18th March 2016

Tangerine Budget Response: Are Apprentices Getting a Raw Deal?

George Osborne’s latest budget has been the dominant political story of the week. Amongst his major announcements were investment in infrastructure across the country, ‘Lifetime ISAs’ to help save for pensions and property, and that all state schools will become academies by 2020. But one of the announcements in the budget document – that Mr Osborne omitted from his speech – raises a few questions over pay and equality for apprentices in particular; the new minimum wage rates.

The Chancellor surprised everyone in his November Autumn Statement by announcing the new £7.20 ‘National Living Wage’ rate for the over 25s. Despite the name, this is no ‘Living Wage’ – it is calculated based on what the market can afford, not what employees need to live securely – and instead acts as a new minimum wage rate. One of the biggest potential concerns raised from this new wage rate was the potential for employers to prefer younger, less experienced staff on the basis of cost alone.

This makes the new minimum wage rates timely. From October the basic rate for 21-24 year olds will hit £6.95 (a 25p rise), there are also raises for 18-20 year olds (£5.55, also up 25p), 16-17 year olds (£4.00, up 13p) and apprentices (£3.40, up 10p). These added costs to employers, and small businesses in particular, are expected to be offset to some extent by reducing business rates and taking many small businesses out of paying business rates altogether.

Of course wage rises will be welcomed by many, and these new wage bands do narrow the gap between the National Living Wage and the lower bands to just 25p. But, considering the raise experienced by each wage band, it appears that apprentices are getting a raw deal when compared to the other groups. To only offer apprentices a 10p rise – when others are getting a raise of more than double this – shows a lack of action at combating pay inequality at the other end of the scale.

Last month, research by the Financial Times reported that almost a third (31.1 per cent) of apprentices drop out without completing their training. The government has targeted three million apprentice starts by 2020 but, if the rate were applied to this target, almost a million candidates would be left with no qualification to show from their training.

While of course low pay will not be the only factor contributing to this drop-out rate, from October apprentices will be paid less than half the rate for 21-24 year olds, and over two pounds an hour less than even the 18-20 rate. Based on a 35-hour week, a nineteen-year old apprentice would be more than £70.00 worse off every week than their peers working full-time. This could make an apprenticeship far less attractive financially than even a low-skilled minimum-wage role.

Low pay is not the only issue facing apprenticeship schemes. The head of OFSTED, Sir Michael Wilshaw, warned in October 2015 that a large number of apprentices are simply not gaining the skills they need to develop their careers, with many unaware they are even on an apprenticeship scheme. This sort of attitude from employers with regards to apprenticeships is a major issue; it devalues these initiatives in a way that would not be considered acceptable in any other form of education.

To its credit, the government is taking steps to raise standards. From April 2017, employers with paybills of over £3 million will contribute a 0.5% Apprenticeship Levy to help fund high-quality apprenticeship schemes. This funding will be distributed by a new independent body – which will also have the power to set standards and intervene on poor quality schemes. The concern is how much power this body will have to intervene and improve standards – especially on programmes not subject to funding through the levy.

But it is not all doom and gloom. There are a wide range of responsible employers who do take these schemes seriously, and provide both skills and pay to match the career development offered by these schemes.

Tangerine’s own Juice Academy provides an apprenticeship in social media, on a wage significantly higher than the bare minimum. The 12-month course provides apprentices with an in-house position with a leading employer, and expert tutoring from Tangerine’s own team of communications experts. Candidates on the scheme gain a Level 3 certificate in Social Media & Digital from City & Guilds. The Juice Academy is the only apprenticeship scheme of its kind in the UK, and has led to 93% of its students gaining a full-time position following completion of the course. Crucially, however, the drop-out rate is just 16% – around half the national average – reflecting the high-quality training and experience those on the course are gaining.

An apprenticeship should be an enabler to a successful career and, to its credit, the government recognises this and is taking steps to improve standards. But employers must recognise that the responsibility falls on them ensure their schemes are high quality. This will help apprenticeships to be seen as a real alternative to further and higher education. Wages are, admittedly, just one factor in this, and apprentices – already receiving pay at a much lower rate than their peers – are only set to see their pay fall even further behind. While it must be recognised that apprentices are learning, so there is a good argument that they should receive a lower wage than fully qualified colleagues, these new minimum wage rates have the potential to make an apprenticeship even less financially attractive than before. Employers must be urged to do all they can to make sure their schemes deliver quality, and provide their apprentices with a fair wage that reflects their industry and their responsibilities.

For more information on The Juice Academy, go to the website here.

 By James Flynn, B2B Account Executive