CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 1875-i

HOUSE OF COMMONS

ORAL EVIDENCE

TAKEN BEFORE THE

PUBLIC ACCOUNTS COMMITTEE

ADULT APPRENTICESHIPS

WEDNESDAY 7 MARCH 2012

MARTIN DONNELLY, GEOFF RUSSELL and SIMON WAUGH

Evidence heard in Public

Questions 1 - 98

USE OF THE TRANSCRIPT

1.    

This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

2.

The transcript is an approved formal record of these proceedings. it will be printed in due course.

Oral Evidence

Taken before the Public Accounts Committee

on Wednesday 7 March 2012

Members present:

Margaret Hodge (Chair)

Mr Richard Bacon

Jackie Doyle-Price

Matthew Hancock

Chris Heaton-Harris

Meg Hillier

Mr Stewart Jackson

Fiona Mactaggart

Austin Mitchell

Nick Smith

Ian Swales

Amyas Morse, Comptroller and Auditor General, Gabrielle Cohen, Assistant Auditor General, Peter Gray, Director, National Audit Office, and Marius Gallaher, Alternate Treasury Officer of Accounts, were in attendance.

REPORT BY THE COMPTROLLER AND AUDITOR GENERAL

Adult Apprenticeships (HC 1787)

Examination of Witnesses

Witnesses: Martin Donnelly, Permanent Secretary, Department for Business, Innovation and Skills, Geoff Russell, Chief Executive, Skills Funding Agency, and Simon Waugh, Chief Executive, National Apprenticeship Service, gave evidence.

Q1 Chair: Welcome again to Mr Donnelly and Mr Russell, and welcome to Mr Waugh-it is his first time with us. We have got a not bad report in front of us, so congratulations all round to all of you on the expansion of the programme and the success it has had over the years. Surprise, surprise, we are going to concentrate on value for money issues this afternoon. There are some issues in the report that we want to unpick, if we can. May I start by asking-I do not know who wants to answer this-what an apprenticeship is today?

Martin Donnelly: The most important thing about an apprenticeship is that it is a job. It is a job with learning. I do not know whether Simon wants to say a little more about the elements that make up an apprenticeship today.

Simon Waugh: Yes, Martin, thank you. That is a really important point: it is a real job. It is not a little bit of training or work experience. You are employed and you are paid a wage, but there has to be significant and additional learning through the apprenticeship as you acquire new skills. There are three simple components to that: the first is the NVQ, which is how competent I am at doing that job; the second is a technical certificate, which is the knowledge and can cover things such as equal pay and discrimination-there are a whole range of knowledge elements to the programme-and the third is something called functional skills, which require some 70% of all people doing an apprenticeship to develop their maths and English skills. Those are the three core components that make it up.

Q2 Chair: Both of you said that it is a job. According to the report, in 2007, 50% of apprenticeships were people in work. I do not know what the figure is today. What is it?

Simon Waugh: It is 97%.

Chair: No, those who were in work before they started their apprenticeship.

Simon Waugh: Oh, I see. I don’t have that number.

Q3 Chair: It was 50% in 2007 and the report says that the figure is likely to be higher today.

Simon Waugh: There is no doubt that a significant part of the programme in the past three or four years, and going back slightly longer to five years, has been the reintroduction of apprenticeships for those aged 25-plus and the upskilling and reskilling of people in the work force.

Q4 Chair: We will not hold you 100% to it, but can you make a guesstimate of what the figure is today? You must have a feel for it. Accepting that you might go back and say, "I got this completely wrong", have you got a guesstimate in your mind?

Simon Waugh: We believe it is around 70%.

Q5 Chair: Given the value for money, if 70% of people who go on apprenticeships are in work before they start, is it just a rebadging?

Martin Donnelly: Can I kick off on that, Chair, because it is an important point which concerns us from a value for money point of view? One answer is that it is not just rebadging or dead-weight, because we know from international figures that UK employers have traditionally not trained enough. If we do not intervene, levels of training and intermediate and advanced qualifications remain too low. That gives us a pretty clear signal that we need to develop our training offer and that is what we are aiming to do in apprenticeships.

Q6 Chair: I hear that, but I just have to say, that is why I asked you to define it. You all said that it was about having a job. When I think about apprenticeships in my constituency, for me it is primarily about giving an opportunity for young people to get a job and then train in it. That is my old-fashioned view of what it should be. If 70% already have a job, however, before they start-you say to me that this is not about rebadging, because all political parties and all politicians love apprenticeships-it is about training in work. Why is it that one in five, in effect, of apprenticeships lasted for less than six months and 3% lasted less than three months? What on earth sort of training can you get in that context that is of any value, in the traditional sense of training increasing qualifications, competences or knowledge?

Simon Waugh: You have clearly linked duration of apprenticeships to value for money. I would like to reassure the Committee that we pay significantly reduced rates for older apprentices who have been reskilling and who have been upskilled in the workplace. That is fundamentally what apprenticeship is about. It is about significantly increasing the skills of the people in this country.

Q7 Chair: Okay. Let’s unpick the 19%-that might help us. How many of that 19% who were in an apprenticeship for less than six months were already in work?

Simon Waugh: A significant number. I think the 70% is-

Q8 Chair: Higher?

Simon Waugh: No-

Q9 Chair: My guess would be higher, but I may be wrong, which is why I ask the question. Am I wrong? I don’t know whether people behind you can help.

Simon Waugh: We think it is the same.

Martin Donnelly: We think you are probably right, because most of these would be people who have already been in jobs for some time and may have, for example, parts of the qualification already in place, which is one reason why the training may be shorter.

Q10 Chair: Let me ask another question that might help us. How many of the 19% were doing advanced apprenticeships-really upskilling to the level that the French, Germans and others do it?

Martin Donnelly: That will be a relatively small number. Although they have increased a lot-

Chair: My guess would be none.

Simon Waugh: I agree-it would be very low.

Q11 Chair: May I ask a third question? Primarily, what sort of sectors would they be in, as you define them?

Simon Waugh: There is no doubt that duration has shortened as we have moved apprenticeships into other areas of the economy, such as the service sector, which is a large part of it.

Q12 Chair: What would they be doing? Waitressing?

Simon Waugh: It could be retail, customer service, which is a generic framework across many industry sectors, hospitality or business administration.

Q13 Chair: I just think that, in a context where there is complete unanimity about the importance of apprenticeships, we are stretching the definition, particularly when you look at less than six months. You might tell me how many of those apprentices were over 25. Are they mainly over 25?

Simon Waugh: No-actually, it is pretty much the same across all. The first thing I would say is that we completely share your concern about short duration and, with our partners in the Skills Funding Agency, we have been investigating all apprenticeships and providers that have been delivering for less than six months.

I don’t think it is quite as simple as, they are all wrong. This is an employer-led programme and a number of employers like to hothouse positively-in other words, to provide really focused training for a period. The MOD is a good example. It has written to us recently to say that some soldiers are on base 24/7-it is not even that they are there for seven or eight hours a day, five days a week-so it is concerned about the extension. We have decided-or the Minister has-that all 16 to 18-year-olds will be 12 months and over. That is an absolute fact. When the duration is shorter than 12 months, we proportionately pay the provider based on the percentage of the length.

There is an issue about the brand and whether these are real apprenticeships, but there is far less of an issue around value for money. With older apprentices, who do apprenticeships in a short time, we are effectively paying the 35p in the pound that we pay for a 16 to 18-year-old.

Q14 Chair: We have all had a letter from the academics, Alison Fuller and Lorna Unwin, in Southampton-presumably, you have seen it. I think we were trying to get them to give evidence, but they couldn’t. You probably know their work well. They have expressed concerns in that letter. You have defined that you have to have an NVQ competence level, some knowledge and some functional skills. They say-I guess it will apply to the one in five who do under six months-that the knowledge element will not involve participation in a recognised, off-the-job course? Is that true, because that is a bit scary? Do you think that that is probably widespread?

Simon Waugh: No, absolutely not. The framework and the components-

Q15 Chair: For most apprentices, the knowledge element-that is your definition-will not involve participation in a recognised off-the-job course.

Simon Waugh: I don’t agree with that.

Q16 Chair: Even in the under six months one?

Simon Waugh: No. One of the things we have significantly improved in the last 12 months is standards around quality of apprenticeships, including the introduction less than 12 months ago of something called the specification of apprenticeships standards for England-SASE-which says that you have to have minimum hours of learning on the technical certificate and as part of the programme.

Q17 Chair: Off site?

Simon Waugh: Off site-we had lots of debates with Lord Layard in the development of this-and away from the work station for a minimum of 280 hours. If you add up all of the frameworks, they come to well over double that amount of time. This is not the rebadging of some vocational training; these are jobs with people spending significant amounts of time away from the job they are paid to do, to learn aspects of their job knowledge that they would never get. I have run some very large companies and big apprenticeship programmes, and this is anything but a rebadge. Those in big companies such as American Express, Lloyds Bank, British Gas, the AA-I ran parts of these businesses-are very different from anything that we have done internally ourselves, and they are work-related.

Q18 Chair: I will just ask a final question and then go to Matt. During apprenticeship week, which we had recently, I went to visit some apprentices in my own constituency in a printing business, which is a really successful business that has completely repositioned itself and is doing really well. I talked to the apprentices and one of them had been an apprentice for two months and had never had any training. My guess-although I have not got a clue: the training provider got very nervous when I asked that question-is that the business itself was not putting any money in and that it probably needed those young people anyway to grow the business. The training provider was getting quite a nice amount of the taxpayer’s money and the young people had not been off site.

Simon Waugh: It is very hard for me to comment on one particular apprentice out of the 457,000 apprenticeships that have started. The NAO Report-it makes some very strong recommendations, which we have completely accepted, and we intend to do a number of different things in the future-recognises this point. All the evidence, if you look at it, is that Ofsted, which goes to training providers that deliver apprenticeship training, has rated them very highly and its comments are generally very positive about apprenticeships-not just about the training that is being delivered, but about the employer support, which it rated as high and considerable in terms of having mentors and giving apprentices support.

Over 90% of businesses say that apprenticeships and vocational skills are driving business performance. We have had the Warwick report, which was developed by a number of small, medium and large companies in this country; about 30 of them asked Warwick university to do it. It has proven that apprenticeships drive additional productivity and efficiency above and beyond any training programmes that they run, and that is because they are trained properly. If I said to you that I think all the 457,000 people who started last year have had perfect experiences and have all been trained brilliantly well, quite clearly you would not believe me, but across the programme-

Q19 Chair: This is my final question and then I will go to Matt. What the Report says and what I would like to know about-I cannot quite understand why you do not do it, because we all care about the success of this programme-is that you do not actually know how much money gets lost through the system and how much actually gets paid on the training. We do not know or the Report cannot tell us how much BIS takes, how much the Agency takes, how much you take, how much the providers take-that was my local experience-and how much goes to things such as the sector skills councils. There are a whole load of intermediaries in the system that will all slice off a little bit of the money, and we cannot tell how much in the end is actually for training for the individuals. I cannot quite understand-this might be a question for Martin Donnelly-why you have not done the work that would enable the NAO to report and this value-for-money Committee to be satisfied that that great investment is adding value. Why can’t we track where that money goes and how much actually ends up as training for the individual?

Martin Donnelly: You are right that there is a degree of complexity in the plumbing, which the chart on page 12 draws out quite well. The important thing for us is that there is clarity on the way the funding for 16 to 18-year-olds moves from my Department and DFE through to Simon and the NAS, which has end-to-end responsibility for delivery. We know the rates that we pay for the different sorts of apprenticeship. As you say, those rates are negotiated with the different sector skills councils and other providers.

Q20 Chair: You cannot track it. You cannot track the seepage to all those intermediaries before you get to the interview, can you? You cannot track it. I do not know on which page of the NAO report this is-perhaps you could help us-but nobody can say, "Is this value?" because you cannot track all that expenditure.

Simon Waugh: If I may say so, I thought the NAO report could not have been clearer on the extraordinary value for money.

Q21 Chair: No, just answer the question. They say that you do not know whether it is the added value of apprenticeships; they say that earnings go up, I accept that, although there is an argument on how much earnings go up by. I am interested that the Government put in one point whatever billion pounds. Why can’t we track how much of that is actually spent on training, so that, when I go to celebrate apprenticeships in my constituency, which is what I was trying to do, I do not come away thinking, "Crumbs, who got that money?"?

Simon Waugh: Geoff may want to comment, but £1.54 billion goes directly to training providers to deliver training to those people who have been identified.

Q22 Chair: That is not the question. The question is: how much goes on the training for the individuals? How much is actually spent on providing training for the individuals? In this instance, the young chap said to me, "I have been an apprentice for two months and I have never been off site." Maybe I landed on a very odd one.

Matthew Hancock: Maybe I could ask a question.

Chair: Let me get an answer, Matt, and then I will come to you, I promise.

Simon Waugh: Of the 100%, I do not know how much providers take out of the money provided to them for training in overheads, and so on. You mentioned sector skills councils, which are completely separate from the £1.4 billion. We have a very clear understanding that the various agencies and the people in the value chain who deliver apprenticeships have their own separate budgets. The admin budget for NAS is completely separate. So the £1.4 billion goes out to colleges and training providers. Whether they spend 100% of that money on delivery, I think is incredibly- I cannot argue or defend one apprentice out of the 600,000 or so we have in training.

Chair: I do not know who chose that as a site for me to visit, but it just so happened that that is where I went.

Q23 Matthew Hancock: I want to come back on two points that have been raised. First, figure 8 on page 26 states that the NAO estimate for advanced apprenticeships is that there is a £21 return to public spending for each £1 of expenditure; and on intermediate apprenticeships the ratio is 16:1. Those figures are very strong, but they are significantly below the Department’s estimate. Could you explain that distinction?

Martin Donnelly: Can I kick off on that? We have taken a view, based on some academic evidence, that the benefit of an apprenticeship goes not only to the employee, but to the company, which benefits from the increased productivity that comes through this process. The NAO understands and accepts that level of reasoning. There is a legitimate uncertainty on how large that benefit is.

Q24 Matthew Hancock: So apprentices increase the productivity of the businesses into which they go?

Martin Donnelly: Because of the skills they acquire during the apprenticeship, yes. In future they will make the business more productive, which is, of course, one reason why employers want apprenticeships.

Q25 Matthew Hancock: Is that because of external training? It is extraordinary that the training of the most junior people will increase the productivity of the company to mean that the money that you are spending in terms of advanced apprenticeships will go a bit further and more than twice as far in terms of intermediate apprenticeships as it would on the narrower definition-if that is what the distinction is.

Martin Donnelly: It depends on how much value you attach to that wider training making the individual more productive. We are doing some further work with, I believe, Warwick university and a couple of other academic bodies to try to give ourselves more evidence of that. It is something that we will of course publish when we get it. The anecdotal evidence from employers that these training programmes, including at intermediate level, do increase their profitably going forward is strong.

Q26 Matthew Hancock: Does the NAO buy that distinction?

Amyas Morse: We are not suggesting that the Department is doing anything misleading here. When we did our Report-you will see this is in paragraph 2.25-we did not think that the evidence was strong enough to put a 100% mark-up on the wage costs. We just thought that that was too aggressive based on not very much evidence. Therefore, we thought a 25% mark-up was more reasonable. It is possible that more and better evidence can emerge in future and a higher level of estimation-

Q27 Chair: And you have a proviso even around that. Peter, you said that even on that you do not know.

Peter Gray: Yes. As Amyas stated, the Department had assumed that the benefits beyond the individual were 100%. We looked at the evidence and the Department drew on previous academic research, which had been done on quite different programmes in the ’80s, and we discussed those with the academic concerned. As a result of those discussions, we decided that 100% would not be applicable here. We do not doubt that there are what are termed spill-over effects, but we thought that 25% was probably a more reasonable estimate. That is our judgment. There is no right answer to this. There are spill-over effects.

Q28 Matthew Hancock: There is always uncertainty around this type of figure anyway as it is an estimate. Do you accept the NAO’s position on that? Is that a reasonable explanation of the difference?

Martin Donnelly: We absolutely agree that the best way to take this forward is to do some more research. We have commissioned that and we will share it when we have it.

Q29 Matthew Hancock: I want to come back to this point about the shorter apprenticeships, because, during apprenticeship week, I also visited an apprenticeship scheme at the British Racing School in Newmarket. They put me on a racehorse, and I took part in an apprenticeship, albeit an unusual one [Interruption.] I can mention horses whenever I like-I represent Newmarket. I want to push you on the flexibility point. In some sense, it was an unusual apprenticeship. On the other hand, however, all the training is on-site. They do not go off-site at all, and it is intensive. They have to get up at 6 am and work until 8 pm, and all of that means that the apprenticeship and the time before they go into the workplace are shorter. Is the system going to be flexible enough to ensure that, where there is pre-work training to get people up to a standard, that can still be within the apprenticeship programme and to ensure that you do not, by trying to get more rigid rules, squeeze out some different and more unusual ways of providing apprenticeships?

Martin Donnelly: This balance between flexibility in different sectors and ensuring overall quality and trying to raise the bar is absolutely fundamental. You are right. We are-Simon may want to comment on this-getting this broadly right. It is important that we keep an eye on it. It is important that in areas such as English and Maths, where we are pushing for standards to be applied across all apprenticeships, that we do get that delivery, so that people have more transferrable skills.

Simon Waugh: I am not doing very well with the apprenticeship for the Chair. I am very aware of the British Racing School. You have picked what I would describe as a unique or very unusual circumstance.

Q30 Matthew Hancock: They will be delighted to hear that they are unique.

Simon Waugh: We have had long conversations about their model of delivery. They do not like the employment piece and paying a wage. Rather like the apprenticeships in sporting excellence-so Olympic sports such as swimming-they do not really have employer bodies but people want to spend all their lives training. We have had long-standing debates with the British Racing School. Out of the 4.5 million employers in the country that you could have picked, that one is clearly in my mind. We are trying to be flexible, because this is an employer-led, demand-led programme-

Matthew Hancock: Exactly.

Simon Waugh: But we have got to apply standards around duration, about what a real apprenticeship is and how it looks. If we do not, we will discredit the programme as a whole.

On the question about why I do not care-I was a businessman, I retired five years ago and I came out of retirement to do this, because I love apprenticeships. I saw them work in the workplace, I introduced them back into British Gas personally and I had 25,000 people working for me at Centrica. I am here because I believe in this and I believe in what it does for business, for skills and for people’s lives. We have got to find flexibility to make it work for employers, but it cannot be so flexible that we discredit the programme. The British Racing School is one that we are still trying to find a solution to.

Q31 Matthew Hancock: I have other apprenticeship employers in my constituency, for whom the more structured approach that you have just talked about is important. For them, appropriately ensuring that the training happens and that it is of high quality is very important. I get the impression that that is an area that we want to push more on, and that it has been lacking. What are you doing to make sure that people can have confidence in the training that is provided as part of apprenticeships?

Martin Donnelly: It is extremely important. Can I bring in Geoff, in terms of managing the contracts for providers, to talk about how we aim to check that that quality of provision is taking place?

Geoff Russell: Simon and his people set the criteria, the definition and the quality standards. What we do for the National Apprenticeship Service is basically to procure and manage providers to deliver to that standard. The key driver is that providers have to attain a minimum level of achievement in terms of completion of frameworks or they do not get our money.

Q32 Matthew Hancock: But what about the quality within the completion of that framework, to ensure that the training is good enough? We have all been on training courses where we have not learned very much.

Geoff Russell: In order to get a complete framework you have to meet the standards of the awarding organisation, which is the body that examines and ensures that the person has met that standard. It is really the awarding organisations that test against the standards of a framework that is devised by framework developers. What we do is to ask, "Did the minimum requirement of your students pass the awarding organisation’s tests?" If they did not, we do not give them contracts any more or we take money away from them. They respond to money. It is a powerful way of ensuring that they meet the standards. We put that across our entire business and in the past six or seven years it has driven up the quality of apprenticeships significantly. Simon will know in more detail what the figures are.

Simon Waugh: It is no different from doing GCSEs or A-levels, in the sense that you have to do an exam in the academic world, and as part of the NVQ you have to prove your competence to do the job at the highest standard that you can do. You and your employer pick modules as part of the framework that you will complete. At a very basic level, for someone doing business administration, one of the modules may be around arranging a large meeting. The components sitting around that will be health and safety considerations, putting out an agenda and having the capability to produce good minutes. There are many modules to this, which are then evaluated. The apprentice has to produce a portfolio of their work over the 12 to 18-month period-if it is six months, we are going to sort that. The apprentice has to prove to an assessor and do exams as part of the technical certificate. I have interviewed-well, spoken to-hundreds of apprentices in the last three years of doing this, and they assure me and tell that it is very hard, because they get bounced back. They produce part of the work and it is, "That’s not good enough. There isn’t enough content. Where’s your proof?" and with employers, it is about embedding those skills.

That is the other thing about wanting apprenticeships to last longer, because we do not want the one-minute wonder doing the training course, working very well, and then, over time, seeing those skills and that productivity drift away. That is why we have made-or the Minister has-it a minimum of 12 months for 16 to 18. Even if it takes nine months for someone who can rapidly do it, there are still three or four months of sustained performance. I am not going back to the NAO debate and the value for money. I think that can be debated, but I again have seen personally and am utterly convinced that good quality apprenticeships are the definitive way of training and skilling your people.

When we first started doing that, say, in some of our call centres in the AA, we took 5% of our call centre staff. We had very high turnover rates and our turnover for that group fell dramatically, but we also learnt something, because they were so much better at the job having completed it. We took that best practice and that 5%-it may have been a cheap way of doing it, incidentally, by taking the benefits of training 5%-and started spreading that best practice across the other 95%. So, there is a halo effect of getting a small number of your people-at any level, junior or middle management- to do things brilliantly well in a structured way with a nationally recognised qualification, and then seeing that uplift the organisation as a whole.

Q33 Austin Mitchell: I agree with that, but my question is different. We have always been bad at training compared with Germany or other countries. That is shown in figure 4, "Incidence of apprenticeships (all ages) in the workforce", but I was surprised at the difficulty in getting employers to come forward to take apprentices on. Figure 2.6, on page 18, says that the proportion of employers with apprentices in England was only 5% in 2010, whereas in Australia it was 30% and in Germany, 24%. Why is that? In Grimsby, the Grimsby Evening Telegraph has had a campaign to get people to take apprentices on. The apprenticeship service has been very good at going round employers and pushing them to take apprentices on, but the take-up is still lower than you would want. Why?

Simon Waugh: There are a lot of reasons. Partly, it is cultural; I think that vocational skills and particularly engineering and manufacturing have always been recognised and valued more highly in countries like Germany than in the UK. Another thing that is quite interesting-there are a few myths around, if I may say so-is that 22% of people in Germany go to university, while here, it is 35%. So, for that 13% of the population, a lot of them do apprenticeships, which make up that additional number.

I also think that we have not done enough to convince people. You have to start with employers. We are going to have millions of people that may want to do an apprenticeship, particularly with youth unemployment where it is now, but if you do not get employers who either want to offer an apprenticeship to a first timer-and also, may I just address the issue of older apprentices who are in the workplace? Some of the biggest skills issues in this country, which is a legacy lasting years and years, are in the existing work force. It is not just 16 to 18-year-olds. What about the 35-year-old who was let down by the system, over the last 15 to 20 years of their life? They came out of school with very low literacy, numeracy and basic skills, and they are condemned to a life of very low-skilled, low-paid work. Going into the work force that we have-I know a lot of people do not like that-is fixing that problem, which is absolutely inherent in our existing work force. So, we have a very different culture, system and numbers of people, but six out of our 10 top frameworks in this country are exactly the same as six out of the 10 top ones in Germany, including retail, hospitality, business and customer service.

Q34 Austin Mitchell: I will ask you about that in a minute. I am glad to hear what you are saying, but is it because employers regard it is a cost, rather than an investment?

Simon Waugh: Yes, they do. It is a big commitment. Part of the argument over why there are so few is, "We already train our people, and we don’t necessarily want them to have great literacy and numeracy. If I ask them to do a very basic job, what difference does it make to me if they can’t go home and help their children with homework or can’t go out and buy a bus ticket properly? As an employer, I might have a social conscience about it, but that is not my problem."

Employers see an apprenticeship as the blue riband. It is the belt and braces of training, and a real commitment for them. They need to let them go off-assuming they’re getting the training, Chair-one day a week to a college or, more often than not, a provider. They have to have assessors coming into the workplace; they have to allow at the minimum their apprenticeships to go off for 280 hours to college and do their homework. They see it as a very onerous and difficult thing to do, but the ones who do it see the light.

Austin Mitchell: Good.

Mr Bacon: I feel like cheering after that, I really do.

Q35 Austin Mitchell: A further point was raised about training in retail. Many trade unionists who talk to me, and certainly my brother who was an apprentice lathe operative, regard these as make-work schemes which don’t lead to a job and really aren’t much use. The bulk of the short apprenticeships, which I should have thought are too short to be valuable, are in the retail sector. Why are they valuable there?

Simon Waugh: That is not the TUC view. We work incredibly closely with employer bodies. Frances O’Grady, the deputy director general of the TUC, talks to us every week.

Q36 Austin Mitchell: Yes, but these are people who have gone through a traditional apprenticeship; I’m sorry, but you can’t do that in retail.

Simon Waugh: I think you can. People don’t understand the complexity of doing a retail apprenticeship around logistics, time management and customer services, which is an important part of it. People immediately think, "Well, pay them the lowest amount of money. They will stack a few shelves. Where is the content?" There is enormous content in retail apprenticeships. Of course, there isn’t the content compared with an apprenticeship in advanced manufacturing and engineering. That is why we pay £3,000 or £4,000 for a retail apprentice and £27,000 for an advanced worker. The level of skill and content is built into the rates we pay, which drive value for money.

Chair: Austin, I am moving on. Richard, then Ian and Stewart.

Q37 Mr Bacon: Mr Waugh, you are very persuasive about the importance of apprenticeships. I am very glad that you are where you are, doing what you are doing after many years of having done other things, because we need more people like you in the public sector. Thank you for that.

The Chair referred earlier to a letter from the university of Southampton. It is a short paper. They probably could have done an apprenticeship course on how to write it more pithily, but I waded my way through it. When I finally cut to the quick in the last sentence, Professor Alison Fuller and her colleagues asked whether evidence could be provided to show that "public money is being spent on quality apprenticeship programmes providing adults with substantial new training or retraining for skilled employment, as opposed to some basic on-the-job training and the accreditation of existing skills."

You were very clear that this isn’t about rebadging. You mentioned the minimum of 280 hours, although you said that it was often more than that. Can you provide the Committee with a short note setting out some of that in more detail, and say why it isn’t rebadging-in other words, an answer to the question?

Simon Waugh: Absolutely.

Mr Bacon: That would be very helpful.

Simon Waugh: I made the point that, under just pure work-based learning, you do not have the technical certificate, which is critical to it. The level of competence training in my experience is as least double what an employer would do in their own right without an apprenticeship. The additionality is absolutely unequivocal.

The other thing about good quality apprenticeships is that, while the world in general has become fixated by 25-plus apprenticeships, this is only about adults. I thought that that was a shame, because a big success story in the portfolio is the 16-to-18 growth, which we are not here to talk about. However, that has grown by nearly 35% in the past two years, in the most difficult economic environment that some of us-I will not judge you by age-can remember. That great success story is not even covered in this. We are only looking at adults.

May I also point out that the number of starts we have had in, say, retail business and administration is three times the number that we have had in engineering, manufacturing and construction? That may alarm you, but actually we are only spending 70% of the money on those programmes, versus engineering and manufacturing. Engineering, manufacturing and construction account for by far and away the most money we spend, compared with any other framework; but it is about a third of the starts because of the quality of the training.

Q38 Mr Bacon: And the cost of each place?

Simon Waugh: Yes. And construction and engineering have fewer people in the workplace today than they had two years ago.

Q39 Mr Bacon: Perhaps in your note you could add something about why there is a significant amount of additionality.

Simon Waugh: I would be very happy to.

Q40 Mr Bacon: I want to come on to the costs and to question Mr Donnelly and perhaps Mr Russell. One of the things that Mr Waugh said earlier was that he could not necessarily look inside an employer or a training provider and see what their overheads were. One of the things that is of concern in this report is how little a grip, let alone an up-to-date grip, you appear to have on the costs facing training providers. I am referring to paragraph 3.19 which talks about the tariff values and how complex they are. Some of them are very dated, using information dating back to 2001, and the supporting evidence is no longer available. It adds that tariffs have been adjusted in some cases simply to reflect the change in annual budgets rather than any assessment of delivery costs. It goes on to say: "Without robust information on costs, the Agency and the Service may unknowingly subsidise some apprenticeship frameworks more than others, potentially distorting providers’ decisions on which frameworks to offer." Why don’t you know more about providers’ costs?

Martin Donnelly: There is a balance to be struck between a very bureaucratic level of intervention into every one of the extremely different sorts of provision, and making sure, as you rightly point out, that we provide value for money. I am satisfied that the systems we have in place do that effectively and I should like to ask Geoff to say a bit more about how we do that in practice.

Geoff Russell: I suppose there are two levels to this. At a very high level, as Simon has already said, we take a pretty robust view about what we pay for versus what is being delivered. So, as Simon has said, a number of times, we pay significantly less for frameworks that have less content or less training provision. On the specific point that the NAO raised about the process that is used effectively to determine what we will fund, it is true that some of those are quite outdated but they are mostly things that are intentionally outdated, in that we did not update the costs. So we are paying against costs that are quite old right now. I am pretty satisfied that that just drives more efficiency. Having said that-

Q41 Mr Bacon: You all sound pretty satisfied. Mr Donnelly said he was satisfied the systems were all fine, which is a classic accounting officer answer. You sound satisfied as well. You just said so. What I am not clear about is this: do you know whether a provider is making a surplus or whether a particular programme is costing it money?

Geoff Russell: Are you asking me if I know whether a provider makes a profit?

Q42 Mr Bacon: Yes. If you don’t have a clear understanding of the provider’s cost, how do you know how to set the tariff?

Geoff Russell: We do have an understanding of the cost components, but the NAO is correct that some of those costs are a bit outdated. But we definitely have a cost model that takes into account the various components of the cost.

Q43 Mr Bacon: But it is true, is it not, that you don’t know the extent to which providers may be earning surpluses or incurring losses on some types of apprenticeships?

Geoff Russell: Virtually every one of our providers overall is making a profit.

Q44 Mr Bacon: Do you know how much profit?

Geoff Russell: Not on an individual basis.

Q45 Mr Bacon: Then how do you know that they are all making a profit?

Geoff Russell: Because they would not stay in business very long if they did not.

Q46 Mr Bacon: They might. They might be subsidising it from somewhere else in the business.

Geoff Russell: Even colleges are businesses. Very few of them would continue on a particular line if they were not making money.

Q47 Matthew Hancock: It isn’t the idea of profit, it is the question of whether the tenders are competitive-that is what really matters-and making sure the profits are appropriate enough to keep them in the business, as you say, but not too much. So how many providers are there in the market to make sure that the market is competitive and, crucially, how many drop out over a given time period?

Geoff Russell: We have a total provider base to the agency, delivering all sorts of either apprenticeships or adult skills, of about 3,300, including 300-odd colleges. They are hugely competitive and generally they only drop out when we kick them out.

Q48 Matthew Hancock: How often does that happen?

Geoff Russell: Two years ago we decided, given that 500 of those providers were attracting 3% of our funding, that was not a particularly efficient use of public money, because too much would go into overheads and not enough into teaching and learning. We therefore set the minimum level at which we would be willing to contract with providers at £500,000. That forced the consolidation of the smaller ones to make them more efficient and put more money into teaching and learning.

The problem is actually that there are lots of people who want to come into the business. I do not believe that there are a significant number of providers that are not making sufficient money. I do take the point though, and one of the things that my staff monitor, because we get the accounts of all these things, is whether they are making too much money.

Chair: On this point we have Amyas, Fiona, then I want to pop in a question, then I am going to Ian.

Q49 Amyas Morse: I just want to ask-we do not make very many recommendations in this report and as the Chair has rightly said, it is generally positive. We do think that it would be desirable, as you simplify the tariff mechanism, to get and maintain more current views on what the cost structure is likely to be. Do you accept that recommendation?

Geoff Russell: Actually, we are revisiting the entire pricing structure for not only apprentices, but all adult skills, to simplify it. Also, in effect, we are piloting schemes to market-test some of this, because from my point of view I employ a lot of people who sit there and try to figure out costs. My preference would be, if we could, to tender what people would be willing to pay for it. The risk when you do that is that it is a race to the bottom on quality. We are, however, going to pilot things like that, because, if we can take advantage of the fact that this is a very marketised public service, which is very competitive, to try to make that competition work for us, I think that that would allay your concerns.

Q50 Amyas Morse: If you can leapfrog the question, that is fine, but in the meantime I am simply saying that we are aware and we reflect the fact that you are looking at the tariff system. We are simply making the modest proposal that it should have an updated understanding of cost to go with it, if that is all right.

Martin Donnelly: Can I add that we do accept that? The direction of travel is absolutely right. We want to get further up the curve without losing the benefits of simplicity and not adding bureaucracy and putting people out.

Q51 Fiona Mactaggart: Isn’t it essential that you have better information if you are planning in future, as I understand it, to ask the worker and the employer to pay for level 3 apprenticeships, so that they are giving cash contributions, which employers do not do at the moment? Will it not be important that you know the costs at that point? How will the timing work?

Martin Donnelly: The level 3 FE loans will come in from 2013-14 and are obviously likely to be focused on the advanced apprenticeship end. It is fair to say-Geoff will correct me on this if I am wrong-that we have more detailed knowledge of those because they are more complex and there is a bigger training ask involved.

Geoff Russell: That is true, but also you are quite right, because, in a sense, that is marketising the issue. If people do not like what they are getting for what they are paying, that framework will not be delivered and either the costs will come down or that provider will go out of business. I am pretty comfortable that that is a good way to go. It is just that it applies only to people who are 23 or over taking a level 3. There is a huge chunk below that and that is where-I agree with Amyas-we need to ensure that we are as accurate as we can be to get the best value for money.

Q52 Fiona Mactaggart: I am slightly wondering what studies you have done about it, because I, like everybody else, visited various apprenticeship schemes in my constituency during National Apprenticeship Week. I was very impressed by what I saw, which was at various different levels. One of them was the scheme run by O2 in my constituency, which is a level 3 apprenticeship. Talking to the young adults on that apprenticeship, it was clear to me that they had chosen it because they did not want the costs of university and they thought that getting into work, getting paid and not saddling themselves with loans was their pick, if you like. I am just wondering how clear we are-I am not questioning the policy; I am questioning the value-for-money issues here-about the value-for-money impacts of this change. I do not think that O2 will find its contribution hard, but a number of employers that are providing higher-level apprenticeships will be surprised by the fact that they are expected to pay 50%, as will a number of the students. I am just wondering how carefully you are aware of the difference that that will make in the take-up.

Chair: I think that is a question for Mr Waugh.

Simon Waugh: This is directed at the learner, and the reality is that we have got a lot of work to do in the next 12 to 18 months really to be as explicit as we can with the learner about the wage premium and the benefits. In the same way, I do not think that too many people who go to university would think that there is a significant wage premium to being a graduate, but there is, so we need to sell the benefits.

I agree that there are many things we have still got to get right and work on in the future, but one of the reasons why we have had so much success is that we have been really driven with employers, which is the point that Austin Mitchell made earlier, about the business benefits. We have therefore got to convince the learner that if they do a level 3-and this is at level 3-and therefore they are doing an advanced or higher apprenticeship, the value to them is that the loan will be paid out of the additional profits they will make by not doing it, so they are significantly better off.

Q53 Chair: Are you confident you can do that selling job?

Simon Waugh: I was very confident we could do it with employers against a very negative background. You made the point about the renaissance of apprenticeships. Going back just over 10 years, 60,000 people started an apprenticeship in this country. If you want to talk about quality, 25% completed just before the millennium, which means that 15,000 people completed. The completion rate last year was 76%, however, so we have done a great job.

Q54 Chair: But are you confident you can persuade young people and employers to do the level 3 with the new constraints on you?

Simon Waugh: We have a lot of work to do to get the messaging right to convince people. That is what we are doing over the next 12 to 18 months, and we have that 18 months before we introduce this. It is a policy that is very clear in terms of actually improving value for money and getting people to make a greater contribution individually towards this, and we will work to make it work.

Q55 Chair: A final question on providers. A4e is a provider, which provides £8.6 million-

Mr Bacon: No, that was her salary-her dividend. [Laughter.] It was; it was exactly £8.6 million.

Chair: You are absolutely right; I had not twigged that. A4e was found by Ofsted to be only satisfactory, which is not very good in Ofsted-speak. Its success rate in 2009-10 was 50.1% for advanced and 59.3% for intermediate. Are you looking at its performance, and have you audited its work?

Geoff Russell: We look at the performance of all our providers.

Chair: Have you looked at A4e’s performance, and have you audited its work?

Geoff Russell: We look at the performance of all our providers, including A4e-

Chair: Have you looked at A4e’s performance, and have you audited its work?

Geoff Russell: And we are just about to finish an audit of its existing offender learning contract, and it is without exception.

Chair: It is what?

Geoff Russell: It is without exception. There were no exceptions in the audit.

Chair: Right.

Q56 Ian Swales: I would like to come back to something Mr Waugh was talking about around manufacturing and engineering. I did not dare get on a horse in apprenticeship week, but I was let loose on some real live machine tools.

Fiona Mactaggart: You had live machine tools?

Ian Swales: I had real machine tools. Imagine my disappointment on seeing the list in the letter from Southampton that engineering figures only 8th on the list of apprenticeship areas. In that list of 13 areas, I cannot see any that you would describe as manufacturing. As a Tees Valley MP I absolutely welcome what has been done on the Tees Valley apprenticeship programme, and I welcome the work that is being done to keep that going. However, we hear lots of horror stories about manufacturing companies that are unable to meet orders. We hear a lot about skills shortages. The Government want to revive manufacturing, and you add green technology on top of that. There is a huge crisis, and I am wondering what more you can do to steer this programme to help to fill that gap and get more employers and young people involved, and so on. I do not think we are anywhere near where we need to be in those key areas. That is an opinion, but I would be interested to know whether you share it.

Simon Waugh: We absolutely share your ambition for manufacturing and engineering. I think I have said two or three times already this afternoon that this is an employer-led, demand-led programme. We cannot, of course, insist that any employer or any sector takes this any more seriously than others, but there are a number of priority sectors. At the very top of the eight priority sectors that we have, driven out of the BIS growth review-BIS set the overall strategy, and we are the delivery agent-is advanced manufacturing and engineering.

We always prioritise those sectors. On funding, to my knowledge, unless I am about to be corrected, we have not once turned round to anybody in the manufacturing and engineering sector and said either, "We haven’t got the money," or, "We don’t agree with the framework." We are doing everything we can across these priority sectors and others to say that skills are vital to this country’s economy. They have to then decide, and I would say that we have significant numbers of people as a proportion of the work force. Obviously, the number of people employed in manufacturing and engineering has declined in the past two or three years, but the proportion is still very high up, although they may not have the numbers that work in retail because 2 million or 3 million people work in the retail sector.

We have specific marketing-can I answer that question?

Q57 Ian Swales: I want to build on that. I am very pleased with your answer, because my next question was going to be, are you budget-constrained in providing these more expensive apprenticeships? I think you have answered that you are not.

Simon Waugh: Categorically, we are absolutely not.

Q58 Ian Swales: Looking at the great work that the Tees Valley apprenticeship programme has done in this area, how much more can you do to, if you like, help to meet the Government’s aspiration to lift those sectors higher up the lists of what people want to do and the proportion of employers that are offering apprenticeships? That is not satisfactory at the moment. From a strategic point of view, let alone from a tactical and young people point of view, nationally we have a problem, so what else can you do?

Simon Waugh: I do not mean to be complacent. I actually do not think we can do much more. NAS was founded bang on three years ago, but we actually became operational at the end of that year, so we have been in operation for two and a half years. We are-I am sorry to be clichéd-on a journey.

I think we are putting an enormous amount behind these priority sectors, including manufacturing and engineering. We focus our sales force-we have about 120 or 130 people out there visiting employers-very heavily on these priorities, including manufacturing and engineering. We have bought marketing lists and are mailing those lists, particularly manufacturing and engineering, saying, "If you have skills needs, come and talk to us. There is Government support to upskill and bring new people into your work force." We are really active.

I and my colleagues from NAS spend proportionately more time in these sectors than any others. I do not spend time with retailers and hospitality. We work with the sectors that have higher value for money. Another NAO recommendation was that we focus on where we get better value. Strategically, at an economic level, and nationally, we are working where BIS has said, "This is where new jobs can be created in the future." So I think we are doing an enormous amount. Have we fixed it? No, but we are getting there.

Q59 Ian Swales: That is good. I want to move on-again, I am talking about manufacturing and engineering-to training providers. I know in my own area that that ranges from further education colleges, which do lots of good work in certain areas, to group training associations. There are two or three very good ones. One in my constituency is called TTE. They provide fantastic training on industrial-scale equipment. Clearly, it does not come cheap if you have giant boilers or, in one case, a piece of an oil rig, and so on. Are you satisfied that such training providers will continue to be able to offer the quality that they can and that they will not somehow be priced out of the market by the exercise that Mr Russell referred to a few minutes ago? You used the expression "race to the bottom", which, in those specialist areas, would be a disastrous way forward. Can you satisfy us that you are going to maintain quality, particularly in those areas, as a result of the exercise you are undertaking?

Geoff Russell: If you like, I would be happy to address that. As Simon said, there is no lack of funding for any of these things. We spend about a third of the adult skills budget on apprentices. Providers are free to deliver what they want: if they wanted to spend half of it on apprentices, they could. It is the issue of driving demand, as Simon has described. For more complex frameworks, clearly more money is involved, but what is important in both your questions is to recognise that employers have a role to play, not only in recognising the importance of training but in working with providers to provide the sort of equipment you talked about.

I have seen some fantastic examples of a partnership between colleges, training organisations and employers or groups of employers, where they effectively build a mock training facility-the employer donates equipment-and together they develop the right qualification. Some of it is my money and some of it is Peter Launer’s money, and some of it is employer money, too. I hear exactly what you say, but I also think that partly what we have to do is to wean employers off the concept that it is the Government’s job, so you and others need to play a role.

Chair: Last one, because I remind my members that we have to do National Audit Office expenditure at the end.

Q60 Ian Swales: The last question is simply about feedback. You talked about employers, but the Report says that actually only "seventy-three per cent would recommend their training provider." In addition to all the auditing and inspection that you do, what role does feedback have in your assessment of value for money?

Geoff Russell: When we move to FE loans, it is going to be 100% important, because people will have money in their pocket and if they are not persuaded by the experience that they are going to get and the outcome that they are going to get, they are going to buy somewhere else, which is powerful. We are about, in a couple of months, to launch the national careers service that will provide learners and potential learners with much more information-TripAdvisor information, Ofsted results, destination data-because, to make the market work better, we need to have informed consumers, so that is very much on our agenda.

Q61 Ian Swales: And employers?

Geoff Russell: Equally, employers will have their employees able to access information, advice and guidance. Of course, for apprentices, Simon’s people are knocking on the doors and providers are knocking on the doors, because the majority of apprentices are actually sourced as well as delivered by providers, who have an incentive to do that.

Q62 Mr Jackson: The Chair and Mr Bacon have made reference to the letter from the professors at the university of Southampton. I do not want to over-emphasise this issue, and I know you may be encumbered by not having the letter, but my suggestion is that you might want to respond to some of the things that have been said. It seems to me that there is a qualitative and a quantitative issue here. Quantitatively, you have done well in driving up the numbers and, qualitatively, you have done well in terms of the quality of training. However, there does seem to be an issue about 19% of intermediate apprenticeships, particularly if you bear in mind what they say in their paragraph on page 3 about the knowledge element and training in functional skills: "No written test will be required. Reference to training in key and financial skills suggests an apprentice will be continuing to improve their literacy and numeracy in most level 2 apprenticeship frameworks. However, the apprentice is only required to achieve functional skills at level 1." You have resisted the accusation that there is rebadging, but you perhaps need to reconsider that as an issue, which is my first suggestion.

On a micro point, may I draw your attention to page 24, paragraph 2.21, which is about the guidelines that have been produced by the Government on specifications of apprenticeship standards, particularly on 280 guided learning hours? This is a confusing area, because the Government seem to say that you have to produce guided learning hours of training. It then transpires that hours are not defined, monitored or enforced. The providers have said that they do not take any notice of the hours and that they are not relevant to work-based learning. The service says that providers "do not record how many guided learning hours they deliver, but that apprentices must now declare if they have received" them. There seem to be different perceptions about guided learning hours from the different parts of the equation. What is your view? Will you bring a level of consistency and will you adhere to the guidelines on apprenticeship standards?

Simon Waugh: Yes. May I take that? First, the Government did not set 280 minimum guided learning hours. That is embedded in the frameworks, which were developed by the sector skills councils, which represent the employer. The sector skills councils have boards of employers from the sector-small employers, large, macro. They sit on the boards and have detailed work that goes into finding out what skills are needed for that sector-whether it is new frameworks or adjusting them. They develop the construction of that framework, including the technical certificate. Their view was that the knowledge element-the 280 hours-rather than the competency element, was vital.

We must always have a backstop in terms of self-regulation. That is the employer. If people are not getting the level of training-I think the employer would be horrified if they were allowing a person to do an apprenticeship in your constituency, Chair, and there was no added value of training.

We are doing things to address that. We are running a pilot in the next few years and around a quarter of a billion pounds will go directly to employers of all sizes. They will take the money and they must justify the quality of what they are doing. They will then use that money to go out and buy. One of the issues is whether this is theoretical and whether people really need to be off the job and so on. In reality, employers construct frameworks. The SSCs do that on their behalf with their sign-off-

Q63 Mr Jackson: Can I interrupt? It is not as laissez-faire as that, because these are statutory guidelines, with the accent on the word "statutory." We are talking about value for money. Obviously, there has to be a degree of flexibility, but if they are statutory guidelines, they should be adhered to.

Simon Waugh: We agree. There are 300 people working in the National Apprenticeship Service-down from 370 about a year ago. We do not have the resource-neither does the Skills Funding Agency-to go and regulate. Ofsted and other bodies that go in and look at the quality will have an opinion. Also, when learners sign off to get their certificates and complete their apprenticeships, they are asked to validate the amount of time they had off, away from the work station.

Someone asked about the validation process. We are doing hugely more research, despite austerity and lack of money, to ask, "What was your experience?" If we get the duration right-we get completion rates of 76% or 80%-you could say, "I’ve completed it. I did it in 18 months," but did it really add value to you? What was it like to do this apprenticeship for the employer? We are doing much more of that research. Through that, as long as the samples are representative, we will know whether the guidelines are being ignored, and either people are not getting the time away from the work station or the 280 hours are not being adhered being to.

Q64 Mr Jackson: Is that the substance of your 87 inquiries into providers that are not adhering to the statutory guidelines?

Simon Waugh: No, that was specifically working in partnership with the Skills Funding Agency. When we looked at all apprenticeship programmes running less than six months, 87 of the 1,100 or so-there are some contractors sitting behind that-were delivering short duration. We have gone in and assessed, and we are about halfway through the process of detailed investigations. I am not defending short duration. I do not want everyone to think that I am sitting here trying to say that short duration is a good thing; it is not, but it is much more complex than the media and other commentators have thought.

The armed services have a huge apprenticeship programme. They go off and fight in Afghanistan or go into theatre. They interrupt their apprenticeships, come back and finish them off six months later. That is about 15% of short duration. We also have people who take maternity leave and come back, and people who are made redundant halfway through and start another job. The provider, fortunately, does not say, "Oh well, let’s start again and take 100% of the money." They say, "Well, you have finished half of it. We will finish the other half for half the money." So a proportion of short duration is for very good reasons.

Q65 Mr Bacon: May I follow up on that very point? You mentioned 15% for the armed forces and people being made redundant and so on. What you just said prompted a thought. You said that, fortunately, the provider does not go back to the start and take all the money. Would you know if they did?

Simon Waugh: We do because when they record the length of the period and their assessment of prior learning and so on, we review it. Certainly in this 87, some providers are a NAS responsibility and I take responsibility for this. I don’t think we made it clear enough to the Skills Funding Agency and providers about the guided-learning hours, on-the-job learning and so on. I know we are not here to talk about 16 to 18-year-olds, but two years ago, 20% of all 16 to 18-year-olds were called "programme-led". They did it entirely in the college. There was no employer on site. We have reduced that by 80% in the last few years. The reason for the 10% is the British Racing School and a few such as Rathbone, the charity. There are a few examples where we have said, "Okay, it’s fine because you have seriously disabled or disadvantaged people."

In terms of the percentage and whether we would know, we track the duration. We have been back to those 87 that are doing short. We have asked for the money back where it is quite clear that they have asked for more than was there. We perhaps were not clear enough to the system and to the Skills Funding Agency about some of the quality rules we have brought in during the last 12 months-SASE and other things-and I think we have learnt some lessons through that. We must be clearer not only with employers and learners about the fees that are coming, but with providers about what is really expected of them. It is up to us in NAS to define that clearly to the Skills Funding Agency, which then communicates that to providers. Only one of the 87 has gone into investigation-that is, we think there is deliberate fraud and taking public money that they should not.

Q66 Mr Bacon: How many?

Simon Waugh: One out the 87. We are halfway through. So we have done about 40 so far. So one of the 40.

Q67 Mr Bacon: Which one was that?

Simon Waugh: I would not have access to that.

Geoff Russell: Happily, I don’t know.

Q68 Mr Bacon: Why happily? It makes us unhappy when there is fraud. So how long will it be before you have done the other 47?

Simon Waugh: They are running this on our behalf.

Geoff Russell: In a month or two. The reason I would rather not say who it is, is because it is an investigation and people are not guilty until the investigation is over.

Q69 Mr Bacon: Mr Russell, you mentioned the phrase "without exception" specifically in relation to A4e. I was just looking up the definition. I think it is an American accounting term. The definition I have found is that you have performed a procedure and did not find any errors. Are we basically saying that there was no impropriety and no irregularity? Is that what we are talking about?

Geoff Russell: What I said was that A4e has one of our existing offender learning contracts. We regularly audit our providers. We have not finished, but we are most of the way through one of our standard audits of A4e in terms of their offender learning. There are no findings from that audit that would merit any action on our part.

Q70 Mr Bacon: I was just trying to get to an understanding of the phrase "without exception". I want to be clear that it is not a performance audit. Perhaps the NAO can help me with this. I am trying to draw a distinction between audit in the sense of procedures being followed and audit in the sense of performance or value-for-money audit. "Without exception" is not a performance or value-for-money audit term, is it?

Geoff Russell: It is a funding audit. We employ a small army of people who-

Q71 Mr Bacon: It is essentially about-

Geoff Russell: The use of public money.

Q72 Mr Bacon: I don’t want to use a pejorative term like "hand in the till", but essentially it is about the fact that you did not find in the audit that you did impropriety or irregularity in what you audited. NAO, am I understanding this correctly? It is not a term of art that is used in relation to quality or performance. Is that correct also?

Geoff Russell: It deals with quality in the sense that there are minimum levels of performance and completion, which, as I described earlier, are key drivers of quality, so we check those. We check the existence of learners, whether the learning is delivered and that people attended classrooms. It effectively covers the question, did you make use of the money that we gave you in accordance with the terms of our deal?

Q73 Mr Bacon: Yes, but I am just trying to establish that, in other words, you used it for the purposes for which we asked you to use it. Therefore, it is not performance or value-for-money terminology. It is not a comment on its quality.

Amyas Morse: I would not expect it to be and it is not. "Without exception" is just a phrase. Normally, you would get an audit report and, if you are qualifying it, you would say, "This is a true and fair view with the exception of". You are simply loosely adapting that phrase.

Mr Bacon: Yes indeed. Sorry to have laboured this point. What I want to move on to, which to me is much more interesting, is the quality. Mr Waugh was talking about the work that is ongoing now to establish more about, for example, how it was for you and what the experience was really like. One of the things that the Report said was that 73% of apprentices would recommend their training provider, so, evidently, 27% would not. Are you happy with that figure?

Simon Waugh: After 35 years of being in customer-facing environments, I would say that that is a good figure. What you do not know, and I am not playing games, is how many of that 27% said, "No opinion". That is a big chunk. In research, people say, "Would I want to recommend it? I don’t know."

Q74 Mr Bacon: Well, 67% were very or extremely satisfied, while 90% considered that the training was meeting their needs. Is it not just a case of you are not going to please all the people all of the time? Or does it indicate that there is significant room for improvement?

Simon Waugh: One thing is sure: we will never please all of the people all of the time. That is absolutely right. I think that these are pretty good, positive numbers. The fact that 90% rate their training as effective and that 86% of businesses say it drives their performance is outstanding compared with most satisfaction surveys that I have ever seen in my working life, both in the private and the public sector.

Q75 Meg Hillier: As everyone is sharing their experience of National Apprenticeship Week, I should say that the specialism in my area is restaurants. We have three training restaurants: Fifteen London, in which Jamie Oliver does his stuff; the Hoxton Apprentice, which is a social enterprise; and one run by Hackney Community College, which I had the chance to visit. I also met, with some Ministers, and apprentices at Groundwork. What came out of that was that some of those apprentices, who were different ages, did not know whether they would have a job at the end of the apprenticeship. You have been going three years. Do you do an audit to see how many apprentices at the end of their apprenticeships and beyond are in a job, perhaps two or three years later? If you have not done an audit, do you have any plans to do one?

Simon Waugh: We do not have to three years later. Our estimate from some of our surveys is that 90% continue in a job. The point about some of those stats is that there is no one in the work force that I know of who is guaranteed work going forward. Unfortunately, apprentices are as subject to redundancy as other parts of the work force. Our experience is that apprenticeships have often been protected by businesses because they know that they have an ageing work force and that in the next 10 to 15 years, anything up to 30% or 40% of the work force will retire. It is a difficult question to answer, because these are jobs. It always worries me when people say, "I hope to get a job at the end of it." I say, "But you are getting a salary. You are an employee of this company."

We have had instances when employers take people on under a 12 or 18-month contract. That happens in the public and private sectors. Local authorities have done it when they have had head count freezes. What they hope is that, as people leave the local authority, a person who has completed their apprenticeship can be slotted into that long-term vacancy that has been created by movement in their work force. That does not always happen. With unemployment at the level that we have, and the number of people who are resigning and moving into other jobs, people are holding on to the jobs that they have. More than 90% remain in employment post-apprenticeship, but we must do something about the 10%, because it should be a continuous stream.

Q76 Meg Hillier: I am struck by what you were saying about the halo effect. It seems to me that a good, properly trained apprentice is probably worth holding on to.

The other thing is that Hackney Community College is very good in this respect. It has a number of apprenticeship schemes, including one around Silicon Valley and Tech City. It aims to have 5% of its work force as apprentices, and the Report reflects that that is the general issue. I think that that is a good starting point, but what would you want to see as the percentage of apprentices that businesses take on? Would you want to have a set figure?

Simon Waugh: No. We have to make clear, starting with employers, the incredible transformational benefits to business of employing apprentices. Employers then have to make their own mind up about whether that is a route and a methodology that they want to implement in their businesses. Therefore, we cannot be prescriptive. I think the number of apprentices in learning today is getting quite close to the number of people in higher education, for the first time probably for a generation. We are redressing the balance by doing the right thing and by convincing employers, while at the same time convincing learners that this is a fantastic alternative route. It is not the only the route. Some people should go to university, and some people should go into other routes.

This is a fantastic pathway for people who are practical and know what they want to do, but who want the definitive skills that will build the foundations for the rest of their working lives. We will not be prescriptive, because it is demand-led. However, I think we are getting near a tipping point-I hate that phrase-where we are getting so much of the message out and where there is so much dialogue, including in this forum, the NAO Report and the BIS Committee, that apprenticeships are back. You could not have said that 10 years ago. I think that that is a good start.

Q77 Meg Hillier: Mr Donnelly, if you look at value for money, Mr Waugh paints a very positive picture-the Report is not bad in this respect-about the impact of apprenticeships on the wider economy. Do you plan, or is BIS planning as a Department, to look at that compared with graduates? Are the Government looking at how long people stay in jobs and, therefore, the long-term impact on taxation income and benefit-spend reduction? I guess that that would fall under BIS if it were happening.

Martin Donnelly: You are right that the overall skills mix in the economy is something that concerns us. We are still sufficiently clear that the gap for Britain-especially at intermediate, but also at the advanced skills level-is so great that it must be right to go on narrowing it. We are also clear that it is important to work with the grain of the direction that people want to go in.

However, we have more to do in two areas. One is as an employer, and we were doing this across Government with the Cabinet Office a few weeks ago. We need to have more apprentices in our own work forces of people who are already working, because it is a great chance for people to upskill, become more productive and get more flexible. We also need to do more to stimulate demand. One of the issues is getting more younger people, but also those within the work force, to want to ask for apprenticeships.

Just going back to the manufacturing theme, we have had three Formula 1 cars in front of 1 Victoria Street with huge apprenticeship programmes behind them. We have had advanced aerospace out there as well. We are doing electronics. We are trying to do more, and there is a lot more to do.

Chair: Do you have an answer to Meg’s question? Ask it again.

Q78 Meg Hillier: Are you monitoring the impact on the economy of successful apprentices versus successful graduates and whether more apprentices stay in work longer? It is early days in the current apprenticeship scheme, but if, for example, you had more apprentices staying in jobs longer, are you balancing that against the benefit of going to university?

Chair: It is almost a yes or no answer.

Meg Hillier: It is quite an important message for people when they are making choices.

Martin Donnelly: No. I am not aware of any academic work. There is increasing anecdotal evidence that employers find that people who have done apprenticeships are actually more valuable to them at an early stage than graduates, because they add value immediately.

Q79 Meg Hillier: But in terms of value for money, this seems quite an important issue, because we have a huge political debate about how to pay for university-there is a big hoo-hah about that-and the cost to employers and others of putting money into training. If we are looking at the public pound, the public pound will still be going into universities and the public pound will be going into the training that Mr Russell’s organisation provides-are you tracking what the benefit of that is? You said that you are not at the moment, but that you are aware of anecdotal stuff. Are you planning to look at that? It seems to me that if you were coming into government, you would want to know that sort of thing when deciding how to spend money on skills training.

Chair: Again, it is a yes or no.

Martin Donnelly: It is a fair challenge. We are not doing it in that way. It does come out through the success of different businesses. I come back to a point that Simon made. I hope you feel this is answering the question, because I think it is. At the moment, we are not constrained in the funding of apprenticeships in engineering or manufacturing, so the challenge is not, at the moment, the supply side of money. Were that to change, we would need to do more in the area that you have mentioned.

Q80 Chair: I will go to Jackie, but I am going to intervene first, because you said a couple of times in that exchange that level 3 is important; level 3 is where we do not do as well as the French in the international comparators. You say that money is no problem, yet we are introducing a scheme whereby individuals are going to have to put up their money through loans, and employers are. Mr Donnelly’s objective, or the Department’s objective, is more level 3s. That is the area where you have not been as successful as you might have wanted to be. According to the figures in the Report, level 3 has gone up only 2 percentage points in the last five years; we have gone from 31% to 33% of apprenticeships being level 3. If money is not a constraint, why on earth at this point are you introducing loans?

Simon Waugh: My response to that is very simple. Skills and levels, in exactly the same way as the academic system, from GCSE to PhD, are a pyramid. A tiny percentage of people do PhDs. We are building a foundation of people at level 2, where, again, nearly three quarters in this Report-

Q81 Chair: I understand that, but I want to ask you about what Mr Donnelly said. I am just going to move you on, because I accept that you do fantastic work. I do not want to take away from you the great work that you have done, but Mr Donnelly said in his answer to Meg Hillier that one of the reasons why he was not quite looking at the value for money of level 2 was that level 3 was what the Department considered interesting.

The Report says that level 3 is the area where there has been less success in apprenticeships. You have had a greater growth of level 2 than level 3. It has gone up 2 percentage points from 31% to 33%-correct me if I am wrong, please, Peter-in the last four or five years. I think that is what the Report says. Then we hear that money is not a problem. Mr Russell said that and Mr Donnelly said it-money is no problem. Why, with that ambition and without the financial constraints that are facing other areas of Government, are we at this time introducing loans? That must put off some individuals from going down the apprenticeship route-I can tell you it would put off my constituents-and could well put off some employers. Why?

Geoff Russell: It is a value-for-money issue. This Government is taking the view that we should rebalance who is responsible for skilling as between employers, Government and individuals. I accept, and I think everyone in the sector accepts, that there are some risks around this and, as Simon said, there is work to do, but broadly, if we in the sector believe that this is beneficial to employers and individuals, the view is we should start shifting more of the responsibility for paying for it to the people who benefit from it, in much the same way as is happening in HE.

Q82 Meg Hillier: That brings me back to the earlier point. Let’s say that young people in Hackney, a lot of whom are doing incredibly well now at school level, decide at 18 that they have a choice between a level 3 apprenticeship and university. If they are making that judgment about where they spend their money or their loan or whatever, they will want to know what the likely outcome is. If no analysis is being done, how can they judge that? That has an impact on value for money for the tax pound as well.

Martin Donnelly: May I distinguish between the macro level and the micro level? On the micro level, there is the issue about feedback on what happens to people on courses, and there will be more detailed information about that. Our system is focused on getting individuals to choose what works best for them. There is a separate issue about how that works out for the whole economy, which we have to watch, but we are consciously working to a policy that aims to empower individuals. I think it is worth briefly adding that the other side of high-level apprenticeships, particularly in manufacturing, is increasing the supply. How do we get more companies to do that? The one other area I will briefly mention is the effort that Simon and team are making to get more small firms to offer these sorts of apprenticeship.

Chair: Making individuals pay is a very funny definition of "empower". I find that really odd.

Q83 Meg Hillier: There is a danger, when you talk about the macro model, that if individuals make choices on the basis of the money up front-perhaps it is cheaper to do one than the other-that might skew the skill set that we get out for the wider economy. We are talking about wanting more in manufacturing and keeping that base going. I shall leave that one, as I think that we have probably pursued it a bit.

One thing on the issue that Stewart Jackson was raising, I have seen on the Olympic site challenges where people have been asked to self-audit. In the case that they live locally and got Olympic jobs, we are requiring a certificate of completion, which can be given to apprentices only when they have declared themselves that they have received the required amount of training off site. Do you do any auditing of that to make sure that there is no pressure on those apprentices to sign something that they should not sign? If they did sign it, the conclusion would be reached that their employer was colluding with them to do something on the cheap.

Simon Waugh: We do not audit this. I don’t know how we would. All I can tell you is that we work incredibly closely with the TUC and the unions. There is something called Unionlearn, with which we work very closely. They tell us every week where they think there are issues around the learner. The obvious thing is that the learner is probably really beholden, if I can put it that way, to their employer-not to a training provider. They cannot apply pressure, and the employer would be incredibly upset if that person had been allowed to go off one day a week, so there is some sense in the triangulation of that, which works pretty powerfully.

Q84 Jackie Doyle-Price: You have emphasised throughout the employer-led aspect of the programme, but obviously there is a strategic objective to upskill the work force, which has undermined our competitiveness in the past by being too low.

Some of the sectors where there is room for growth have been traditionally characterised by self-employment, such as trades involving construction, but in growing emerging industries such as creative industries, again self-employment will be increasing the pattern. How will people who will ultimately be self-employed be able to assess the skills by apprenticeship? Has any thought been given to that?

Simon Waugh: Plenty of thought, although I don’t think that we have a great answer yet. It is something that we are working on. For micro-businesses, we have GTAs and ATAs, the apprentice training associations that can club together effectively. We have struck this-not, interestingly enough, just in construction, where, of course, they work through subcontract arrangements, so it is a highly fragmented industry, but we are coming across in the area of digital.

Someone mentioned IT and digital earlier. A lot of web designers are self-employed. Microsoft would be a very good example, as would IBM, of those that use self-employed contractors. They are actually working through their supply chain. We have not really cracked it yet, but we are really working hard to find ways of ensuring that significant parts of the work force are not excluded from apprenticeships. That is the flexibility we need, but at the same time we need the employment bit. It was a really good question, and I think that we have found part of the solution.

Martin Donnelly: Another challenging area on which we are working is design and fashion. I was talking to London Fashion Week about how to build creativity and young designers, and how they are linked. There are some real challenges, and we must crack them because it is so important.

Q85 Jackie Doyle-Price: We are talking about a very different labour market. Essentially, we are taking an old model of apprenticeships and bringing it into the new model of employment, and it doesn’t exactly fit. That is where you are on the cusp of a challenge. Everyone around the table wants the programme to succeed. We all believe in apprenticeships, and your enthusiasm for them shines out, but because of the speed with which the numbers have increased, we are getting into a quality/quantity dilemma. There is a real risk that the brand of apprenticeship will become undermined if that quality cannot be maintained. Already, some employers who have delivered traditional apprenticeships and who have never left the marketplace have said to me, "Well, we did proper apprenticeships, not these new things."

It says in the Report that, as part of your challenge, you will continue to fund some training opportunities, but perhaps not brand them as apprenticeships. How far have you delivered that? We talked earlier about how you have analysed the problems of very short-term ones, but there is a real qualitative challenge to some of them if we are not going to undermine the brand, which will ultimately impede your ability to offer some of the more advanced apprenticeships that you have been talking about.

Simon Waugh: It is interesting that you talked about traditional employers who have been doing it for years and probably in traditional sectors. I hear this all the time from manufacturing, engineering and construction, and it really irritates me, because right across business, if one industry or even a country-Japan, developed Six Sigma for example, in terms of problem solving, and a whole range of quality circles. If you see something that works brilliantly well, why not lift it up and apply it as best practice?

When I first came across apprenticeships, we had in British Gas-no, it was before that actually. We had it in the engineers. When we talked about call centres, everybody said, "Oh, don’t be ridiculous! You don’t have call centres in apprenticeships and you don’t have people in our reception doing it," but actually, our reception people were welcoming the world to our 65,000 employees.

So, can I first say that I think it is snobbery about it having to be advanced, high-end or whatever? Definitively skilling people and giving them that foundation is vitally important-we know that-to their prospects, the value for money coming out of their wage, enhancement and so on. The first thing I would say is that if it works brilliantly well in manufacturing, engineering and construction, why would they resent something that they have brilliantly created, held on to for hundreds of years, and not want other parts of our economy to share in that? And we pay the difference, so this thing about, "It’s not a real apprenticeship"-that is why we are paying £4,000 for it, not giving advanced manufacturers £25,000 for it. It is still about skills, the way you learn, and practical and vocational learning.

I can be accused of being defensive, but I do not think that fundamentally we have a quality issue here. I think we have a fantastic programme. All the analysis-so much of it is in the document-says great value for money, and employers say, "It has changed my business." Learners said-some 73%, I think it was-"I want to do more of this." Bear in mind that it is not like GCSEs, where you move straight into A-level. These are job-related. So, if I do level 2, more often than not, I cannot move immediately into a level 3 or a level 4, because I have to wait to be either promoted or do a bigger job, but that is what level 2 enables you to do. At the margin, where we have really poor provision, where learners are being let down, and employers are-I think it is sub-5%. I cannot prove that to you. On 450,000 starts, what is 5%? About 9,000, or whatever it is-no, 22,000.

Q86 Chair: Can I put a question to you about it? We have heard a lot about employer-led, but perhaps the problem that I met, when I was hoping I would go to a fantastic scheme in Barking, was because of it being provider-led. If the provider gets the money and not the employer, the provider will perhaps not provide anything, or will provide the qualification that is the most profitable for them, or something like that. You have said a lot, "employer-led", "employer-led", but at the moment the system is quite provider-led.

Simon Waugh: That is why we are embarking on this pilot for employer ownership, where they get the money, and they then have to submit a bid to us around what they are going to do. So, it cannot be, "I’m just going to use it to do my own training as I would anyway, and I’m going to subsidise it." They have to prove that what they want to invest it in-apprenticeships and other vocational learning-has real added value and is a real incremental learning experience for the people they want to train, and so on. They will then-as an informed buyer, if you like, with the money-not just dive to the bottom in terms of quality, but actually go out and say, "Who is the best person out there?" It is re-engineering. I hear a lot from employers that it is provider-led, qualifications-driven and Government-driven. We are trying to change that round. It will take some years of cultural change to get employers to step up to the plate.

Q87 Jackie Doyle-Price: Coming back to the issue of traditional apprenticeships versus modern ones, there is an issue of quality within sectors. It comes out between sectors, but you mentioned retail specifically. There has obviously been a big growth in retail. For example, I think of the apprenticeship system that Morrisons offer, which is excellent, but effectively you are going to be comparing apples and pears, depending on the nature of the business. How do you differentiate that in terms of funding? Would you have differential levels there too?

Simon Waugh: Absolutely. Going back just two or three years, if we spent £100 on a 16 to 18-year old, we paid £50 for a 19 to 24-year-old, and £40 for a 25-year-old. We have discounted that by another 10% because the demand was there-the supply and demand. We knew we could do that on the rates that we charge. On top of that, for macro or large employers with more than 1,000 employees, we applied another 25% discount. With the very large employers-Morrisons has a fantastic programme. If you read the press, it is all "Disgraceful" and "Why are McDonald’s" and so on, but actually, Morrisons is one of our biggest employers. If you want to find some of the people in this country with the lowest levels of skill and numeracy, go to a Morrisons, an Asda, a Tesco or some of the big hospitality companies.

The great thing is that these employers have clustered up for us. We are paying for the individual to be trained; it just happens that the employer gets the benefit. We then negotiate very clearly with Asda or Morrisons, not just the standard WRAC rate we’ve got of £40 minus 25%. We negotiate individually. Our focus-I know this is about adults-is 16 to 18 first and securing, as much of that, new employees coming into the work force. Then we go to 19 to 24, because we hope, again, that it will address some of the NEET issues and so on, and 25-plus. If they’ve given us a lot of that, 16 to 24, we will then pay something: sometimes 25p in the pound, and sometimes not at all.

In these really big schemes, the employers have large swathes of people who desperately need-it may be a bit trite, but I have a fantastic quote in here from some research. A 35-year-old woman said, "I’ve felt a failure all my life. I’ve never succeeded in anything, and now the sky’s the limit." That’s what we are doing thousands of times over, hundreds of thousands of times over. I agree with you that it’s not perfect. I think quality is an issue, but I will tell you: we’re all over it. We don’t want to be associated with poor-quality programmes; we want to be associated with great-value programmes of the highest quality that change people’s lives and transform the economy through the skill transformation that we can get through business. That is what we are about.

Q88 Mr Bacon: Why don’t we get you to run the whole Government? After 50 years of failure in the public sector, we just need you, Mr Waugh.

I have one question about the pilot. It sounded quite interesting. Obviously, the issue of employers finding that it is Government-led, that it is not really doing what they want it to do and that they have to fit it into the wrong shape for what they really need is one that you have got to get round, but I think I heard you say that the employers get the money, and then? It sounded like you hand over some money and they go shopping. Is that right? If so, how is quality controlled in the pilot?

Simon Waugh: Well, they have to bid for it and say, "I want £1 million, and this is what we’re going to do." We would not hand over public money-especially not with the Comptroller and Auditor General sitting here-without absolutely verifying what the programme is and what it is buying in that sense. Part of the debate that we are having with the UK CSS-Charlie Mayfield, chairman of the John Lewis Partnership, has been driving this; it is something that the Skills Commission feels very strongly about and we are supporting it as the Skills Funding Agency in the Department, so we want to make sure exactly what they want.

Then they will go and either find a provider or construct one. They may have to go out and find a different group of providers. Interestingly enough, David Way, chief operating officer of the National Apprenticeship Service, and I were at Siemens six months ago, and they said, "We need medical technologists and engineers. At the moment, we’ve got them vertically-people who understand medical science, and engineers-but we need people who can do both." What we will be looking at is how to create hybrids across effectively different sectors. It really is about employers designing the skills that they need for the future and then the provision that sits behind it. They will then go out and, with our help, secure that and procure it, and we will monitor those programmes once they are launched.

Q89 Chair: Two quick final questions to Mr Donnelly. Why do we need both the Skills Funding Agency and the National Apprenticeship Service?

Martin Donnelly: Fair question. We are clarifying the relationship between them going forward. The Skills Funding Agency covers all the adult skills funding, not just apprenticeships. Within that, purchasing of the services for what Simon provides is an important service and draws on the skills that we already have. The two organisations are co-located. We are clarifying both the accounting officer relationships and the policy. Moving forward, we are planning and Ministers want to turn Geoff’s operation into a more standard executive agency, so that it fits into the wider model that the Cabinet Office sets up. I would stress that it is a culture of co-operation and people literally sit next to each other.

Q90 Chair: I understand that. I think there is some duplication in there, which in these constrained times could be got out of the system. As you read the Report you wonder why you have got two. I can see it has evolved over time, but particularly if we are now moving into employers bidding for money to the apprenticeships service, I cannot quite understand-even there, the Skills Funding Agency will no longer be doing the providing; the employers will be buying it.

Geoff Russell: There is probably some duplication in that there are two chief executives, but as I think you can probably tell, Simon is the salesman and I am the accountant. I think that is a pretty good combination.

Simon Waugh: The duplication, Chair, is minute. We work incredibly closely together. I think it has worked fantastically well.

Q91 Chair: Within your organisations.

Simon Waugh: Within our organisations. I think the accountabilities could not be clearer. Our job is the end-to-end responsibility for apprenticeships, so if there is market failure, learners who are not happy or not getting the right thing, people who do not know how to access apprenticeships, or an employer asking, "How do I get involved in this?"-that is all us. We are customer service, sales, marketing and working on strategy with the Department. The Department owns the strategy policy, however, and we deliver it.

Q92 Chair: Are you going to become an executive agency too?

Simon Waugh: We are part of one, actually. We are in the Skills Funding Agency. The reason why there is very little duplication is that it was set up that way to ensure that we do not create our own HR department, our own IT or our own finance. All that is provided, so the Skills Funding Agency is the mother and we have the umbilical cord to us. We are very externally focused; it is about financial control. One of the biggest things: NAS was created by a submission by a group of large employers who said, "If you want to transform apprenticeships in this country, you need an organisation that will be dedicated and will have end-to-end responsibility."

The cultural difference between our two organisations could not be greater. Imagine if RBS decided that it was going to buy Virgin Media. We are about a brand, customer service and quality; these guys are about quality and so on, but the culture is about financial control-if you like, Geoff is the banker, in a positive way-

Geoff Russell: I don’t get a bonus.

Simon Waugh: And we are Virgin. The culture is very different.

Q93 Mr Bacon: So what is Mr Donnelly for?

Simon Waugh: To keep us under control, which he does very well.

Q94 Chair: Mr Donnelly, both these gentlemen are leaving, so when are they being replaced? Is there going to be a gap? Tell us your plans.

Martin Donnelly: This is sad, but being managed. We will have interim appointments in both jobs as we work towards developing the executive agency model, which is designed to keep all the best parts of the system that Simon has very fluently outlined. We have got an appointment process going for Simon over the coming days, and one for Geoff under way as well. It will be a challenge to find replacements of the same standard, but we will try.

Q95 Mr Bacon: They will be interims. I think that I heard you say the word "interim".

Martin Donnelly: Yes, that is right.

Q96 Mr Bacon: Your Department has some recent form on interims, does it not, with Mr Lester and his contract, where he was paid gross to a personal services company? Can we be sure that that will not happen with any of the folks that you are looking for now?

Martin Donnelly: I can reassure you that all of the processes will be fully followed.

Q97 Mr Bacon: That is not the answer to my question.

Martin Donnelly: It is, but, yes, I understand the point.

Q98 Mr Bacon: It said in Coriolanus, some 400 years ago, to proceed by the procedure. What we are looking for is to ensure that there is not some sort of-

Chair: They will pay their PAYE?

Martin Donnelly: Yes, definitely. I will briefly say, on behalf of colleagues here and all the staff, that we appreciate the comment that you made at the beginning. There is a huge motivation to deliver here. We want to go on doing even better, and the comments that you have made and the work that you do with apprenticeships is tremendously helpful to do that.

Chair: Thank you very much indeed and thank you for the good evidence session.

Written evidence from Michael Woodgate

Written evidence from Alison Fuller and Lorna Unwin, University of Southampton

Prepared 22nd March 2012