David Willetts: Degree apprenticeships are good news but we should change the way they’re paid for

David Willetts is a member of the House of Lords. His pamphlet ‘Are Universities worth it? A review of the evidence and policy options’ was published by The Policy Institute of King’s College London.

The CSJ have just published a report on higher education.

It has of course the familiar tropes about too many people going to university. They have been around for a long time.

The Robbins Report in 1963 was criticised then by The Times with the same arguments it uses today that expansion devalues standards. Kingsley Amis argued “More means Worse” and accused universities, even before the Robbins expansion, of “already taking almost everyone who can read and write”.  That was when 5 per cent were going.

The trope goes back much further than that.

Hobbes thought that the Civil War was caused by too many people going to university. His claim that “the universities have been as mischievous to this nation as the Wooden Horse was to the Trojans” is probably the view of most ConHome readers today. In the late nineteenth century the Marquess of Salisbury worried about over-educating people who should instead be prepared for a life at the plough.

Rather than trying to challenge this deep-seated but ultimately fruitless Tory scepticism about more education let’s focus on the practical proposal in the CSJ report which has had most attention.

They argue that we do not have enough options for level 4 and level 5 courses. These fit in between level 3 (A levels) and level 6 (a full honours degree).  They are some of the classic diploma courses such as Higher National Certificates and Diplomas (HNCs and HNDs) in Engineering and also Nursing diplomas. These are valuable and respected qualifications. More should be available. They show high returns, though this is partly because so few people do them. As returns are so high it makes to expand them until the return for the marginal extra students is much lower. Ironically, despite having been presented as an alternative to university, many such courses are delivered at university and anyway as they are above A levels they would have counted  towards Tony Blair’s target of 50% participation in higher education.

If delivered at level 6 and with an employer they are degree apprenticeships which are strongly pushed by CSJ. They are popular and the Confederation of Schools Trusts argues they should be expanded. But that then opens up the question of how to expand them, and in particular how to pay for that.

At the moment apprenticeships are paid for out of the Apprenticeship Levy.

I was one of the people urging George Osborne to bring it in. It is a 0.5 per cent of payroll charge on employers with a pay bill of more than £3m to pay for training programmes, notably apprenticeships. It currently raises about £3.5b per year. The original intention was to use the levy to fund apprenticeships for younger people at lower education levels.  England does particularly badly with 16-18 year olds who fail to get good GCSEs – 35 per cent don’t get a good grade in both English and Maths. They are then trapped in a cycle of resits which few escape from. These younger people should be priorities for apprenticeships which could well be at levels 2 and 3 as a vocational alternative to GCSEs and A levels.

The Apprenticeship Levy is a fixed pot of money and cannot fund all vocational programmes which politicians approve of – unless the levy on employers is put up. Priority should go to the schemes providing training for younger people and at lower education levels which cannot be funded any other way. In particular we need to get many more people to level 3.

Degree apprenticeships provide a more advanced route for people to higher paid jobs. The CSJ evidence is that degree apprentices tend to get into well-paid jobs. That is a good reason for expecting the beneficiaries to pay back just as other graduates do.

It is not fair to tax hard-pressed employers with less well-paid workers to pay for schemes that get people into highly paid jobs.

The employer pays for these programmes already via paying more to their graduates – paying them higher earnings is the way the employer pays for their extra skills. It is then reasonable for taxpayers to claim back some of that higher pay to cover the costs of the programmes which got people onto those higher earnings there. The average young graduate is now earning about £31,500 a year which is still £5,000 a year more than the non-graduate – a bonus of about £420 per month. On those earnings they will be paying back about £50 a month to fund their higher education. That is just over 10 per cent of their earnings premium going back to the taxpayer who provided the funds for their higher education. It is not unreasonable. It is a better model than a levy on employers or just charging it all up to taxpayers.

Moreover degree apprentices are less diverse than traditional students.

Degree apprenticeships are likely to go to established employees aged over 25. Some people might think that degree apprenticeships are effective vehicles for social mobility, but that does not appear to be true. When the same subject is available as a classic university course or as a degree apprenticeship the degree apprentices are less likely to be disabled or from a low income background and more likely to be male and white. It’s often middle class kids doing degree apprenticeships in workplaces such as the City.

All this suggests it makes sense to fund degree apprenticeships in the same way as the rest of higher education rather than as a charge on employers via the Apprenticeship Levy which should be focussed on much more deserving cases.

Moreover funding degree apprenticeships out of the Levy means there is a severe restriction on their growth. One of the many reasons for shifting to a graduate repayment model is that numbers participating are no longer rationed. There are some people who think it is a viable option to finance higher education out of a much bigger employer levy but should tax employers even more.

The graduate repayment system is far better than putting the costs on employers or the generality of tax-payers.