As we mark National Apprenticeship Week 2023 (6 – 12 February), this monthly round-up takes a deep dive into how apprenticeships are working for small businesses, exploring FSB’s calls to improve the system. We speak with policy expert Chris Russell and hear from Tom Filer on his experience of employing numerous apprentices in his small business. We go on to focus on the important issue of childcare, speaking with policy expert Rebecca Hyrslova about some of the shifts that FSB would like to see around childcare costs to support parents and to support SMEs in the early years sector.
Alan Soady,
FSB Head of Media and Communications
Episode transcript:
Jon Watkins: Welcome to this latest FSB monthly roundup podcast brought to you by the Federation of Small Businesses and the go-to podcast for news tips and important information for small businesses and the self employed. This episode is our February 2023 Small Business Round-up in which we'll take a look at some of the important issues hitting the headlines at the moment, and which you may need to be aware of right now as small business owners. This month we will be diving deep into two issues important to small businesses. The first is funding around apprenticeships, for small businesses, 6-12th of February is National Apprenticeship Week in England. And to coincide with that FSB has released a report calling for a number of things to help both businesses and apprentices get the most out of the scheme. So we'll, we'll look at that. And as part of that, we'll hear firsthand from a firm that employs many apprentices to better understand the issue from their point of view. And we will then also take a look at some shifts that FSB would like to see around childcare costs and funding around that. And that's an issue that is a concern for many given the high costs of childcare, and the fact that they run alongside a number of other rising costs that we're all experiencing right now. So to help us explore those issues, I'm joined by three brilliant contributors, Chris Russell, FSB senior policy manager, will talk about apprenticeships for us. Tom Filer, is director of Family Adventures Group in Somerset, which is made up of six day nurseries and two indoor play centres. And he's going to talk about the use of the SMR business perspective. And Rebecca Hyrslova is another FSB policy adviser who will talk us through the childcare issue. Thank you all for joining me, and welcome. Tom, I mentioned that you're the director of a business that uses a number of apprentices. And tell us a bit about that and how they add value to your firm could you?
Tom Filer: Yeah, absolutely. So as you said, we've got six day nurseries and two indoor play sites, across Somerset, and some of those are in quite rural locations. And, you know, hospitality and nurseries this year have been in the news for having some quite acute staffing shortages. So all of that has led us over the last couple of years since COVID, to really think about how we approach our strategic workforce planning, HR, how we get people into the business in slightly different ways, especially in our rural settings, where there just isn't the local talent pool to be able to sustain our future workflow needs. And all of that has been in a backdrop for us of some really quite significant growth. So we've quadrupled the number of staff that we've needed in our nurseries over the last year alone. So really quite rapid growth, again, in the backdrop of a sector that's been struggling for, the staff for retaining and for for recruiting staff. So we've part of that strategy overall, we've had to look very closely at how we how we deal with apprentices, how we engage and bring people on for a very early age in their careers, and how we actually how we actually get them on board, and use them as a part of our workforce planning at that early age, but also how we look at apprenticeships, for older people as well. How we look at people aren't just in that 16-18 bracket, actually people that are looking at career changes or people that are looking at potentially, you know, wanting just to do something different or to upskill and to change their direction in their lives.
Jon Watkins: Yeah. And there's this sort of tendency to I guess that apprenticeships are for entry level roles or young people, and you alluded to the fact that that's not always necessarily the case, you have it you have apprentices in a number of roles, right?
Tom Filer: Yeah, absolutely. So we we created a future leaders programme, which is essentially combining an apprenticeship at a leadership and management level, with a guaranteed role at the end, and a guaranteed salary and it's just something different that we've done within the early years. In earlier side of the business, it's actually worked really well. So apprenticeships for us can be people that want career changes they can be any, any stage of your journey with us right up to being a setting manager. We can put you onto a leadership management qualification. There are apprentices or apprenticeships for everybody. So we try and utilise them and really use them as part of our a key part of our retention strategy.
Jon Watkins: I think lots of small businesses benefit from apprentices. But lots probably haven't gone down that route, because they probably don't know how to do it. And they're unaware of the sorts of benefits. Could you give us a little bit around the process? Is it easy or hard? What are some of the pain points and challenges for example?
Tom Filer: I think I think some businesses, especially businesses that take people straight out of school can sometimes feel a little bit burnt by the process that they go through, especially smaller businesses, they might recruit an apprentice, and that might not work out for them for one reason or another, and actually might put them off the whole process going forward. And I think that is is a little bit of a you know, there's a there's a PR piece there, I think that the government needs to work on in terms of in terms of apprenticeships and how to get the best out of your teams, especially people coming in these days into the workforce. I think a lot of people would agree that there's probably you know, you sound a little bit old saying this, but not like, it's not like when people went to work in my day kind of thing. And that for us, we see that there are a lot of basic skills that we've had to that we've had to adapt and change and to provide to our people coming in for apprenticeships. But actually, across the board, we've had, you know, with rough percentages, you know, if we get one person that doesn't work out for us in an apprenticeship will be another five that do. Actually the success rates that we've got with our apprenticeships are really quite high.
Jon Watkins: And, Chris, I'll bring you in if that's okay. We've heard lots there about the benefits of apprenticeships for small businesses and I guess for the individuals. Why does FSB feel it's important or useful for for small businesses to hire apprentices?
Chris Russell: Well, first of all, John, thanks for the invite on the podcast and really great to be here during National Apprenticeships Week. I think if you just take a step back and just picking up on some of the comments Tom was making about the labour market, we're really seeing it's it's such a tight labour market for several years really, even before COVID. But especially now, and consistently, there's now more vacancies for unemployed people. And I think the report you mentioned, which was recently published, we found that 80% of SMEs had recruitment difficulties last year, which is quite astonishingly high. And that's sort of across kind of all sectors really an all skill levels. People are really having recruitment difficulties. And one of the main reasons for that is really just the difficulty of finding people who have the right skills for those roles. And I think of that 80% about another 80% said, the reason they are having recruitment difficulties was a lack of people with the right skills, qualifications, experience. So apprenticeships are really great way for businesses, to try and fill those gaps that they're seeing and trying to what I think Tom explained it better. But really trying to make sure they have the skills that those businesses need. And from the apprentices' point of view, it's, you know, a very good qualification to get if you're looking to develop skills that are important for employers in the labour market, and to their own careers.
Jon Watkins: You mentioned there a pretty hefty level of vacancies, and, you know, challenges around bringing in the right skills. But latest stats from Department for Education show that apprenticeship starts are actually falling, and especially among young people at lower levels. So why why is that the case? Why are we seeing that?
Chris Russell: Yeah, I mean, I think there's a lot of reasons there. And if you're a massive policy geek like I am, then do, please read our report, which goes into a lot of detail. But I think it's sort of a top line kind of summary that I think over recent years, we've seen more and more starts amongst older people sort of retraining at higher levels, and less starts from younger people at sort of lower apprenticeships levels who are just starting off in their career. Now, I know, previously, talking to Tom about the importance of retraining and I definitely think that's, that has its part to play, but it can't really be at the expense of younger people. And I think it's really important to really help those people who just leaving school and just starting off their careers, and what we've seen is it tends to be smaller businesses that do hire younger apprentices at a younger level, at lower levels. And it's been the SMEs that have been struggling to hire apprentices, whereas larger businesses, which tend to retrain existing staff using apprenticeships, have been hiring more apprentices. And I think, I mean, there's two main government reforms that have really led to this. One of them was the introduction of the Apprenticeship Levy, which is just for larger firms, which kind of forced them to do a lot of this retraining of their current staff using apprenticeships. And the other one, we've seen a change in the qualifications for apprenticeships, moving from a system of what are called frameworks to standards. And the standards have been developed in partnership with industry. But when I say industry, it's mainly been the large, larger businesses. And it's mainly been at sort of higher level qualifications, that larger businesses tend to use more. So there's sort of a lack of qualifications there for smaller businesses.
Jon Watkins: Yeah, that's interesting stuff. And what does FSB want to see done to change that?
Chris Russell: Well, again, I would, I would urge people to read the report that it took me and colleagues quite a long time to write. But I just, I'll just pick on one one specific thing. During the pandemic, there was a £3000 financial incentive from government, for firms that were hiring apprentices. And we've been calling for this to be reintroduced, because we feel like that had a huge impact on the amount of starts. If you look at Department of Education's figures, it was during the pandemic, when this higher rate of financial incentive was introduced, we saw starts increase by 20%. But when they removed this financial incentive, we saw starts reduce by 12%. And in the report that we referenced, we found, we asked our members, how many additional apprentices would they hire if this financial incentive at £3000 pounds was introduced? And 21% of them said they would be hiring additional apprentices, which is a huge amount, I think that would have a huge impact.
Tom Filer: I think also Chris, just the £3000 pounds, and we spoke about this last week on a separate call where the £3000 pounds in our experience in particular was actually was great, because one, it was not just £3000 pounds, but it was also applicable to people outside of the 16 to 18 age bracket. And I think, if you've gone to college, and then you want to get into, say a sector like ours - early years, and you know, you aren't in that 16-18 bracket, actually for a lot of employers that can really put them off because they're not getting that support alongside to give the training for basic skills. And I know when you asked me the question completely, I hadn't read your report at the time you asked me that question last week. And that was my one of my number one things that I said to What were your what could be done better? And that was one of the things I said so I completely agree. And I think it's a it's a very good recommendation. Jon Watkins Brilliant. Thank you. And if you would like to take up Chris's offer to read that report, Chris, I assume that's on the FSB website at fsb.org.uk. Is it?
Chris Russell: Yeah, that's right. It's called Scaling up Skills.
Jon Watkins: That's brilliant. Thank you both. So that's really interesting. I just want to move on to our second core topic, which is around childcare costs. And that's an issue that's important for many SME owners across the country with childcare costs a real burden, as I say, at this time when we're facing many other rising costs too. Everybody's being impacted by a cost of living crisis. And so for those with children, that's just heaping further, further pressure on. Rebecca is here to chat about that. Hi, Rebecca, thank you for for joining us.
Rebecca Hyrslova: Hi, John, thank you so much for having me.
Jon Watkins: No we're pleased to have you here. Thank you for joining. How big an issue is this? And what sort of pressure is this putting on SMEs?
Rebecca Hyrslova: I think to put it simply, it's quite a big issue. And as you say, it affects many people and in quite a variety of ways. But I think one thing to point out to begin with is that it's not as isolated an issue as it may seem. So I mean, Chris mentioned the labour market. And you know, it's not necessarily an automatic thing that people think to, but there are links between something relatively isolated, like childcare, that people would think only really affects parents and businesses in that sector, and things, you know, wider economic trends, like maybe participation in the labour market. So I would say, Yes, you're absolutely right. It is a big issue for SME owners and whether they are in the childcare sector, or SME owners who are parents, you know, the cost of childcare can absolutely affect the ability of people to stay at work or keep running their business. I actually remember in summer, there were some pretty striking headlines in the media that talked about people paying to work, kind of suggesting that the cost of childcare was higher than their earnings. And perhaps somewhat unsurprisingly, some people have chosen to exit from the labour market to care for their children, and in that way, sort of get rid of those pretty astronomical childcare costs. And yeah, the government at the moment focuses a lot on participation and encouraging people to either remain in the labour market or return to it if they've exited already. So in that context, childcare really should be a portfolio of interest. And it certainly is for us FSB, we do engage regularly with the government and also other stakeholders on this issue, which, yeah, it's quite severe all year round. But as I said, it seems to be a particularly bad sort of issue, or at least quite prominent issue in the summer months. The way I explained this is that, at that point of the year, a lot of parents would have exhausted their free childcare entitlements. So for those in our audience that may not be familiar with this, government has this funding scheme that funds what they call free hours, it's 30 free hours per week of childcare for the duration of 38 weeks in the year, which is basically the school term. So when it comes to the summer holidays, that financial support from the government isn't there anymore. And of course, that kind of creates or aggravates the issue of childcare affordability. So for that reason, we hear FSB are asking the government to extend that 38 week, a year period to 45 weeks, because we think that of course, it will help any parents with the cost of childcare. But especially for that sort of target group of people, where you know, the childcare costs really determine whether it's viable for them to remain at work or keep running their business. This sort of extension, this coverage could really encourage labour market participation. But that's really only one angle on the issue. That's really only the parent angle. I mean, the same issues with childcare costs affect businesses in the sector. So I think it's important that we keep thinking about childcare as not just a family issue, but also a business issue.
Jon Watkins: Yeah, that's fascinating. I hadn't really sort of considered that seasonal element to it. And the fact that that kind of money runs out after a certain amount of time, as with most of the things we talk about, on this podcast, FSB, is sort of working away in the background and calling for changes and calling for amendments to the way things work. What are you asking for here?
Rebecca Hyrslova: Oh, John, we absolutely are, indeed, I think before I get into it more specifically, I think what you said is, it's quite interesting. We definitely are quite a valuable voice and quite an interesting voice in the childcare policy arena, because we do have many members in the childcare sector that we represent, like Tom on the podcast with us today. But also, we have parents that run businesses across different sectors that feed in that parent perspective. So then when we do go to the government, you know, officials or even other organisations, and we work together to create these policy recommendations to create change, we really bring this like holistic view of childcare. And we recommend to improve the same policies, but in different ways to suit the parents and the business. So to give you an example, and I'll stick with the 30-free system that I discussed previously, although I do have an issue with that being called free. That can also be improved not just for the parent, like I discussed in the first part, but also for the provider, because Department for Education who are responsible for childcare policy, they published an update to their funding - early years funding formula in December of last year 2022. And they raised the minimum funding that a parent can receive for an hour of so-called free childcare to £4.87. But the same department also at the end of last year, released a document that suggested that the mean cost of hours childcare provision is actually £5.60. So there's there's a gap between what the government is funding and what is selling to parents as free, and then what's the actual cost of provision. And I appreciate that, you know, discrepancy between the two numbers may not sound that dramatic, but then if you look at, you know, we discussed 30 free hours for 38 weeks, that's 1108 and 40 hours per child at an hourly loss of, you know, between pence and pounds, that's very detrimental to the provider and then overall to the sector. So what we're hoping that the government can do to help the sector is to align the funding that they provide for these three hours, to the actual cost of provision. So that would be one thing that we're asking for. Another quite consistent FSB recommendation or asked to support the sector is to exempt them from business rates. The nurseries are often in residential properties that are more more expensive than commercial properties. As much as the type of the property is also the location of the property. So there will be in areas with higher residential costs of properties. So for that reason, the business rates on the nurseries are quite high for a small business anyway, and there isn't much support from the small business rate relief. So to help with these costs, we are asking that the UK Government introduces in England what already exists in Wales and Scotland, which is 100% business rate relief for the nurseries. And I think, to kind of bring it to an end, it kind of comes back to that holistic idea of childcare policy that we have here, FSB, because if you do help the sector, if you do help the businesses operate not at a loss, if you support the sector, that cost reduction will reflect on the affordability and availability for parents in terms of childcare. So we're hoping to do this sort of full circle support for everyone with when it comes to childcare affordability.
Jon Watkins: Thanks, Rebecca. It's really insightful. Tom, you we mentioned that, you know, your your business has got a childcare element to it, I think you're a parent too what's your experience around this?
Tom Filer: Yeah, so I'm, I'm caught on both sides of this argument. And you know, I'm a parent that I have two daughters and one goes to school and I've got six nurseries, but we choose to put my other daughter into a nursery that's attached to that school, just for the ease of drop off in the mornings. And I see when the bill comes through on email, and I look at it and go 'how much?' and and then, you know, equally this morning, I've been looking at, you know, fee reviews for us in April, and I'm looking at minimum wage going up. By 9.7%. It's a you know, it's an industry that is very closely aligned with that minimum wage, very low paid industry, which it really shouldn't be. But you're always weighing up how much you can charge parents versus how much you can pay your staff and you always want to pay your staff a lot more because the job they do and the impact they have on children in their first five years of their lives is fundamental to how those people are then going to go on and develop in later life; a lot of research on that. I think also what Rebecca was referring to then in terms of the circle there, how parents then link in with with businesses as well, I think there's been some really good research done in Canada, where they and there's a lot of examples from other countries around the world. But in Canada, in particular has been some really good research done there. I think that they they worked out that for every pound invested, it brought back to the wider economy, £1.40 - I don't know, Rebecca, if you know the exact number around that number, but it was definitely more than one. And it was so the benefits there were quite clear to see. And I think as you alluded to, too, as well, Rebecca, that the terminology 'free hours' is quite, I think misleading for parents. And so as a provider, you have to essentially top that money up through a number of different ways which all don't work in the best interests of parents, no matter how you do it. You'll see some of the bigger some of the larger chains will make you book a five hour session and of that they'll only allow you to claim three hours of funded and two will be a higher rate. So overall, they'll they'll make up the difference, or you can charge what's called a consumables charge for food and for for other elements. So it's a really, really difficult situation at the moment and, and I think I'm pleased to see that childcare is becoming a key issue for the elections at the end of next year. My fear is that actually It's going to be too late by the end of next year, I think we're already seeing a large number of childcare providers, child minders in particular, but also smaller owner-operated and smaller group nursery chains are really, really vulnerable here. And the data on that is clear to see and Ofsted has recently reported, the data on that showing that has been quite a significant loss. So it's a really difficult situation, I think waiting till the end of next year is going to be too late. We're going to have had a detrimental impact that's we're going to struggle to recover on the sector, and is one of those where you find a as a parent, you think the costs are astronomical, but actually, you've struggled to find places because even with those costs, settings just can't operate and can't survive.
Jon Watkins: Yeah, it's definitely a difficult situation. It's a complex one, too. And it's clear that there's a need to relieve some of the pressure on both sides, not just for parents who might be SME owners or working with SMEs, but also with small businesses that are in that sector as well. So it's certainly a complex one. Thank you, Rebecca, and Tom for contributing on that. And that brings us to the end of our Small Business Round Up for February, our look at the small business announcements in the headlines right now and what they might mean to you as small business owners. Thanks again to all of our guests to Tom, Chris and Rebecca it was really really insightful. Thank you for sharing your your viewpoints. Thanks. Also to our audience for listening to this episode, while I have your attention, as always, I would like to just remind you that you can subscribe to the FSB podcasts to receive regular updates and guidance on the big issues affecting small businesses. And do please also remember that you can find a whole host of additional webinars, podcasts and other valuable content at the First Voice website, firstvoice.fsb.org.uk and the FSB website fsb.org.uk where you can also access that report that Chris is so keen for you to download and read. Thanks again guys. Really appreciate your time and thank you for listening.
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