Oral evidence - The economics of higher, further and technical education

Mr Giles Derrington, Mr Russ Shaw and Mr Matthew Houlihan.

Q111 The Chairman: Mr Derrington, Mr Shaw and Mr Houlihan, welcome to the Economic Affairs Committee. I am sorry we kept you waiting; we had a little bit of business to transact. Perhaps I can start by asking you to what extent you feel that the technology industry has struggled to recruit people because of skills shortages.

Mr Giles Derrington: We thank the Committee very much for having us today. It is a really interesting inquiry. As I am sure we will discuss, it is a time of massive change for the tech sector and the whole economy, so it is the right inquiry at the right time.

My name is Giles Derrington. I am head of policy at techUK, which is a trade body representing about 950 tech businesses from the very large—the Googles and Microsofts of this world—right down to a kind of torso of small and start-up businesses, so we have a perspective from right across the tech economy and how that plays out to the rest of the economy.

The Chairman: The biographies have been circulated. We know everything there is to know about you.

Mr Giles Derrington: To answer the question, it is true that there has been a skills gap for some time within the sector. The sector has been growing very quickly, and the digitisation of the whole economy has been having an impact as well. It is no longer just high-tech companies looking for high-level tech skills; increasingly, supermarkets or automotive manufacturers are competing for some of the same skills. That presents a separate challenge to the way things were working.

We at techUK have done some linear projections, purely modelling from where we are now to where we might be in the future. Potentially, at the top end, we are looking at significant numbers: between 1 million and 3 million new tech jobs by 2030 and growth in the level of education of computer scientists, mathematicians, et cetera. That gap is still very relevant.

In 2014, when we surveyed our business members, about 93% said there was a tech skills gap that hit their business and had an impact; about 50% said it was a significant impact. You can see it in both the top-end and medium-level skills. At the top end, not long ago, I was speaking to a member company that had spent about 18 months looking for programmers for a particular type of coding language that was available to it. It finally found them in South Korea and brought them over to the UK. Because of that, it was training an entirely new department within the business to deliver new products and services. The interplay between one person’s skill set and the wider economic advantage to the country is quite significant.

Mr Matthew Houlihan: Thank you for the invitation. I hope we can make a good contribution to the inquiry. Cisco is a world-leading IT networking, collaboration and security company. I absolutely echo what Giles just said about there being two different things. One is about the tech sector itself, where, in the UK, we have about 1.6 million very high-skilled jobs. We also have the phenomenon of digitisation right across the rest of the economy. It is those twin things we need to take into account. The across-the-economy bit is almost scarier. The Skills Funding Agency points out that 90% of jobs in the next 10 years will have some kind of digital element, so we need to look at a very broad range of jobs and skills.

At Cisco, we are not carrying major vacancies at the moment in the UK, but we compete hard to make sure that is the case and that we have the right skills. Where we see challenges, and where we have to work particularly hard, is at the higher end of the digital skills spectrum. There, we see a shortage of available talent in areas such as software developers, operation, machine learning, which is a new area, cybersecurity professionals and test automation engineers. It is at the higher level of digital skills where we see the challenge. There is a shortage of supply, and the people we are looking at can be quite selective about where they go.

We need to look for the very best in the UK, but as a company with its EMIR headquarters based in the UK, we have to bring in people from around the world to work here. It is a twin approach. We have to work hard on the very advanced skills, but across the economy, in lots of different sectors, there is a range of skills that we need, and there is a lot of evidence to suggest that there are shortages at those levels, too.

The Chairman: The NAO produced a report, last week I think, suggesting that the problem was diminishing. The detail of the report indicated that the shortage would be much less among graduates, but higher among technicians and apprentices. Do you agree?

Mr Russ Shaw: That was an encouraging message from the NAO. From what I hear from start-ups, scale-ups, et cetera, is that they are seeing more graduates coming through with those skills, but the job growth in the digital sector is incredibly significant. The feedback I get about graduates is that they might have some of the harder skills, by which I mean coding, programming, software development and data analytics, and we will need more of those, but there are not enough graduates coming out with the softer skills you have heard about: leadership, communication and team-building.

Some of the companies I speak to talk a lot about STEM, but I also talk a lot about STEAM—the A is for “art” and “artistic”. We need people with artistic, design and content skills, because the whole user experience and user interface area is expanding significantly. Although there could be some growth in the number of graduates coming out with skills, job growth is substantial. Do they have the broader skill sets that employers are looking for? I do not think that they do.

The Chairman: Are they more likely to have those skills if they come through the apprenticeship route rather than the degree route?

Mr Russ Shaw: The apprenticeship route will help. Getting younger people to have more work experience from an earlier age is also a positive step forward, and I hope we will touch on that. What we are trying to say to a lot of secondary schools and colleges is that we need people who have hard skills, but we need to take a broader look at how we are producing well-rounded graduates. Why? We do not necessarily know today what the types of jobs which will be created in the future will look like, so we need to build in a degree of flexibility so that graduates come out with good coding, programming and product management skills, and with a broader skill set that enables them to be flexible as the future of work evolves and changes, which is going to happen more rapidly.

Q112 Lord Kerr of Kinlochard: We visited a UTC and an FEC in Birmingham. I was struck by two common themes we heard from the young people. One was that, in the schools they had come from, if you were not planning to go to university, you were a second-class citizen; secondly, they were using their time at the UTC and FEC to get into a university. That was where they intended to go. Do we undervalue technical education per se, and do we end up with too many graduates doing jobs that are not really graduate jobs?

Mr Giles Derrington: There is some truth in that. The conversation about apprenticeships and alternative routes has developed a bit over the last couple of years, which is welcome. I speak to young people who are beginning to see that there are alternative routes to getting into interesting types of job, but at school level there is a sense that A-levels are there to get people into good universities, and that is the conveyor belt for the best and brightest, with something different for others.

One of the interesting things about the tech sector is that the skills needed can be developed in lots of different ways. I was speaking to a start-up the other week and was told that a 40 year-old with no relevant CV job experience had applied for a position, but the team looked at the code he was producing and said, “This guy knows what he’s doing”. They said it was one of the best hires they had ever made. He had not come through a traditional route; indeed, he arrived there quite late in life from a lifelong learning perspective. Bluntly, kids developing apps and games in their bedrooms have the skills, although they may not sparkle in the classroom when they come to sit A-level maths, or whatever it might be.

Mr Matthew Houlihan: As an employer, we look for a range of skills. In a way, it is good that the UK has a focus on universities. University participation rates peaked at about 49% last year. It is good that we are getting people with very high-level skills coming through, but we need a cultural change in how the more technical routes to education are perceived by employers, and by kids going through those channels. Employers need a range of people with different types of skills, both people at the very advanced degree and master’s end, and people who have gone through apprenticeships, UTCs and the like, because they offer us something different. We certainly welcome a greater focus on that, and perhaps a better matching of people to different routes.

Mr Russ Shaw: The young people I meet today are much savvier about how they approach the world of work. Many of them are starting to question the traditional route, from secondary school to university to get a degree, in relation to the types of jobs that are available. Do they need to come out of a three or four-year programme with a degree in history or whatever that will not necessarily help them to get into an exciting start-up where they can do interesting things?

Younger people are looking at that and at the cost of higher education. They ask whether they really need to go down that route when they can see great colleges set up, such as the Ada College, National College for Digital Skills in Tottenham, where young people coming out at the age of 18 have great coding, programming, communication and team-building skills, and are ready for the world of work. People are starting to reassess this, and that tradition is starting to change.

Lord Kerr of Kinlochard: Does business go into those colleges looking for people and offering them a more financially rewarding route than university? In a way, if you wait for the kids, it is not going to happen; they do not know how to make contact with companies. The companies have to be there looking for the right kids.

Mr Matthew Houlihan: We do, but we have to be incredibly proactive. We have entered into a strong partnership with the UTC in Reading. We have a big office there, but we work very closely in partnership with the UTC to help design and develop the courses it offers, and to show the pupils at that UTC what working at a place such as Cisco is like and the sort of skills they need to develop, and to inspire them about the careers available. That is not an easy thing to do, and we have to be incredibly proactive about getting out there and doing it. We want to open their eyes to the opportunities in working for Cisco, because we want to attract vocationally and technically minded people to companies such as ours.

The Chairman: What are the barriers to working with the UTC?

Mr Matthew Houlihan: Obviously, it is resourcing and finding the people time to go in and work with those organisations. We have to make sure we put aside and dedicate time for that. We see the strategic long-term benefits of doing it. That is the major barrier. I do not want to imply that there are any barriers on the UTC side—I do not think we have felt that at all—but, from the company side of things, we need to make sure that we are thinking about the importance of that as we engage with universities. I am sure it is the same for other companies.

Mr Giles Derrington: The showing point is important. A lot of these jobs are very poorly understood worldwide; indeed, pupils’ parents do not know what they are, so it is hard for people to see the route through. We have a number of members who do similar projects. They go into schools and colleges and say, “This is what we are doing; this is what cutting-edge AI looks like; this is what someone who works on this stuff looks like, and it’s not that dissimilar from you”. You do not have to be a Bill Gates to be an expert in this stuff.

Baroness Kingsmill: Do you think the universities are doing their job in providing you with the kind of people you need and want?

Mr Russ Shaw: From what I see, they can do a much better job. Do not get me wrong. There are some wonderful graduates coming out of universities. We have leading, world-class universities in this country that do a terrific job.

It is about the calibre, quality and breadth of graduates. Many businesses I hear from, particularly the smaller ones, say they are looking for candidates and they recruit them, but they have to spend a lot of time working with them and training them so that they can go into an entry-level job. They might come out with great computer science skills, but have they really focused on things such as leadership and team-building skills as part of that component? Do they have broad appreciation of the other areas of running and being in a business that are so important? I think universities can do a better job at that. Every university should expose every student to at least some degree of coding, even if it is just for a couple of days, because it will be such an important part of the digital world. I do not particularly like coding myself, but having at least an understanding that that is how many businesses of the future will run and operate is critical.

There is a huge lack of diversity, specifically around gender, in this area, and I hope we will touch on that. The thing I find shameful about the technology sector is that it is roughly 80% men and 20% women. We have to change that. It is a crime not to encourage more women and younger girls into the technology space. It does not have to be hardcore programming or data analytics. We want women in these businesses, because the world is 50:50, and we know from research that the most diverse businesses are the most successful and profitable. We have to start in primary schools, secondary schools, colleges and universities to encourage women to come into the sector.

Baroness Kingsmill: Do you agree with that, Mr Houlihan?

Mr Matthew Houlihan: I have two points. I echo Russ’s comments. There was an interesting review recently by Nigel Shadbolt about computer science graduates that strongly echoed the point Russ just made. We can produce, through universities, people with the most advanced computer science skills, but we need to ensure that other skills are delivered alongside that, including presentation, team-building and all the sorts of things that make one employable. We need to make sure we are doing that, too.

Russ made the very good point that every role we employ that is not a core IT role, whether in HR, finance, marketing or social media, has a strong digital element. We need to make sure that universities are providing that digital element through the courses they offer.

Q113 Lord Darling of Roulanish: I want to ask you about T-levels, but before I get to that I want to ask about a related matter: the engagement between your industry and would-be apprentices or T-level takers. Mr Houlihan, I was struck by the fact that you cited an example of what Cisco did in Reading because you happened to be in Reading. You are not the first witness to do that; others have said it as well.

I keep thinking that there are lots of young people who go to school where there is not an obvious big employer that will do that. They are very clever but they will never be exposed to a firm because they happen to live 50 miles away. Could you explain a bit more about how the industry, rather than you, goes about engagement? If a young person chooses to do a T-level or an apprenticeship, it probably helps that someone has whetted their appetite beforehand; otherwise, it becomes very random.

Mr Matthew Houlihan: You make a very strong point. One of the challenges with the apprenticeship and T-level programmes, and one of the questions we should be asking ourselves, is whether there is equality of opportunity right around the country for kids to get work experience, for T-levels or apprenticeship programmes, with employers in different regions. That is an interesting question and we need to tackle it. I can say what Cisco is doing, and perhaps Giles or Russ can talk about the sector more widely. Cisco has a good programme.

Lord Darling of Roulanish: You are obviously doing a good job because you are willing to tell us about it. What I am getting at is the wider problem. A lot of our inquiry has been about the fact that the system is almost skewed towards university entrance. I was an MP for many years. My experience was that part of the problem was that many young people simply did not know that there were pretty good opportunities on their own doorsteps. No one ever told them.

Mr Matthew Houlihan: Let me give you one example of something Cisco does in that space. We have a programme called the Cisco networking academy, where we have a partnership with 300 schools and universities across the country. We lend them an IT networking kit and train their teachers so that they can offer Cisco-accredited courses and do exactly what you said. They whet young people’s appetites and get them on a track to achieve quite advanced IT skills if they want to do that. Through that, we try to open people’s eyes to the possibilities of working in the sector, and use it as a route to introducing them to other forms of training after school, which may be an apprenticeship or T-levels later on. We are quite proactive in that space. I do not know whether Giles or Russ wants to comment on the sector more widely.

Mr Giles Derrington: One of the things we have questions about is the mandatory three-month work experience in the T-level prospectus. That is great and valuable, and the right thing to have in the qualification—but if you live in the rural north-east the opportunity to engage with a tech business is a lot harder.

There is also a sense in which big companies such as Cisco can and do provide a lot of the heavy lifting of training in the sector. Some of the smaller ones and scale-ups do not have the capacity—sometimes not even the floor space—to bring in someone to train as an apprentice, or whatever it might be, or an understanding of how leadership and education work and fit in with the kind of training and on-the-job-type work they might be doing. There are big challenges.

One of the things on which we have questions and want a bit more work from the Government is how to engage those employers to make sure that, if anyone takes up a T-level, they will not be expected to go to a major city to do three months’ work experience when it might not be financially viable and might be problematic.

Mr Russ Shaw: There are many wonderful volunteer-driven organisations in the tech sector working in communities across the country, such as TeenTech, Apps for Good and Founders4Schools. Sherry Coutu launched Workfinder just last week, a fabulous app open to anyone anywhere in the country to find work experience. There is a long list of these organisations. People are getting behind them and exposing them to schools and colleges. The tech sector does a lot to try to get behind those initiatives.

The three of us in our organisations are part of the Digital Skills Partnership that has just been launched by DCMS. My voice in that has been, “There are great things happening in certain parts of London, although not all of it, but how do we take some of those great initiatives and share them across the country? How do we look at Manchester and Newcastle to see what they are doing at grass-roots level that we can learn and benefit from in other parts of the country?” This is starting to come together. I do not want us necessarily to recreate the wheel, but to get behind the many initiatives out there. All our organisations, and large companies such as Cisco, techUK and Tech London Advocates, spend a lot of time doing that.

Lord Darling of Roulanish: You can probably answer my next question fairly briefly. To what extent has your industry been actively engaged by the Government? I do not mean that someone has written to you or has said it is a challenge, or that they want a partnership, or anything like that. What have they actually done in advance of the introduction of T-levels? Mr Derrington, you touched on that point.

Mr Giles Derrington: There has been engagement. A couple of our member companies have already been engaged in standard setting for T-levels. Some in the sector have some reticence about the experience of apprenticeship standard setting. I think that the NAO report touches on that. It was quite arduous and time-consuming for companies. Some of the standards took over a year to produce and were often very much Civil Service driven—as in, “Here are the boxes we want to fill. How do you fill them?”—rather than being business driven, as in, “This is what it needs to look like. How does the model flex and adapt to that?” Businesses are engaged; the Government have been quite good at engaging, but there is some work to be done.

Co-ordination across government is really important. DCMS is doing good work, DfE is doing some good work and the Treasury is funding various projects in the Budget—but, fundamentally, they need to pull it all together at Cabinet level, so that, when T-levels come into force, we know that teachers will be funded properly and that getting the right digital skills will be a key part. That needs a Cabinet-level focus rather than different departments picking their bits of the pie.

Lord Darling of Roulanish: I am sure that the Cabinet is united on that.

Mr Matthew Houlihan: To link this back to the Chairman’s question, the NAO report made a good point about mismatches of skills around the country, and that perhaps the shortages were STEM mismatches. We produce a good number of STEM graduates in this country, but only a very small proportion of them end up in STEM careers. The NAO pointed to a mismatch at local level between where those people are and where the jobs are. That is exactly one of the things that the digital skills partnership Russ mentioned is trying to address: to identify at a local or LEP-type level what the needs are. That could help employers and digital skills providers to try to address it at that sort of level.

That touches on another point about co-ordination. At the moment, across the country, there is such a tremendous number of different training avenues and opportunities on offer for a young person that it is quite hard to know where to look. We offer courses through the network academy. I am conscious that lots of other companies do that, too, but there are lots of formal education routes that young people will be looking at. Having a mechanism that helps to co-ordinate that a bit, packages it together and maybe explains the difference between different types of training would be quite a useful thing to try to get going. I am hoping that the digital skills partnership will deliver something like that to create coherence at a user level.

Q114 Lord Turnbull: It has been put to me that the key theme of T-levels is work experience. The difference between T-level work experience and an apprenticeship is that the apprentice belongs to the company, so it has a commitment to that young person, whereas with work experience someone else’s person is sent to you. My prediction is that the thing will fail at that point. It is not just about getting the top-class organisations of the country. It is about getting work experience of the right quality across the country when individuals do not really belong to the company; they are placed there by someone else. Do you think that circle can be squared?

Mr Giles Derrington: To a certain extent, companies are taking a long view; they know that there is a long-term need for upskilling across the board. Prima facie, I think people are happy to engage with the process. The question is, what support are the Government going to give within the T-level structure to allow it to happen in a way that does not overburden businesses? Most companies we speak to are very happy to bring people on and show them what they are doing, not least because they are excited by what they are doing. But if it becomes a box-ticking, high-cost exercise where people are taken away from their work, particularly at the small end where there is no capacity to take people out of work because they are trying to turn a profit, make a business case to investors and so on, that is the point when they will say, “We can’t deal with it”.

Mr Russ Shaw: I have been pleasantly surprised at the start-ups and scale-ups that are embracing work experience. They are not having people foisted on them—to your point; they are going out and getting actively involved in bringing in young people, because they can see that over the coming years it will get tougher and tougher to recruit people. Even at ages 15, 16 or 17, if they can find good people and give them work experience and keep a dialogue with them, if they decide to go on to college or university, that is really important for more and more companies. For many companies, it is so hard to recruit talent that they have to start earlier. Big companies do that; smaller ones are starting to do it, too.

Lord Turnbull: Why not upgrade them to make them apprenticeships instead?

Mr Russ Shaw: That is an option, too, and many start-ups and scale-ups are trying to come to grips with how to do that and take a more formalised approach, so that it is not just a week or two weeks of work experience, but a longer commitment. Some are stepping up.

Referring to the point Giles made, some small businesses struggle day to day. The entrepreneurs I meet are working 14 to 16 hours a day. This is not necessarily at the top on their radar, but it is starting to move up. As an industry we have to showcase some of the success stories coming out of apprenticeships, whether it is Cisco or a start-up in Shoreditch: “Look, I did this and it worked really well for me”. That is part of the change we need to promote.

Q115 Baroness Kingsmill: Do you think there is a place for a continued relationship between the university and student post graduation? I look, for example, at the phenomenal success and engagement of Stanford with Silicon Valley. I have a lot of contact with people there. They seem to me to follow through with their students in a very significant way, not just in providing resources for ongoing education and development but sometimes with finance.

Mr Russ Shaw: That is starting to happen here. Having gone through the American university system, I am still in touch with my undergraduate and graduate universities. They will not let us go. It is not just for the funding. We will talk, hopefully, about lifelong learning. I have opportunities to go back to them and brush up on certain skills; as I try to come to grips with what artificial intelligence means, they offer programmes and initiatives. They say, “Come back for a couple of weeks. We are bringing together a group of people to focus on this particular area”.

Baroness Kingsmill: Are UK universities doing that?

Mr Russ Shaw: I have not seen much of that, although I have started to see some universities doing follow-up outreach. My eldest son recently graduated from university. They are not letting him go. I have seen some development leaders come over from the US to do knowledge transfer into UK universities, colleges and even secondary schools to understand that mentality. More and more people are saying that they have to get their arms around lifelong learning, and universities, colleges and secondary schools are well placed to do that and not let go of those relationships.

Q116 Lord Layard: I want to ask about how you see apprenticeships and the proper uses of the apprenticeship levy. There are two completely different perspectives on apprenticeship. One is, as it were, an economy-wide perspective: “We have to make sure that young people who do not go to university get a skill that is in the interests of the whole economy. Let’s get them off to a good start, level 3 at least”. A very different perspective is to say that each firm should try to do the best it can for itself, and in that case why not use the apprenticeship levy for professional development as well as initial training of people, to get them to a decent level of skill at base level?

I suppose that most of the people who were in favour of pushing apprenticeships and the apprenticeship levy had in mind more of the first perspective than the second, but there seems to be quite a danger that the second perspective will dominate what actually happens on the ground. Various people have suggested, for example, that the levy could be spent only on people recently hired, which would tend to push it back towards the initial point of entry to the workforce; or that the apprenticeship levy could be spent only up to level 3. It could be regrading some people who were already working, but not at professional level or graduate or postgraduate level. I suppose that all those limitations would tend to make your sector, which is very high-skilled relative to others, a net contributor to the scheme, but are you willing to do that?

Mr Matthew Houlihan: We are obliged to do it. We are a net contributor to the scheme. First and foremost, we are strong supporters of the concept of apprenticeships. We have had an apprenticeship scheme in Cisco in the UK since 2011, and we ran that independently of any levy before it came out. It has been very successful; 100% of the apprentices who graduate from it get employment in Cisco, so it is a great scheme from that point of view, and 83% of people who start the three-year apprenticeship scheme finish it—so we have some good results.

The levy was a game-changer; it was a big change for big and small companies—you name it. A lot of companies, ourselves included, have struggled a little bit with the way it was set up and have wondered whether the money we are putting into it could be used more effectively to achieve the end result—which is obviously more apprentices, but also skills that are more in tune with what businesses need right across the economy.

There are a number of ideas. One is whether we could use the money we are paying into the levy to support apprenticeships in other companies in our ecosystem. They might be our partners; we work with many thousands of partners across the UK to sell Cisco goods and services to customers. They might be in our supply chain. We think that could be a good route to increasing the number of apprentices we support in the digital networking space.

We would also be supportive of being able to use levy money in a more flexible way to support other types of training—for example, to allow existing members of staff to receive training and learning and development opportunities that benefit them and the company, and the country more widely. We would be in favour of seeing some changes, but we want to support apprenticeships; we think they are a very powerful contribution to companies. Perhaps we could look again at the levy and how it is geared up, to make sure that it delivers full value.

Mr Giles Derrington: I would echo a lot of what Matt says. The industry very much wants to support apprenticeships. There is increasing understanding that there are problems with the way the apprenticeship levy is working. Indeed, I was struck by language in the Budget about engaging with employers and looking for changes. It seems that even within government there is an understanding that it is not quite working right and we should change it, but there is reticence to change it too soon. It is a slight struggle for businesses that are coping with the way it works at the moment.

The apprenticeship structure is quite a formal, rigid one, and sometimes that is not the best way to help someone either to upskill or to get the right skills for the job they want, even coming from a low-skill base. For example, people who have skills in coding may be unemployable, because their skills are medium level and they lack the leadership and other soft skills we talked about previously. A training system that allows a company to say, “We are going to give you some basic training but also teach you the next and latest programming languages over the course of a relatively small module”, may be a way of helping to get more people into the place they need to be to get the jobs we want them to get. Doing that is worth while as well.

Because of the way the apprenticeship levy works, being based on payroll, one of the things we see, in a sector with way above average salaries—55K compared with about 27.5K in the rest of the economy—is that a lot more small businesses are coming within the scope of the levy, and some of them do not necessarily have the capacity. Based on average salaries, a business of about 109 would be subject to the apprenticeship levy; at £50,000-odd, it would be a company of 60 people, and that is a very different proposition, even for them to have the floor space to train someone properly. They cannot pay it, and effectively it ends up being a tax on them. That is not what they want. They still need the skills, but they need to be able to deliver them in different ways.

Matt referred to flexibility. There is a role in supporting schools and colleges to produce the skills at the outset. One of the things we have talked about in the context of flexibility in the apprenticeship levy is allowing companies to support local colleges they have partnerships with to get the best training and upskill their teachers. They could provide some of the base training there, rather than worrying about provision at college level and trying to make up the back end in the business.

Lord Layard: If we are to try to get, let us say, 20% of young people doing level 3 apprenticeships, obviously the bigger companies are better placed to organise it. On the other hand, the very high-skilled companies would be less interested in taking their share. Do you imagine that the share your sector would take relative to your total workforce would be as high as is implied by getting 20% of young people into level 3 apprenticeships?

Mr Giles Derrington: Matt and Russ may have a perspective on that. I think people struggle to spend the levy in the formal processes by which the apprenticeship schemes are set up. They end up falling short and the money is returned to the Treasury, so there is a challenge there.

The point about supply chains is really important. Even the biggest company has many thousands of suppliers, some of which are one or two-man, or woman, businesses that desperately need continuation of skills and development, but they cannot access and support an apprentice in the same way. At the moment there is a disconnect between putting someone into an apprenticeship in a small company and giving them some of the educational stuff that is needed as part of the apprenticeship programme at a bigger supplier. That kind of supply chain work is really important, and that is where we get the whole sector upskilling to give the numbers we need.

The Chairman: But is not the problem with what you are suggesting that some employers might be tempted to pass the budget for their training on to the apprenticeship levy, thus defeating the purpose of the thing, which is to have more apprentices?

Mr Giles Derrington: I do not necessarily think so.

The Chairman: It is happening.

Mr Giles Derrington: The Government have moved in certain senses, and in April we will see the 10% supply chain route, which is welcome. What skills does the sector need, and what skills will be employable in the future? Making sure that this is demand-led rather than policy-led is important. As we discussed, the sector knows it needs the skills; it is underskilled at the moment and is struggling for capacity, so it wants to train people in the right way. But if the structures end up being things that force people to train in not the right way, they will just swallow it and not necessarily embrace it in the way we want to see.

Mr Russ Shaw: We need to keep pushing hard on the apprenticeship approach. There are some challenges. Companies are coming to grips with it. It is still early days, and suddenly to change some of the principles of how it should operate would potentially undermine it. In the next three to five years, as we have more successful apprenticeships—I hope that in the tech sector we hit a certain threshold where that happens—let us look at how we can be more flexible.

Suddenly to walk away from the apprenticeship approach does not feel right to me at all. We have to keep working with companies. The big ones seem to be embracing it; we have to work with the smaller ones and say, “Look, this is a good thing; here are some resources to help you to manage it”. Even if it is an organisation of 10 or 15 people, let us make sure they do it and get the resources to help them do it. We will be much better off if we do it that way.

Lord Layard: It is not necessarily illogical for some firms to return some of the money to the Treasury and for it to be redistributed towards sectors that are less level 4-intensive and more level 3-intensive. I hope that could be accepted not as a failure of the scheme but as a redistribution towards the sectors that ought to be giving more level 3 training in particular.

Lord Sharkey: Following the question about redistribution, from April you will be able to redistribute 10% of the levy to supply chains, with a cap of £200,000. I would like your view on whether that cap is ridiculously low from the point of view of the larger companies that you represent. Are there any coherent plans to make sense of that ability to redistribute?

Mr Matthew Houlihan: It is a positive development that we will be able to transfer 10% of our levy funds to cover 100% of the costs of an apprenticeship in an SME. It is a positive step forward, but it feels too low from our point of view. We would like to be able to use 80% of our contribution in that way. That is probably the key to getting more apprenticeships in the country. Some recent statistics have shown dramatic falls in the number of apprenticeships, and getting more financial support through the levy for SMEs is probably the key to turning that around.

Q117 Lord Tugendhat: I have a brief question about the training and development you provide to your employees. Do you think there needs to be greater collaboration between employers and providers in order to facilitate that?

Mr Matthew Houlihan: As the company representative on the panel, yes. It is a good question. We provide a range of learning and development and training opportunities for our own employees. We have a number of different functions in Cisco, from engineering to sales to HR and to finance, so we have a range of different packages for those different functions. We are conscious that we need to deliver those training courses and experiences in different ways. We use a range of in-house and face-to-face processes. As a technology company, we obviously use a huge amount of technology; we use a lot of videoconferencing and online learning to deliver courses. We try to embrace a wide range of activities.

We think quite a lot about how we can encourage other businesses to think in that way, too. I do not know whether you have come across it, but recently Sir Charlie Mayfield was running the Productivity Leadership Group, which launched a campaign called Be the Business. That is a great website that challenges businesses across the country to take a look at what they are doing to be as productive as possible. One of the things it talks about and challenges businesses on is whether they have the right digital skills packages in place to encourage their workforce to get up to speed. We encourage that sort of initiative.

As I mentioned in a previous answer, through the Network Academy we support a whole range of Cisco-backed certificates for qualifications that are industry standard and industry-leading in our world. We deliver those through our Network Academy, which is a partnership with 300 schools, colleges and universities across the country. A lot of Cisco staff take advantage of that.

The answer is that there is a range of methods. It is becoming increasingly the case with companies more generally that we have to mix the formal learning routes through training courses with technology and delivering courses over video and online. We have to think much more broadly about what the learning experience is like and how people learn, not just in a classroom or online, but by doing things or experiencing things and watching how other people do that as well. We have a huge focus on those two things.

Mr Russ Shaw: For smaller businesses, start-ups and scale-ups, it probably works very differently. Most will not necessarily have their own in-house training and development function; some may just have a head of human resources, and that is about it. It is a very different approach, where a lot is outsourced, and it is incumbent on the individual to determine the right training programmes and the kind of skills they need to develop and bring on board.

The community tries to expose many of those start-ups and scale-ups to the initiatives and training organisations that are out there. A lot of it happens by word of mouth. The beauty of the technology sector is that people are online a lot; they use social media channels and people connect with other groups to find things out: “That’s an interesting coding course. Maybe I should jump on that one”. It is a much more informal way, but it does happen.

Lord Tugendhat: Presumably, the people who have benefited from the Cisco programmes that we have just been hearing about are able to move to other firms. It is not exactly like having a degree or formal qualification, but, if you have been through the Cisco process, presumably it stands you in good stead for getting a job elsewhere in the sector.

Mr Russ Shaw: It does, but if you want to go from Cisco to, say, a start-up you will probably take a significant cut in salary and some of your benefits, maybe in exchange for some type of equity. That does happen, especially for individuals who want to be exposed to a more entrepreneurial environment, and the good news over the past few years is that we have seen many more people embrace the whole notion of entrepreneurship. A lot of start-ups and scale-ups get good funding from their investors, and train their people up, and sometimes they jump to a Facebook or a Google that can pay them more. It happens both ways, and there is a bit of tension within the technology sector when that happens.

Mr Giles Derrington: The point about the ecosystem is very important. One of the reasons the UK is such a good European leader in tech is that it has the big guys and the small guys all working together, with people leaving Google and setting up their own companies, for example. One thing we are really interested in at the moment, and have been working on a lot, is returners to the sector; techUK has been running a returners programme, and a number of businesses have set up their own.

The idea is that, because tech moves so fast, it can sometimes be challenging for someone who has had a career break, for family or whatever reason, to get back into it. It can be quite difficult. One of the things we have been looking at is how to help to bring people back in and get them quickly reskilled in whatever the latest developments are in protocoling, or whatever they might be working on, so that they can return to the workforce. We are quite keen to explore how the Government can help. The Government have been looking at this stuff as well and we think that is really positive. Going back to the apprenticeship levy, we will be looking at whether there are opportunities to fund through that.

A number of businesses do other types of training. Google is pledging to train 200,000 engineers in the UK, some for its benefit and some not for its benefit but because it understands the ecosystem. One key thing is how quickly one person with the right skills can skill up another part of the business. Someone with a new programme language is brought into the business; you build a team around them and they will then develop that skill. It is not the formalised processes you might see in statistics, but it is as valuable for development.

Q118 Lord Burns: One of the recurring themes during our investigation has been the distinction, and the huge gap, between universities and tertiary education, and the role played by other institutions. One of the things we have been looking at is the whole question of whether it would be helpful if they were brought closer together and, indeed, whether it would be possible. There have been suggestions such as a student loan system that people would be able to draw on for different kinds of experiences and at different stages of their career. How do you respond both to the suggestion that there is a problem in tertiary education and to some of the ideas as to how one might be able to bring them closer together? To what extent is that something that companies themselves can help with?

Mr Russ Shaw: When I saw that question, my immediate response was, yes, it would be excellent. Giles touched on it with returners. So many people out there say, “I do not have the skill sets that my job now requires me to have. How am I going to get skilled up to do this?” A tertiary loan system with low interest rates, where people can take money out of their fund or whatever, would be an incredibly positive step. It would be a breakthrough approach that signals to the country at large that we value people getting further education and better skills to equip them for the future. I meet so many 50-somethings and 60-somethings who are anxious about having to work for another 10 or 15 years, and say that they are not equipped for the world of work and where it is going. Having something like this could be an incredibly positive step, because we need people to work longer and to be fully equipped for what the future world of work looks like. It is very positive and I am supportive of it.

Mr Giles Derrington: It is a really interesting idea. The fundamental challenge for me is capacity building within the FE sector so that it can fund people’s ability to get the education they need. That is both overall funding and the skills of teachers in colleges. The Government did some interesting stuff on that in the last Budget. Delivering that level of upskilling would be quite significant.

The other side of it is that a lot of the modules and courses we offer, through both universities and colleges, are quite long term, year-long or three-year-long courses. A lot of the time, what is needed is a short, sharp hit, be it leadership training or a particular programme cum core skills-type training course. The more we can ensure that is seen as having parity with a long-term degree, and that it ticks the box you need without going through a very expensive three-year-long university course, the easier it is for people to return to the well over and over again and say, “That’s the bit I need”, and go off and continue working.

They could even do it while they are working. Part of the key to all this is that people with families do not necessarily have the luxury, even with a loan system, of stopping work, particularly in a high-paid sector such as tech, and going back to school for three years. That is a challenge and a big leap of faith when it is such a big time commitment.

Mr Matthew Houlihan: My point is about the importance of lifelong learning. Technology is moving and impacting the world of work and the world of business so quickly that it will become the absolute norm for people to have to retrain, reskill and build their skill sets throughout their careers if they are to be successful. That is the mindset we need to get into. Both employers and businesses that are technology leaders need to encourage that and provide the facilities and incentives for people to seek opportunities to build their skills externally.

The Government, too, should think about how they can encourage people who are perhaps in companies that are not able to provide those sorts of resources. They could provide loan or other facilities that could help. There will be a lot of questions about how that would work, how it would be paid back and what people could spend it on. All of those are valid questions that would need to be figured out in the design, but, in principle, encouraging lifelong learning in those sorts of ways is an absolute necessity for any quickly digitising economy such as the UK’s.

Mr Giles Derrington: The narrative of this stuff is so important. There is fear of change. We have seen in America coal miners refusing to take up reskilling programmes because there is a fear of doing something different. One of the key things is getting employers to participate in the training that is offered. CIPD made an assessment that showed that about 25.5% of employers took up the opportunities offered in the UK, compared with about 67% in Sweden, which is the top end. Having a narrative at both government and business level that there is nothing to worry about in the need to retrain, and that people will be supported through it, is a valuable thing, so that people do not say, “Oh, you’re telling me that my job is going to disappear, and if I can’t get this bit right suddenly I will be unemployed”.

Mr Russ Shaw: The sooner we can do that the better, because from where I sit the number of lower-skilled jobs that will disappear over the next five to 10 years is quite dramatic. That will create a lot of concern, upheaval and anxiety. If somehow we can get ahead of the curve and say, “Look, you might lose your job, or it might become irrelevant, but there is a programme that will help you to be reskilled and find new kinds of employment with these types of skills”, it would be an incredibly positive step, and would ensure that Britain truly becomes a digital nation.

Baroness Harding of Winscombe: I completely agree with you about the amount of change in jobs and the world of work. We all say that we think lifelong learning is going to be essential, but no one is stepping up to deliver any of it. If a tertiary education lifelong loan is a way it might be funded, how do you think lifelong learning should be provided? Is it going to be done by big companies? Do we have to face changing the FE sector, or is there something different that will inspire, say, taxi drivers to become carers or coders?

Mr Russ Shaw: One of the things we are going to have to look at and explore more, which has been out there for a few years and has a bit of a mixed reputation, is online learning and MOOCs. Giles picked up this point. Many people are working full-time and have a family. Where do they find the time to go back and do that learning, and how can they do it? For the majority of people, online initiatives, where they can find an hour here and a couple of hours there and dial into the internet to get their learning, will be the way to go. Big companies will get involved and more training academies that do that will emerge, but a solution sooner rather than later is the online learning approach.

Mr Matthew Houlihan: The reality is that there will have to be a variety of routes for people. Different people prefer different routes. I would make a plea for businesses that are thinking about how technology will be used in the future and investing in R&D in that space. We should try to engage them in some way in the delivery and design of those courses, because they are the ones thinking about what skills are needed to make successful use of those sorts of technologies.

Online is a good route to look at. Let us explore that. We are doing a bit of that as well. We are looking at how we can partner with libraries to reach different types of people and get them interested in the Cisco courses we offer, and use the online platforms they can access through libraries to deliver some of the training there.

Lord Burns: I am still searching for the extent to which these will become courses that are run by companies, to what extent FE is really capable of doing this work and to what extent some of it may still be with universities.

Mr Russ Shaw: Companies will probably get there sooner rather than later because of the demands to fill the jobs. I hope and think that FEs will also get there, but it will probably take them longer to do so. They have a terrific opportunity in front of them if they can figure out how to embrace it, but the whole landscape is changing so quickly. Are the FEs equipped and responsive enough to move quickly to deploy these types of things? Some will; some will not. That is why I think that in the near term companies will fill the gap, and why I believe in the online piece.

Mr Giles Derrington: The fundamental point is that you have to fund the FE sector properly to develop teacher training within it. While companies can lead some of this, you need teachers who understand how to teach as much as you need companies that can help to fund it.

Lord Turnbull: There is a fear that we are entrenching one model: you go to university at 18 for three years; all studies are in the same place, away from home; and it excludes the part-time, late joiners and so on. In order to make something more flexible work, do we have to introduce a more modular approach? You might do two years at one place and finish off by doing one more year somewhere else, and you put it all together and get a credit for it, whereas two half-finished degrees do not count for very much. I do not know whether the American experience is any guide. Is it more flexible, in that you can mix and match different courses in different places?

Mr Giles Derrington: I cannot talk about the American side of things; Russ may be able to. The ability to be flexible in where you are taking education, how you are doing it, where the breaks are and making it more modular is really important. The university you go to might not be the one that can upskill you in everything you need. One of the things we talk about from a business perspective with universities is that the tech sector is very clustering, so we end up with a med-tech hub in Leeds clustered around Leeds University, or a creative industries technology hub in Bristol because it is clustered around the university there. If as they go through your training people say, “This is the thing I am interested in; I want to be doing cutting-edge CGI, but I started my computer science course in Manchester”, they may want to move, and the ability to do that is really important.

Q119 Lord Turnbull: The concept that schools are supposed to have careers advisers always strikes me as a very odd thing because, by and large, we do not want people to go directly from school to jobs; we want people who can navigate, particularly through the not-university route. Is this an area where we have to make a much bigger effort and careers advisers have to widen what they are doing? Do companies have to become more involved so that they can guide people? What does a teacher trained in the conventional way, with a degree, DipEd, or whatever it is called now, know about the world of work? Do you guys have to play a bigger role there?

Mr Russ Shaw: Schools are doing a better job of bringing in outside organisations and companies to expose their students to the world of work; there are many great examples of that. Obviously, we can do better along those lines.

On your other point, I get very frustrated with businesses. We have to push them much harder and say, “You need to go into schools and colleges, and help teachers and administrators in those academic institutions understand what the world of work is going to look like in two, five and 10 years”. We have a good understanding of that because we can see it today. A lot of the schools I have spoken to say that they are desperate for more organisations to come in and shed that light for their students. The savvy students will already know and understand it, but we have to get the message across to them and to parents: “This is what the world of work is evolving towards, so if you are looking at STEM subjects, or if you are concerned that your son or daughter is focused too much on art and design, that’s okay. We need people like that”. We have to do a much better job of getting businesses into those organisations to give that careers advice. Shame on us for not doing so.

Mr Matthew Houlihan: It is absolutely critical from Cisco’s point of view. We need to look at the multipliers, the teachers, careers advisers and parents, and get their heads round how the world of work has changed, what the new opportunities are and what sorts of skills their kids at school or at home need to be thinking about. Businesses absolutely have to have a role in that. There are some good initiatives out there, such as STEMNET ambassadors. Lots of our staff go into schools and talk to a wide range of kids about what we do at Cisco. There are initiatives we can build on, and businesses have to be involved.

To make one point on the previous question, as an employer we do not want to lose the simplicity and clarity that we have in the education system at the moment. It is quite easy for employers to understand the value of a degree, an apprenticeship and that sort of thing. If we are to go down a modular approach, we need to think about how we can make that understandable for businesses to ensure that they can keep up to speed with any changes.

One particular thing we would love to see is that, where we have industry-standard and industry-led qualifications, they can be recognised as part of wider qualifications such as degrees. We have the Cisco certified engineer certificate, for example. We would love that qualification, which is broadly applicable, to be part of a wider IT degree.

The Chairman: On that note, I have to say that, after many months of looking at the system, simplicity and clarity are not the two words that come to mind. We are very grateful to you for the evidence you have given us and for shedding a little light on the future. I am sure that all members of the Committee are very familiar with coding. Thank you very much.

Examination of witnesses

Mr Seamus Nevin and Ms Anna Purchas.

The Chairman: Thank you very much for being so patient and sitting through part of the previous session. Welcome to the Economic Affairs Committee. Baroness Kingsmill will ask the first question.

Q120 Baroness Kingsmill: I think you have had notice of the question. To what extent has the technology industry struggled to recruit people because of skills shortages? Is the technology industry getting the people it needs? Is there a shortage?

Ms Anna Purchas: We are able to attract enough graduates and people coming into our apprenticeship programmes with the skills we need at KPMG. We invest heavily in developing their skills. Do we think enough females are studying STEM subjects? No. That is an area where we focus a lot of outreach work to encourage more take-up.

Baroness Kingsmill: Why do you think that is?

Ms Anna Purchas: There are many answers.

Baroness Kingsmill: We are looking at universities and post-school education in general terms. Is there a failure of the universities?

Ms Anna Purchas: To encourage more females to take STEM subjects?

Baroness Kingsmill: Yes.

Ms Anna Purchas: There is certainly more that universities and businesses could do to go into schools and encourage girls to take those subjects. I do not think we have tackled the problem of people thinking they are male-dominated subjects. In some of the earlier discussion, we heard talk about leadership skills and agility. You need those skills, coupled with the deep technology skills, to be successful in a professional services firm such as KPMG. Presenting that fuller picture of the skills one needs to be successful is very important. By doing that, we have seen more success in attracting women to the tech sector.

Baroness Kingsmill: These days, companies have a broader view of what constitutes leadership, which probably helps as well.

Ms Anna Purchas: Certainly.

Baroness Kingsmill: Mr Nevin, do you have any comment on that?

Mr Seamus Nevin: On the gender gap in tech specifically?

Baroness Kingsmill: No—more generally, whether universities are producing enough of the tech people that the industry needs.

Mr Seamus Nevin: The IoD is not a sector-specific body; our members come from all sectors in the UK, so I cannot speak with any particular expertise specifically about one sector. What I would say is that the skills gap and the difficulty in recruiting people to fill the vacancies our members are creating is, and has been for the last number of years, among the top two or three concerns. Generally speaking, it is the number one concern for our members.

That is reflective of a couple of different factors. Part of it is the shortage of graduates coming through universities, but it is about the failure of other routes, too: further education and the school system. Some of these issues are rooted not just at the higher end with university graduates; the root cause can date back to early schooling, with people cutting themselves off from potential routes into higher education and certain subjects in further education as well. When it comes to the skills gap in particular, we have to look at the whole education system as one, rather than focusing on one particular aspect of it.

Q121 Baroness Harding of Winscombe: A recent government report on the future of skills and lifelong learning said that half the UK workforce say they have skill levels that are higher than are needed to do their current job. How have we ended up with this mismatch between employers telling us they cannot find people with the right skills, yet a significant proportion of people feeling that their skills are not actually being used? Admittedly, it is a self-reported number, but I think it would match with other data points.

Ms Anna Purchas: That is a very important point. Part of the answer is that there has not been a breadth of entry routes into organisations in the professional services and more widely. We see the apprenticeship route as part of the answer, because it gives people the chance to choose how they want to learn at an early age, and that option broadens the routes for coming in.

Mr Seamus Nevin: It is a very interesting question. I do not think that there is any single answer. When I speak to IoD members, one of their biggest complaints is not necessarily about the lack of technical skills but about the application of those skills in the workplace—specifically, soft skills such as team-working, communication and time management. That would explain in part why some people report having high-level technical skills and believe they are potentially overqualified, for want of a better term, for a particular role, but not necessarily having that recognised by their employer. How we apply our skills in the workplace is just as much a problem as the shortage of skills itself.

Baroness Harding of Winscombe: Bluntly, do you think we are encouraging too many people to go to university and not giving enough societal value to the alternative career track of apprenticeship and workplace learning? Am I putting words into your mouth?

Ms Anna Purchas: Yes and yes.

Baroness Harding of Winscombe: I must be becoming a politician, which is very alarming.

Mr Seamus Nevin: I do not think either of those things is mutually exclusive. We should be encouraging more people to go into further education and what are deemed vocational forms of education, but I do not think we should be discouraging and suggest that too many people go to university. We are moving into a period when people are living longer than ever and remaining in work until later in life. As a result, people will have to dip in and out of education repeatedly throughout their working lives—so ensuring that we have various options for people is hugely important.

It is also important to recognise that higher education is not just about producing people with technical skills; it has other positive benefits to society, including higher democratic engagement, a lower propensity to crime and better health outcomes for graduates. There are other outliers and benefits that come from HE that you do not get in other forms of education. Ensuring that people have access to all the different types of education throughout their life and can pursue education in both forms—university graduates doing apprenticeships later in life, or vice versa—is the way we need to go.

Baroness Harding of Winscombe: Should we be challenging universities to produce more rounded graduates with more of the softer team skills you describe, even if they are studying a STEM subject?

Mr Seamus Nevin: Yes. The evidence is that employers can lead by example. One of the interesting trends we found among our members is that it used to be the case that, when they recruited graduates, they were very satisfied with the level of work experience young people had when entering the workplace for the first time. In the mid-1990s, about 50% of A-level students had a Saturday job; today it is about 15%. That suggests that we are placing too much emphasis on exam results at the expense of extracurricular activities. Employers have to take a certain amount of blame for that because they have recently prioritised grades over other forms of experience when recruiting, for simple vetting reasons. If there are 100 applicants for a job, it is an easy way to whittle it down to a few to interview—so we send counterproductive signals.

The Chairman: We have heard evidence of people doing university degrees with 10 hours of contact per week. How do you think universities can achieve the purpose you have ascribed to them with that degree of interaction with their students?

Mr Seamus Nevin: One of the key things the academic sector would say is that university is not just about contact time with lecturers; it is also about being self-guided and self-taught, and that is something employers very much appreciate, too. They want members of staff who have initiative and can take responsibility for their personal development, as well as for their career development and the work they do.

Another aspect is that, with the changes in technology that we have seen in recent times, students do not necessarily have to have face-to-face contact with a professor to be learning; they can use assisted-learning technologies—videos, YouTube and other forms of technology—to aid their learning while in university. The issue is really about striking the right balance between ensuring that they have enough heuristic and self-guided learning as well as valuable contact time with experts.

Q122 Lord Sharkey: A headline in the Times this morning is, “Scandal of inadequate apprenticeships”. It makes several points. One is that there has been a 61% fall in apprenticeships from quarter four to quarter four, last year to this year. It also talks about the quality of apprenticeship training providers. Ofsted found that 40% of those people required improvement and 11% were inadequate. Against that background, what do you see as the purpose of an apprenticeship, and how do you think it is going so far?

Ms Anna Purchas: We fully support the Government’s target of 3 million apprentices, but quality has to come over quantity. We have some concerns about the current funding set-up, as it could encourage people to engage providers whose provision is not fully effective for the apprentices they want to bring through their organisations.

Lord Sharkey: What do we do about that? The article makes the point that there are now 2,000 registered providers, compared with 900 under the old system, and Ofsted has given up; it says it cannot control them all. Is it not a recipe for disaster that there are all those uninspected and potentially unqualified providers at the heart of the system?

Ms Anna Purchas: I hope they will not remain uninspected for too long. I completely agree that it is unacceptable. There are options one could look at. One could ring-fence some of the funding and allow training providers to call it down to develop services that would better meet the needs of employers, for example. Avenues such as that are certainly worth exploring.

Mr Seamus Nevin: It is important to distinguish between apprenticeships and the apprenticeship levy itself. The IoD fully supports apprenticeships. Our members recognise the value of apprenticeships and vocational training, but they have grievances about the levy and the way the system was designed. Some of those issues can be ironed out.

One of them, as you recognise, is the fact that certain providers have not yet been fully audited and vetted. Another aspect is that a lot of the approved standards have yet to come into play, so there are sectors and businesses that simply cannot access an appropriate apprenticeship for their needs. Thirty seven percent of IoD members do not feel that apprenticeships are the most appropriate form of training to meet their current needs. That is reflective of a couple of different things.

It is partly the shortage of approved standards in certain areas. A lot of our members report that, while they find that apprenticeships are very good at training somebody new to a job, they are not necessarily the most appropriate form of training to upskill somebody already in work to help them progress their career. They would like the levy opened up to other forms of training, not just apprenticeships—perhaps making it a general skills levy, so that they can invest in shorter courses or more ad hoc-type training for people mid-career.

Q123 Lord Sharkey: In April, firms will be able to transfer up to 10% of the levy to their supply chains, not to institutions of learning. What do you think about that? Do you think it is a good idea? Do you think the cap of £200,000 is appropriate? Do you think people will do it?

Ms Anna Purchas: We think it is a good idea, and at KPMG we certainly look forward to exploring that option.

Lord Sharkey: What about the cap of £200,000? It is not a lot of money. I assume that KPMG’s levy is quite high.

Ms Anna Purchas: It is higher than that. It is a starting point, is it not? With a programme like that, we would want to start at a reasonably low level to see how it goes. To start with, it is enough. Would we like to see it grow in the longer term? Yes.

Mr Seamus Nevin: We called for the levy to be made available to members of our firms’ supply chains, and to make that a possibility, so we are very supportive. There are a couple of financial questions around how the levy is structured. One is that, simply by virtue of the way the levy was designed, approximately half the funds are being raised in London and will therefore be spent in London. That is a part of the economy where there is predominantly graduate employment and there is already a proliferation of providers. There is nothing to incentivise investment in training in parts of the country where there is a shortage of providers and a shortage of training structures.

Lord Sharkey: You think that a lot of the levy money will end up in London and the south-east.

Mr Seamus Nevin: We do, and that seems to be the way in which it is manifesting itself so far. That is an issue. Another aspect is that the two biggest levy-paying sectors are education and healthcare, which are not sectors that face the most acute skills shortages. Again, there is nothing to incentivise investment in areas where there are actual skills shortages, so we would suggest looking at how, in time, the levy can be flexed in a way that incentivises investment in training where it is most needed.

Lord Sharkey: Do you have a view about why the levels of people registering for apprenticeships have fallen so steeply?

Mr Seamus Nevin: Part of it is to do with the fact that a lot of standards have yet to be approved. We hope to see an increase in uptake in the coming years as those standards become available. Another aspect is that, for perfectly understandable reasons, the Government have set out criteria by which they define what is considered an apprenticeship—because 40% of apprenticeships delivered before the apprenticeship levy came into existence were essentially other forms of training rebranded as an apprenticeship and there were significant quality concerns. That has made it difficult for firms that deem apprenticeships not to be the most appropriate form of training to meet their needs to invest in training. They are paying a levy that they cannot use for their needs.

The Chairman: Do you think there are too many standards?

Mr Seamus Nevin: No.

The Chairman: How many do you think there are?

Mr Seamus Nevin: There are eight core pillars and I think that is the right way to do it. Obviously, there are different standards within that. I do not think that there are too many standards. Part of the problem is that there are not enough in certain areas at the moment; there will be in time, but there are vast swathes of the economy where apprenticeships are not yet available for people to do. Companies are paying the levy but are not yet able to use it. There are also issues to do with the fact that the levy system is devolved. For example, in Northern Ireland the Executive are not operating, so firms are paying the levy but are not yet able to use the money.

Lord Layard: If you want more apprenticeships outside London where the apprenticeship levy is raising less money, do you not have to expect some redistribution of the proceeds of the levy, with some of it being returned to the Treasury and then used to pay for apprenticeships in other parts of the country? Will not your proposal that the levy could also be used for continuing professional development stop that return of money to the Treasury because it will mean that everybody spends their own money?

Mr Seamus Nevin: There is already redistribution in how the levy operates. Currently, firms that just about meet the threshold for payment could end up having a pot of money that might amount to only £1,000 or £2,000. That is not enough for them to afford to take on apprentices, so the money is left there and is used to fund apprenticeships elsewhere in the system for bigger employers. Redistribution is already taking place, so it is about making sure that redistribution is done in the most productive way possible.

Lord Layard: That is a different direction from the one I was talking about.

Q124 Lord Darling of Roulanish: The Government have a target of 3 million apprenticeships. It is not altogether clear on what basis that figure was reached, other than one Minister saying that it was better than 2 million. Do you think it is desirable to have that number? Is it achievable? Is there a risk that in the anxiety to meet that target, some people who are not apprentices will simply be rebadged as apprentices, or the general quality might reduce? There seems to be some uncertainty among the people we have heard from as to exactly how the standards will be monitored.

Ms Anna Purchas: As I said earlier, quality is so important, is it not? The target of 3 million is admirable, but, if it is met through delivering a substantial number of apprenticeships that are below par, it is in absolutely nobody’s interests.

Lord Darling of Roulanish: Is there a risk of that happening?

Ms Anna Purchas: I think there is a risk of it happening. I very much hope it does not, but there is a risk.

Lord Darling of Roulanish: What about the figure of 3 million? Where do you think that came from?

Ms Anna Purchas: I could not possibly comment. I am sorry.

Lord Darling of Roulanish: What about you, Mr Nevin?

Mr Seamus Nevin: It is the same for me. It is important to remember that the target is apprenticeship starts, not necessarily completions. Forty per cent of apprenticeship starts never completed in the system that existed prior to the levy coming into play. We hope to see not only 3 million starts but 3 million finishes. As to the basis on which they came to the conclusion that 3 million was the appropriate number, I do not know what that was.

Lord Darling of Roulanish: Do you have a view on the ability of the Government to talk to businesses and providers—FE colleges and universities—about the whole question of how many apprenticeships we need, what is in them and so on? The picture seems rather mixed. In some areas people can point to a good relationship, usually between a big employer and a local provider of one sort or another. But in other areas that do not happen to have a big employer, it seems to be pretty haphazard. What view do you have of that?

Mr Seamus Nevin: The IoD’s experience is that our members are very actively engaged in talking to government about their skills needs; 50% of our members are involved in the education system in some form, whether it be offering careers guidance in schools or sitting as governors on school boards. They are very active and proactive in trying to reach out to the education sector and to the Government to make them aware of their skills needs.

Lord Darling of Roulanish: I know you have a pretty wide membership in the IoD, but I am thinking of an engineering company or a tech company that will have an idea of the sort of skills it is looking for in someone coming out of school. People are giving us the impression that that element is pretty haphazard.

Mr Seamus Nevin: Some people may have felt it was haphazard at the start, but my experience of working with the Institute for Apprenticeships is that it is looking to engage much more with businesses now. It has set about a systematic stakeholder engagement approach that I hope will prove fruitful.

One of the issues we raised early in the whole design of the new system is that, by the nature of smaller businesses as opposed to big businesses, they have less capacity in time and resources available to engage in advising government and the Institute for Apprenticeships about their needs. That creates a difficulty because, while larger employers have the ability to engage much more readily, they might not necessarily have the same skills needs or problems that smaller employers face. Ensuring that there is a way for smaller businesses to engage is a challenge.

Lord Darling of Roulanish: You are saying that a large company such as KPMG has no difficulty talking to government, but somebody working in the east Midlands employing five people might have considerable difficulty.

Mr Seamus Nevin: I cannot speak for KPMG.

Lord Darling of Roulanish: I was not suggesting you should. Somebody next to you might be able to.

Ms Anna Purchas: I am happy to.

Lord Darling of Roulanish: I do not think we need to speculate on that. There is a serious point about the SME sector of the market, which has other things to do apart from talking to government. The Government, frankly, are not terribly good at speaking to small businesses.

The Chairman: Could you say something about KPMG? How does an apprenticeship scheme work in a professional firm, and how is it different from what you would be doing anyway?

Ms Anna Purchas: We have had apprenticeship schemes since 2015 and we now offer three schemes. One is a six-year programme called KPMG360, where people join, rotate around different parts of our business and stay with us for six years, at the end of which they have a professional qualification. Our second scheme is KPMG360 Digital, which we have just launched and which is already hugely oversubscribed. It is a four-year scheme where people end up with a degree. Our third scheme is KPMG Business Support, a 24-month scheme where people work in our business support teams, again rotating. They are three quite different schemes that appeal to different talent pools.

The Chairman: Which are?

Ms Anna Purchas: After GCSE or after A-level. The first two are after A-level; the second one is a GCSE qualification.

The Chairman: I am 17 years old. How do I decide which one to choose?

Ms Anna Purchas: Good question. You will have a difficult choice because they are both good programmes. We do a lot of outreach at schools, as you would expect. We work hard to persuade girls as well as boys that the digital programme is relevant to them, and we are very happy with the level of applications from both genders.

We target the all-important careers advisers. When I go to schools, I find a change; the picture is not quite as bleak as you may think and they do not just push universities. We find that careers advisers see the apprenticeship route as a very attractive option and are working with parents to persuade them on that, too—but there is a long way to go.

The Chairman: The financing of that is obviously considerably more attractive than going off to university and paying £9,000 in fees.

Ms Anna Purchas: Absolutely.

The Chairman: Is that a major selling point?

Ms Anna Purchas: It is one of the selling points. We are all different in how we want to study. Earlier, you made a point about universities where students have only 10 hours of contact a week. That is very appealing to some people. They would enjoy that, not because they want to be in the bar the rest of the time but because they like to take a thought and debate it with friends. That is how they grow their analytical ability. For others, it is important to learn on the job, and that is what appeals to them. They want to be part of a community of people, maybe of different generations, working together. We are all different in how we want to learn. The element of how introverts and extroverts want to learn comes into play, too, which is very interesting.

Lord Turnbull: There is a very interesting comparison. One group of 17 or 18 year-olds go down the left-hand side, through apprenticeships, and another goes to university. By the time they get to 30, they will have had different mixes of education and in-work training, and different debt obligations—but does it make a difference to their chances of progressing through the company? Do you think that in 15 or 20 years’ time you will have people going into partnership who did not go the university route, or is the university route the sine qua non of getting into partnership?

Ms Anna Purchas: I am very confident that we will have partners who were apprentices, partly because in my area we have a history of articled clerks making partner, so there is previous experience. Given the sheer enthusiasm and passion for learning that I see in our apprentices, we will not be able to hold them back from promotion to senior grades. We are very clear that, when they finish their KPMG360 apprenticeship programme or when they finish their degree programme, they will be treated the same. I check regularly with our teams in different parts of the firm to make sure that the schemes are working as we want them to. People regularly say to me, “I can’t tell whether they are a school leaver apprentice or a university graduate”. Their passion for the job and what they achieve in it is equivalent after they have been through some learning with us.

Lord Turnbull: Do you think you have to do more to persuade teachers and parents who are guiding young people that both routes can lead to success?

Ms Anna Purchas: Absolutely. I do not think you should go to university unless you have a passion for learning in the university style.

The Chairman: Can I ask a really stupid question? If what you are saying is correct and the chances of them ending up as partners are the same, given that presumably, whatever route they take, they have to achieve the professional qualifications for the institute and so on, why would anyone want to take the degree route, and why do you not have everyone coming through the apprenticeship route?

Ms Anna Purchas: Luckily, we are hugely oversubscribed on the apprenticeship route.

The Chairman: Presumably that is because you have set a limit on it.

Ms Anna Purchas: Yes.

The Chairman: If it is so successful, why would you not recruit all your people through the apprenticeship route, thus saving them whatever they would be paying in fees and maintenance at university? Presumably, they are being paid while they are doing your apprenticeship route.

Ms Anna Purchas: They are. For us, it is really important to have both talent pools available. For the foreseeable future, I expect us to be taking significant numbers through both talent pools.

The Chairman: That does not really answer my question. You argued in response to Lord Turnbull’s question that the talent pools were broadly the same in their performance by the time they got to 30, so would it not be better for your employees if they came through a route where they did not have a large debt—which in their case, because they are better paid, they will have to pay back?

Ms Anna Purchas: From an employee’s point of view, yes, that would be for many a more attractive option.

The Chairman: But you are limiting it; you are rationing it.

Ms Anna Purchas: I have to consider both the skills we need in our workforce at different points and our leverage model.

The Chairman: You think that the skills of people who have gone the degree route will be different from those on the apprenticeship route.

Ms Anna Purchas: I think the end point is the same; where they join in the organisation means that they bring different skills. As I said, at times they operate at amazingly similar levels in jobs.

The Chairman: Other evidence we have had suggests that youngsters who come through the apprenticeship route are much more work-ready than those who come out of university, where perhaps they have had a different culture, and find fitting into the world of work more challenging.

Mr Seamus Nevin: That is correct. Equally, the evidence from some of the studies I have seen is that, while the technical skills might be the same or even slightly better for an apprenticeship graduate, the key difference for the graduate of a university is their adaptability and ability to change profession or reskill and upskill throughout their careers.

The Chairman: Is that not just a bit of snobbery?

Mr Seamus Nevin: No, it is not. There is empirical evidence that proves that is the case.

The Chairman: But the system channels people through to university because that is the only way they can get funding. If people work for KPMG and go through the apprenticeship route, take the same exams and are not landed with a whole load of debt, although perhaps they have to work a bit harder in the initial years, why would that not produce people of equal quality?

Mr Seamus Nevin: I am not saying that it does not produce people of equal quality; I am saying that there are different skill sets that go alongside the technical skills a person has for the job. They might have the same technical ability, but they will have different attitudinal approaches to the job and a different life experience. From an employer’s perspective, diversity is beneficial; having people from different backgrounds and who have had different experiences can only benefit the firm.

Another aspect is that one of the chief motivations for having two different systems is that young people develop at different stages in life and want different things, and they benefit from different means of learning. For example, while somebody might choose an apprenticeship because they want more contact time, employers can equally benefit from having somebody who has experienced a university setting where they have had fewer contact hours and, therefore, have had to be more self-guided.

Lord Layard: I want to ask about what we might call the administrative mechanics of apprenticeships. Who is doing what to encourage more firms to provide more apprenticeships? Who is doing what to improve the links between employers and providers? Is it satisfactory? Would it be better if it was more locally or regionally based than it is at the moment? Could you explain to us how the thing is working, and how you think it could be better?

Ms Anna Purchas: I can talk to KPMG’s experience. The fact that more than two-thirds of our apprentices are outside London probably reflects our regional network at KPMG. We negotiate centrally for the service providers and then we use the local offices of the apprenticeship service providers for the learning experience for our apprentices. In answer to your question, we are perhaps unusual because our business has a geographical reach that allows us to be not London-centric.

Mr Seamus Nevin: Most of my experience comes from engagement with the Institute for Apprenticeships, BEIS and, more recently, the DfE on the design of the levy. Our members have direct contact with those organisations as well. When they input their views and concerns, those organisations are very receptive, but, with these things, nothing is perfect, and we hope that where issues emerge, procedures can be put in place to improve communication between, for example, the IFA and individual employers.

This is a learning experience both for members and government. The levy is less than a year old, so there will undoubtedly be issues that need to be ironed out over time. From my experience of engaging with DfE, BEIS and the IFA, there is an appreciation of that, and a willingness to learn from any mistakes they make.

Q125 Lord Tugendhat: What role do you feel employers should have in promoting lifelong learning?

Mr Seamus Nevin: We think it is a hugely important aspect. As I said earlier, the British population is living longer than ever before, remaining healthier and therefore remaining in work until later in life. Ensuring that businesses can make the most of retaining good staff and benefiting from their skills and experience is vital. We have been working quite hard for the last number of years to encourage government to look at various measures it can use to incentivise employers. We also help our members to become aware of the issue to make sure that they are proactive. Our experience of members is that they are keen to do as much as they can to invest in their workforce and ensure that they retain staff for as long as possible.

Lord Tugendhat: Would you welcome the introduction of a universal tertiary education loan entitlement?

Mr Seamus Nevin: We have suggested various options for incentivising lifelong learning. The one we crystallised around most recently was a tax incentive to encourage both employers themselves to invest in their staff and individuals to invest in their own professional development. We are not wedded to any particular proposal. There are benefits in lots of different suggestions that have been made by different organisations over time. What matters ultimately is what works—so, if it was designed in the right way, it is something we could support.

Ms Anna Purchas: To answer your point on lifelong learning, it is fundamental that employers provide it; otherwise, we will lose talent, because continually learning is so important for our younger people coming through. I joined KPMG 25 years ago, with the intention of staying three years and leaving once I had my accountancy qualification. I have stayed because KPMG has continued to offer me learning opportunities, whether moving around within the firm or an EMBA. That is what has kept me there and kept me relevant as a professional.

Lord Turnbull: Can I go back to regional bias? You said that most of the levy is being paid in London and the south-east, yet we have very strong divisions—more than many other countries—between London and other cities. Are there any mechanisms you can build into the system to correct that in some way?

Mr Seamus Nevin: I think there are. We are not particularly wedded to any single suggestion. For example, there could be a price-flexing mechanism to incentivise people, and to make it cheaper to fund an apprentice in a particular skill area or sector where there is a shortage, and more expensive where there is not. You could perhaps adapt that regionally as well, to provide apprenticeships and training opportunities in a region where you deem the economy to be in most need, and making it more expensive in the south-east. Different models could be used. I do not suggest any particular one; it is for discussion and debate. Incentives could certainly be produced that would have that effect.

Lord Turnbull: KPMG is not just a national organisation but an international one. Is the distribution of your apprentices very London-centric? Are you consciously trying to skew this thing to the parts of the country that probably need it most?

Ms Anna Purchas: More than two-thirds of our apprentices are based outside London.

Lord Sharkey: I want to go back briefly to the question about the quality of training providers, which clearly needs some examination. Are businesses actively involved with the Government in discussing how to do that? Unless there is some kind of assurance that the quality is what you would hope for or expect, the whole thing is a gigantic waste of time and money. Are you actively engaging the Government on that issue?

Ms Anna Purchas: I am personally involved in the route panel with the Institute for Apprenticeships. That is more around the standards themselves, so I am not directly involved with providers, other than looking at those I might use at KPMG.

Mr Seamus Nevin: A lot of businesses are involved in the design of standards. Only those availing themselves of particular providers will be involved with the providers themselves—but of course businesses want to ensure that they are getting quality training and value for money. If there are issues with the quality of the training they are provided with, they will complain. I would expect that, if there are issues, lots of businesses will be quite vociferous and engage with government to ensure that they can be tackled.

The Chairman: We heard some evidence earlier in the inquiry that there was a huge number of standards and it would take years to define all of them—which was why I asked whether there were too many standards. Are you quite relaxed about the fact that it would take many years to define all the various standards for the various types of apprenticeships?

Mr Seamus Nevin: No, not at all. At the moment one of the most common complaints we receive from our members about the levy is that it takes so long. We would like the pace of approval of standards increased so that more standards are available as soon as possible for employers.

The Chairman: The point is that, if you have to define a large number of standards, it will take time to get through all of them and, therefore, your members’ complaints are centred on the fact that perhaps there are too many standards. That was said to us when we went to Birmingham.

Mr Seamus Nevin: I am not aware of who said that or what sector of industry they were from, but we have members who complain that there are no standards available to them for their particular needs.

The Chairman: These were your members in Birmingham; they were businesses in Birmingham. I will paraphrase it and the clerk will stop me if I am wrong. They told us that they had to have standards for bakers, butchers and a whole range of things, and it would take forever. Ms Purchas, I think you said you were involved in this, so are you aware of the problem?

Ms Anna Purchas: Yes. I am on the route panel for legal finance and accounting. We have a number of different programmes coming in front of us, but as we involve employers in prioritising the standards that should be developed faster, which does happen, I do not see the problem in my area. Maybe it exists in other sectors.

The Chairman: You are not aware of it in the IoD.

Mr Seamus Nevin: I am not aware of that.

Lord Turnbull: If you are in a sector where standards have not yet been published and agreed, you are paying the levy but have no way of using it.

Mr Seamus Nevin: Yes.

Ms Anna Purchas: That is right.

Lord Sharkey: How is the priority for the construction of standards decided? Who decides where you are going to focus first, or second?

Ms Anna Purchas: In my experience, in professional services firms it is employers’ groups coming together. The groups we have previously been involved in have had members from the big four and from much smaller accountancy firms coming together and thinking through what the standard should include. That group pushing will get it through faster.

The Chairman: Thank you very much for coming to give evidence to us. It has been extremely helpful.