in the system and their role could be even more pivotal if they are in a position to support SMEs through any further complexity involved in the new system.

2.4 AAT cannot see any reasons in principle or practice why ATAs cannot operate within the proposed system; indeed there may be advantages for them negotiating a more competitive price for training groups of apprentices than an SME might be able to get for a single apprentice.

2.5 However, there would be added complications. In a PAYE based funding system there would be the added complexity of registering and managing PAYE with a large variety of host employers. In a credit based system ATAs would have the added burden of invoicing different employers for co-investment. They would also have to deal with the administrative difficulties and potential cash flow problems that would arise if different employers with apprentices on the same occupational scheme did not pay at the same time.

2.6 The most important message is that whatever system is ultimately implemented must not jeopardise and ideally should enhance the future role and development of ATAs

Question 3: What sort of information would you need at the outset from a new employer website for Apprenticeship registration and funding, to give you the certainty to employ an apprentice?

2.7 The feedback that we have had from employers and members suggests that the key information that they would want is:

·  The cost to the business based on:

o  Maximum funding available for each standard

o  Any additional funding based on apprentice age, status etc.

o  Additional funding based on size of business

o  Payment schedule

·  Information about standards

o  Core qualifications

o  Assessment criteria

o  Additional requirements e.g. Maths and English

·  Information about registered providers

·  The information/paperwork involved

Question 4: When, relative to recruiting an apprentice, would you want to know how much funding you would be eligible for?

2.8 AAT would argue strongly that employers must understand what funding would be available before starting any recruitment process. This should not be taken to imply that the decision to recruit will be solely based on the external funding available, it is simply good business practice that will enable employers to accurately budget for their employment costs.

Question 5: How can data collection requirements be minimised in the reformed funding system?

2.9 AAT believes that this is an aspect that should be tested through pilot schemes but central to any consideration must be the avoidance of duplication through connecting appropriate databases e.g. RTI and to ensure that the amount of data collected is proportionate and has a clear purpose.

Question 6: How would the PAYE model impact on the cash flow of your organisation?

2.10 Based on our contact with employers and members AAT is clear that this is viewed as a risk. The perceived level of risk is largely based on employers’ and members varied experience of delays and inefficiency in previous dealings with HMRC.

Question 7: If you have multiple payrolls or outsource your payroll, how would the PAYE model work for your organisation?

2.11 The main concern expressed by our members was that while, this would not make the model unworkable multiple payrolls would inevitably add complexity and increase the potential for error. (see also our response to Q.6 above.)

Question 8a: Do you envisage additional charges for the PAYE model, such as through the update of payroll software?

2.12 Yes

AAT anticipates that some additional cost is inevitable as there will be requirements to update systems and software. The only mitigating factor would be how far this will be covered through existing maintenance and support contracts.

Question 8b: Do you already have to regularly update the software you use and pay for those updates?

2.13 Yes

The feedback we received was that cost would vary according to the terms of supplier contracts

Question 9a: If you have multiple apprentices, how easy would it be for you to calculate your PAYE deductions?

2.14 Don’t know

Based on our experience AAT would argue that it is not the number of Apprentices in itself that is the issue. For a micro business it may be as difficult to calculate the PAYE deductions for one apprentice as it is for a large employer with multiple apprentices but with the dedicated HR/payroll resource to administer the scheme.

Question 9b: How confident are you that you would be able to calculate the correct deductions?

2.15 Not confident

AAT is not confident that a micro employer will be able to calculate the correct deductions. Our members’ feedback is that for many small businesses to which they provide advice this would be an area in which they would want and need external support.

Question 9c: If you did make an error, are you confident that it would be simple to resolve?

2.16 Don’t know

This would depend entirely on the detailed operation of the system although we would make the point that based on some of our members’ experience of RTI it is not always easy to resolve errors.

Question 10a: How easy would you find the process of reimbursement funding?

2.17 Don’t know

Again in principle the administrative arrangements for this need not be overly complex but perceptions of simplicity are varied and are coloured by different past experience of dealing with reimbursement from HMRC.

Question 10b: What impact would this have on your organisation’s finances?

2.18 AAT is concerned that the administrative burden is most likely to have a disproportionate impact on the small employers where the greatest risk to cash flow exists.

Question 10c: Would this impact on your decision to employ an apprentice?

2.19 Yes

AAT is clear from the feedback that we have received that employers would take this into account in making the decision to employ an apprentice.

Question 12a: Do you already use online accounts, payment gateways and electronic payments (in purchasing training or any other service or product for your organisation)?

2.20 Don’t know

Our experience is that the use of online accounts, payment gateways is not consistent and is by no means universal. This is demonstrated by the results of our research with employers/members. Of those who responded to the question 50% did and 50% did not use them.

Question 12b: What could be learnt in the design of an Apprenticeship Credit from any existing online accounts and payment gateways that you use?

2.21 From AAT’s own extensive use of on-line accounts we believe that simplicity and security need to be built in from the beginning. In addition there must be a rigorous testing regime employed to ensure robustness of the system and compatibility with legacy software systems – it is important to recognise that not everyone has the latest version of Windows operating system.

Question 13: What is most important to you in relation to setting up an online account e.g. simplicity, security etc.?

2.22 While ease of use is very important, AAT is in no doubt that the requirement for security and avoiding the risk of fraud must be paramount as the account will contain both public and employer money.

Question 14: Would you want to set up your Apprenticeship Credit account before or after negotiating and agreeing training with a training provider?

2.23 Before

This is the model suggested in the flow chart in the consultation document and makes sense in that it ensures the minimum procedural delay once a decision to recruit has been taken.

Question 16: How would the Apprenticeship Credit account affect your cash flow?

2.24 There clearly will be an affect on cash flow but given employers have some flexibility in the timing of payments they have an opportunity to mitigate any negative effect. However, the retention of a completion element does involve a cash risk if apprentices do not complete. This may well have the effect of making employers more cautious in considering who they recruit and exclude those may stand most to benefit from an apprenticeship opportunity but are perceived to be ‘high risk’.

Question 18: What factors need to be taken into account in the development of an approved register?