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Consultation: Changes to Apprenticeship Funding

posted Apr 22, 2014, 3:23 AM by Kay Heritage   [ updated Apr 22, 2014, 6:18 AM by Rebecca Barker ]
Hi Everybody,

If you have not already been made aware, there is currently an ongoing consultation regarding how apprenticeship training will continue to be funded in the coming years. LSCP have provided a summary below of the areas most applicable to the Health & Social Care sectors, however there are direct links to the relevant documents below, we would advice all employers take a look over the documents to familiarise with the expected changes and to have a voice in how these changes may be rolled out.

Do Not Panic

There are a number of scary emails currently flying about, but at this stage it is simply too early to speculate on how this funding will be rolled out.

We are still in the very early stages of this consultation. Any changes, will only be introduced in 2016 and we will ensure that all of our members are kept fully up to date so that we are all well equipped for the changes prior to implementation.

What do we need to do?

You don't need to do anything just yet, however, this is your chance as an employer to have a voice in the coming reform. As the Technical Consultation documents can be notoriously difficult, LSCP has set up a simple web form which will allow you to quickly let us know your opinions & knowledge regarding the funding reform. Any responses we receive we will then compile into a Partnership Response through the official channels.

Summary of Guidance Document

Why is this reform taking place?

At the end of 2012, entrepreneur and educator Doug Richard published his independent report on the future of apprenticeships. In his report Doug Richard calls on the government to improve the quality of apprenticeships and make them more focused on the needs of employers.

The government then consulted on the implementation of the principles outlined in Doug Richard's report and set out an implementation plan. The implementation plan did not set out any elements of funding, but did include that:
  • Apprenticeships would be based on short, easy to understand standards of competence designed by employers to meet their needs, including those of smaller businesses;
  • Apprentices would be required to demonstrate their competence through rigorous assessment, focused primarily on testing their competence at the end of their Apprenticeship;
  • Grading would be introduced to encourage apprentices to strive for excellence; and
  • English & Maths requirements would be strengthened, reflecting the importance of these transferable skills.
A summary of responses from the initial consultation can be found in Annex A of the attached document "Funding reform technical consultation march 2014".

Funding Principles

The following key principles were outlined in Doug Richards' report on Apprenticeship Funding. Apprenticeships will be seen as an investment between the apprentice, the employer and the government, as such the cost will be shared appropriately between these three parties.
  • The employer is the customer
  • The employer should be required to co-invest - the aim of this is to increase incentive for higher quality training.
  • The government should not set the price of training or assessment. Costs will now be agreed between employers and training providers, with the government paying a proportion of this cost - it is hoped this will prioritise learning which delivers the most value.
  • A proportion of government funding should be linked to achievement
  • Government Funding should recognise additional costs (particularly for smaller employers).
It is hoped these principles will empower employers to demand higher quality and more relevant training for Apprentices. The basic price in each case will be determined by a negotiation between the provider & employer, however there will be a Maximum Government Contribution, any additional payments made available for specific circumstances (such as support costs for apprentices with learning difficulties) will not be included as part of the Maximum Government Contribution. (there is little details available on the Maximum Government Contribution, further details are available on page 13 of reform document).

Additional support will be made available to support people with learning difficulties or disabilities to undertake apprenticeships by meeting the full costs of reasonable adjustments and support.

In the reformed system, where qualifications form part of the standard, the government will contribute to the costs of qualifications and licenses to operate. Whilst employers will have discretion as to how to use any flat rate payments they receive, the government will only co-invest in the costs of external training and assessment.

The government will not invest in:
  • Apprenticeship Wages, subsistence and travel to work or place of learning
  • Employers internal costs such as line management time, planning, coaching or mentoring.
  • The costs of recruitment of apprentices
  • Internal Training
  • Registration Costs with professional bodies
Additional financial support will be offered to the smallest businesses that take on apprentices working towards the new standards.

Aims & Objectives of the Reform

The government wants to simplify the system and allow the market to determine the real costs of training apprentices. Employers will be able to negotiate the training package they want their apprentices to undertake to meet the required standard, agreeing the price and payment schedule with registered training providers.

The government will set a single overall co-investment rate for Apprenticeships, this will be expressed as a percentage of the overall cost of the external training as negotiated by the employer. The government expects that there will be between three and give maximum levels with each standard being allocated to one of them based solely on the anticipated cost. 

Further aims around funding payment methods include:
  • Payment Methods should be simply and provide certainty about funding.
  • Asking employers to pay upfront (to be reimbursed) would have dangerous cash flow implications for employers
  • Administrative burdens must be minimised, consistent with the need to minimise the risk of fraud and error.

New Payment Mechanism for Employers

The government announced in the Autumn Statement that it would develop a model which uses HM Revenue & Customs (HMRC) systems to route Apprenticeship funding direct to employers, and would consult on the option of an alternative funding route for the smallest businesses.

Any direct payment option has been excluded from this consultation because it has been judged to carry an unacceptable risk of fraud. Two payment methods are available:
  • PAYE - this model uses existing systems which employers should be reasonably familiar with. Issues have been pointed out, such as challenges faced by employers running multiple payroll schemes. Also some payroll agencies may charge for any new Apprenticeship function, as it would not be part of the payroll The government would be interested in understanding how these issues could be overcome. This model would be difficult to implement for smaller employers.
  • Apprenticeship Credit - Building on the responses to the previous consultation, the government has developed a new model designed to be suitable for both small and larger employers addressing the potential issues of cash flow. The government would be interested in better understanding how this model could work in practice.
Under both payment methods, employers would use a simple online portal to register their apprentices and apply for funding, this would involve submitting key pieces of informaiton, including:
  • Which standard the apprentice will work towards;
  • The apprentice's date of birth;
  • The name and address of the employer; and
  • The employer's number of employees
The website will confirm the employer's eligibility for funding so that they can approach training and assessment providers to agree the content, price and payment schedule for the Apprenticeship. The website will also help the employer to find and contact a suitable training provider and assessment body, signposting them to the existing support available.

Receiving payments through the PAYE model:

  • Upon registering their apprentice via the website, the employer provides their PAYE reference(s) and is authorised with HMRC to deduct Apprenticeship funding from their PAYE payments.
  • The employer meets the costs of training according to the payment schedule they have agreed with the training provider and reports payments made through the website.
  • The employer deducts Apprenticeship funding from their next RTI (real time information) payment. This involves the employer calculating the balance of their total employer liabilities (PAYE, national insurance, student loans deductions) with government payments (statutory payments, Apprenticeships) through the Employer Payment Summary (EPS).
  • The same process applies to payment of the assessment provider.
  • Additional deductions from PAYE payments may be made where the apprentice is aged 16 or 17 or the employer is eligible for additional smaller business support.
  • Employers with insufficient PAYE payments would apply separately to HMRC for a reimbursement payment

For employers not making sufficient PAYE payments

  • The employer calculates the amount they would need to claim, against their PAYE payment;
  • The employer then applies to HMRC for a reimbursement. This is verified and (if approved) paid into the employer’s bank account;
  • The amount is shown on the Employer Payment Summary (EPS) and would be accounted for over future months; and
  • If the amount in the EPS is greater than the deductions in the FPS (Full Payment Submission – this is the report that every employer makes each and every time payments are made to employees), then that difference is used to reduce the Apprenticeship reimbursement payment. If there is any charge still remaining at the end of the period the reimbursement covers, this represents a PAYE debt owed.

Apprenticeship Credit Model

The Apprenticeship Credit model would be an online account for employers which they use to buy the training and assessment they choose from registered providers. This should address any potential cash flow issues by using the following model:

  • The employer uses an authorisation code provided at registration to set up their Apprenticeship Credit account online.
  • The employer is then able to make payments into their account at a time of their choosing, which automatically triggers payment of the government contribution into the account.
  • The employer makes electronic payments to the registered training provider as agreed with their provider.
  • The same process is used to pay the assessment provider.
  • Additional payments may be made into the Apprenticeship Credit account by the government, for example if the apprentice is aged 16 or 17 or the employer is eligible for additional smaller business support.
  • The account balance can be viewed online and overpayments by the employer withdrawn (where they have attracted government co-investment this would also be deducted from the balance and the government contribution returned to the government).

How LSCP can assist your organisation

The government has also suggested that employers are able to delegate functions to a third party if they prefer. LSCP is currently investigating the ability to offer a service on behalf of our members to include negotiation on the price, content and quality of training being bought under the new apprenticeship scheme - the idea is that by pooling our resources we will gain the benefit of increased bargaining power to provide better outcomes for employers.

Implementation Timetable

 May 2014 Technical consultation closes and informs subsequent development.
 May 2014 Co-investment and payment rates for Trailblazer-developed Apprenticeship  standards set for 2014/15 starts.
 May 2014 Outline funding guidance published.
 Autumn 2014 Announcement on which payment mechanism to develop.
 May 2014 to March 2015 Testing of new funding policies via Trailblazer-developed Apprenticeships  starts.
 Autumn 2014 Description of Apprenticeship Funding methodology published.
 February 2015 Deregulation Bill, which contains clauses to enable the reforms, comes into  effect following Royal Assent.
 February 2015 Funding conditions for Trailblazer-developed Apprenticeships starting in  2015/16 published.
 December 2015 Details for 2016/17 system published.
 2016 Employer-routed funding mechanism introduced.
 2017 Learners no longer able to start a framework-based Apprenticeship after this point.


Now is your chance as an employer in the social care industry to have your say on how apprenticeship funding is managed for our sector. If you would like to send your opinions & comments directly back to government please click here to view the consultation. Alternatively you can complete the LSCP form to ensure your opinion is included in the feedback provided by our partnership.
Rebecca Barker,
Apr 22, 2014, 3:23 AM