© Robert Halfon MP 2012

PUBLIC PROCUREMENT AND APPRENTICESHIPSA fully costed proposal: how to create 120,000 apprenticeships, and cut youth unemployment by 7%, at no cost to the Treasury.

Youth Unemployment in England, souce: DfE NEET quarterly brief 2000 - 2011

The Proposal● Ask public Contractors and Sub-contractors to “take all reasonable steps to ensure that 5% of their

employees are on a formal apprenticeship programme.”

The Principles ● Is it possible? Yes. The public sector spends around £240 billion annually on procurement (of which

£188 billion is in Whitehall). The DWP has already piloted the proposal, and it has worked.

● Will it benefit the private sector, too? Yes. Research by BIS in 2009 found that "businesses that do not train their staff are 2.5 times more likely to fail than those that do." 1

● Will it be revenue neutral for the Treasury? Yes. Our proposal does NOT require Contractors or

Sub-Contractors to take on extra employees - merely to ensure that 5% of their workforce are on apprenticeship programmes. Costs should be equal to or less than now.

1 http://webarchive.nationalarchives.gov.uk/+/http://www.dius.gov.uk/skills/public_procurers/faq1

© Robert Halfon MP 2012

Pilot Study: the Department of Work and Pensions● What has the DWP done? The DWP’s new Apprenticeship and Skills Requirements Contract

Schedule, published in July 2011, requires that “The Contractor shall and shall procure that its Sub-contractors take all reasonable steps to ensure that 5% of their employees are on a formal apprenticeship programme.” 2

● How is it monitored? The Contractor must provide an Apprenticeships Report within six months of

the contract commencement date, and every year thereafter. This sets out the number of existing and new apprentices involved in the delivery of the contract. A robust explanation is required from the Contractor, if the 5% target has not been met.

● What are the results? Preliminary data indicate that 1,979 apprentices are now employed, delivering

goods and services to the DWP.3 These figures are drawn from only the top 21 suppliers to the DWP. The Department has an annual procurement spend of £3.88 billion. Therefore, the DWP have a success rate of at least one apprentice employed for every £2 million of procurement spend.

Benefits● If the proposal were to be rolled out across Britain, what would the benefits be?

● Create up to 120,000 apprenticeships, an increase of over 25% from 2010/11. (This assumes a

similar success-rate to the DWP of one apprentice for every £2 million of procurement.)

● Reduce youth unemployment by up to 72,000, or 7%.4

● Reduce the costs of youth unemployment.

● No legislation is required. Assuming the DWP ratio of apprenticeships to procurement spend would prevail across other Departments, we can predict that 96,000 apprenticeships would be created if the Apprenticeship and Skills Requirements Contract Schedule (ASRCS) were included in all Whitehall procurement contracts. If the policy’s remit were to be extended to local government as well, at least 120,000 apprenticeships would be created. This is a conservative estimate: the DWP data on which it is based comes just from the Department’s top 21 suppliers.

2 schedule 10, 2.2 of the model DWP contract: http://www.dwp.gov.uk/docs/dwp-model-tc-for-services.pdf

3 House of Commons, Written Answers, 28th November 2011. http://services.parliament.uk/hansard/Commons/ByDate/20111128/writtenanswers/part021.html

4 In the 2010/2011 academic year, 60% of total apprenticeship starts were by those aged 24 or under. This means the proposal would reduce youth unemployment by up to 72,000, or 7%, based on current unemployment statistics amongst those aged 16-24 of 1.03 million. 2

© Robert Halfon MP 2012

Costs of the Proposal● If the proposal were to be rolled out across Government, what would the costs be?

● Best case scenario: there is a net saving to the Treasury. The Apprenticeship and Skills

Requirements Contract Schedule (ASRCS) does not require Contractors or Sub-Contractors to take on extra employees - merely to ensure that 5% of their workforce are entered on formal apprenticeship programmes. Therefore their wage costs should be lower, as apprentices are typically on entry-level salaries.

● Is this credible? The Conservative Administration in charge of Essex County Council

have implemented a similar scheme to the DWP. They have created at least 200 new apprenticeships using clauses in public contracts. At the same time, and as part of a wider cost-reduction programme, their procurement costs DECREASED by £120 million.

● Worst case scenario: a total cost of £160 to £214 million. In order to assess a total

worst case, we have calculated the total cost if the Treasury if the state financed the entire cost of employing and training the extra apprentices? The answer is an initial outlay of between £160.8m and £214.4m.5 Ongoing annual costs would be expected to be lower, as apprenticeships last between one and four years.

Costs of Youth Unemployment● The Prince’s Trust estimates that, even before the financial crisis, youth unemployment cost £10 million

every day in lost productivity, and £20 million a week in Job-Seeker’s Allowance.6

● The secondary costs associated with youth unemployment are even greater. A Recruitment and Employment Confederation report estimated the total cost to be £4.7 billion a year.7

Legality● Is it legal? Both Essex County Council, and the DWP, are already implementing pilot schemes and

have judged it to be legal under both European Union and British law. Of course, care must be taken to ensure that any potential suppliers from outside the UK are not disadvantaged. Any skills requirements must recognise non-UK equivalents.

5 The average apprentice costs an employer around £9,000 a year in wages. If an apprentice is between 19 and 24, then the employer must pay up to 50% of the cost of training, which is estimated to be

between £3,000 and £4,000 per apprentice (so between £1,500 and £2,000 to be paid by the employer). The final total cost to the employer will therefore depend on the size of its workforce and the age of the apprentice, but the average apprentice costs an employer between £9,000 and £11,000 a year. In the 2010/2011 academic year, 60% of apprentice starts were aged 24 or under. Assuming that the uptake of new apprenticeships across the age groups follows the pattern of new apprentice starts in the 2010/2011 academic year, then the total initial outlay by the Government would be between £160.8 million and £214.4 million - IF the taxpayer were to pay for the full cost of employment and training. Ongoing yearly costs would be lower, as apprenticeships last between one and four years.6 The Prince’s Trust, The Cost of Exclusion. http://www.princes-trust.org.uk/PDF/Princes%20Trust%20Research%20Cost%20of%20Exclusion%20apr07.pdf

7 Recruitment & Employment Confederation, Avoiding a Lost Generation. http://www.rec.uk.com/about-recruitment/externalrelations/campaigns/youth-taskforce3

© Robert Halfon MP 2012

ConclusionThe benefits are clear:

● Up to 120,000 extra apprenticeships and a 7% fall in youth unemployment.

● No expected costs for the Treasury.

● No legislation is required.

● It is legal under EU and British law.

● It is already happening under Conservative Ministers in the DWP, and Conservative Councillors at Essex County Council.

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© Robert Halfon MP 2012

AppendixThis is a scan of the relevant page (p83) of the model DWP contract. It was introduced in July 2011.

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