New challenges facing providers and Government

Work based learning providers face a new and complicated set-up following the changes to the Government departments that fund the initiatives they deliver.

Two new Departments have been created - each with fresh teams of new Ministers -with funding systems that could undermine the Government's goals of higher job and VQ outcomes, better standards and wider participation.

When the funding regime of the LSC and the Employment Service was designed, it had the right aims in mind. Funding would follow the leaner; it would have a consistent pricing formula and it would pay at rates that adequately met the cost of training. In addition, funding systems would cut across the artificial boundaries between work-based learning and courses delivered through general colleges of further education.

On the face of it, the outlook should be good. There have substantial across-the-board increases in expenditure on post 16 learning - over and above the planned volume increases. Trade apprenticeships - which had been dangerously underfunded - are now supported at level that more closely reflects the costs and complexities of delivery. Support for learners with additional needs has risen and better matches need for vulnerable groups.

But, these benefits are not being shared with employers and trainees in two key respects - in the pricing for service sector occupations and for 19+ Advanced Modern Apprenticeships.

These points of weakness could seriously undermine the Government's ambitions to fix the UK's productivity failings and its clearly articulated pledges to:

Firstly, the service sector. Retail, hospitality and customer services have the strongest growth prospects yet are characterised by firms least able to train their staff. OECD figures show that service sector productivity levels in the UK are well below the national average. A CBI survey published in June reports that skill levels are the largest factor affecting firms' competitive advantage - with 39% of companies saying that skills shortages are having a significant impact on competitiveness, compared with 14% of those surveyed in 1998.

The service sectors represent over 60% of Foundation Modern Apprenticeships and 40% of Advanced MA programmes. But they currently have some of the lowest rates for participation in learning, even though they represent the principal areas of future economic growth. They also recruit the lower achieving young people, those most at risk of future dislocation from the labour market and with a disproportionate number of female trainees and people from ethnic minority communities.

The second problem is the price discounting of 19+ Modern Apprenticeships which represent the most glaring anomaly within the LSC funding model. Some MA frameworks are being funded at 44% less than the equivalent price for 16-18 year olds. But providers are not arguing for identical pricing. They recognise that employers recruit older MA participants under different circumstances to recruiting immediate school leavers. Some employers invest more of their own resources and some recruit more job ready and work experienced candidates aged 19+. Often those candidates have greater prior learning and can complete their MA more quickly. Providers also know that many older MA candidates do not have much prior learning and they do not complete faster - often these young adults have received no education or training since they left school and often require more time and supervision to complete their training. In these cases, employers can sometimes contribute less of their own cash, not more.

We now know that the MA 19+ price reductions bear no relation to any objective measure of costs or the learning requirements of 19+ learners or the extent of employer contributions. Neither DfES nor the LSC have produced any persuasive evidence to justify the pricing discounts.

The impact of these funding decisions looks bad. As the effects of the LSC and ES contracting decisions begin to bite, we may see fewer suppliers of work-based learning. Yet the Government has a long-held ambition to expand the learning supply market.

More seriously, a reduction in work-based provision may mean fewer young people meeting the targets for VQ level 2 attainment. The LSC is already under heavy pressure to bridge some of the 10 percentage point gap between current achievement levels and the December 2002 target of 85%.

Having fewer effective providers will also weaken the supplier infrastructure that will be needed to deliver the second phase of New Deal.

Lastly, the Government is about to embark on an ambitious Workforce Development strategy that will try to incentivise employer investment in learning. Yet the LSC funding strategy is discouraging companies from offering trainees employed status. With cuts in the previous level of support, it is more difficult to help offset the costs of the training leading to qualifications. In the engineering sector, for example, companies are becoming reluctant to take on the costs of the Further Education that is an essential part of the Engineering Modern Apprenticeship framework. This means that trainees are only being offered NVQ training as opposed to a full Modern Apprenticeship, thus dampening the enthusiasm of the young person and the employer. This will weaken - not strengthen - employer commitment to leaning.

Now that 2 Government Departments assume responsibilities that cut across welfare-to-work, the education, learning and labour market, now is the ideal time for Ministers to take a fresh look at the potential risks they inherit.