In May 2017, the UK Government introduced a funding system for Apprenticeships which defined 15 upper funding ceilings for apprenticeships. The government now feel that ‘employers do not feel able to negotiate on price’ (see below). Multimillion turnover organisations are not able to negotiate on price with much smaller training organisations? Could there be another explanation – maybe classic microeconomics has it:

Price ceilings are maximum prices set by the government for particular goods and services that they believe are being sold at too high a price and thus buyers need some help purchasing them. Price ceilings sound a great idea but become a problem when they are set below the market equilibrium price. Is this what is happening in the apprenticeship market? When the ceiling is set below the market price, there will be excess demand or a supply shortage. Producers aren’t able to deliver enough at the lower price, while buyers demand more because the goods are cheaper. Demand outstrips supply.

The solution? Remove the ceiling, allow the market to determine the price, reward competition and in the long term, prices fall. The risks? There will be profiteering from a few; but press stories and buyer awareness will in the long term minimise this. There will be undercutting from a few; but these poorer quality programmes will disappear in the long run.

So be brave government and the ESFA; trust in the market rather than trying to impose market intervention; we will all benefit in the long term from getting programmes that employers want, pay a reasonable price for and providers that survive and invest in the future.