A new national body will take over all of New Zealand's 110,000 polytechnic students and 140,000 apprentices and industry trainees in a massive shakeup proposed today.

The proposed NZ Institute of Skills and Technology will take over programme design and administration for all campuses of what are now 16 separate polytechnics.

It will also take over enrolling and managing apprentices and industry trainees from what are now 11 industry training organisations (ITOs).

The ITOs will be replaced by new "industry skills bodies" which will be led by employers. They will become "bookends to the vocational education system", setting standards and checking that trainees have been well trained, but losing the role of managing training to the new institute.

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The plan is designed to avert a crisis which has seen many polytechnics slide into deficits because of a 19 per cent slump in domestic enrolments between 2010 and 2017, as the buoyant job market lured young people straight into jobs instead of training.

It also aims to give polytechnics an incentive to place students into work-based training and apprenticeships as soon as they are ready.

The current system pays the polytechnics more to keep students in fulltime study until they finish their qualifications, making many young people "over-educated but under-skilled".

The proposed changes are far more radical than any of the options discussed in consultation with the sector last year and Education Minister Chris Hipkins admits in a Cabinet paper that "change on this scale will be disruptive".

Education Minister Chris Hipkins proposes a single national body to take over all polytechnics, apprentices and industry trainees. Photo / File
Education Minister Chris Hipkins proposes a single national body to take over all polytechnics, apprentices and industry trainees. Photo / File

He says disruption to students, apprentices and trainees will be minimised by "a carefully managed, phased transition plan".

But he has allowed only a six-week consultation period ending on March 27 and says "transition to the new institute can commence in 2020, with other changes phased as necessary to ensure a smooth process of change".

There is no indication in the Cabinet paper or Hipkins' press release that any of the existing polytechnic campuses would be closed, and the Cabinet paper says "there may be more or fewer main campuses than the current number of ITPs [institutes of technology and polytechnics]".

"The direction of the proposed reform is to maintain and grow ITP delivery in the regions," it says.

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Each region would have a "regional leadership committee to advise the institute's national office and Tertiary Education Commission on local skills needs".

Regional campuses and wānanga may also host Centres of Vocational Excellence serving key industries in their regions.

However "a number of activities would be centralised at national office or at one of a few regional campuses".

Auckland's two polytechnics Manukau Institute of Technology (above) and Unitec will merge under the Government's plan. Photo / File
Auckland's two polytechnics Manukau Institute of Technology (above) and Unitec will merge under the Government's plan. Photo / File

A national governing council appointed by the minister "would agree long-term capital and operational strategies, oversee capital asset management and set and oversee operational budgets".

All details of financial implications have been deleted from the published version of the Cabinet paper apart from a line acknowledging: "Investment will be required to support the proposed vocational reforms."

The Treasury expresses alarm in the paper that decisions are being made "without a clear indication of the likely overall financial implications of the changes proposed, including short-term transition costs and enduring funding changes".

"We do not think that sufficient analysis has been undertaken of the options for enduring funding system changes proposed for consultation," the Treasury says.

"We consider that consulting on these funding system changes is likely to create sector expectations about future funding, without Cabinet having oversight of the associated financial implications."

Hipkins acknowledges that there could be "further costs in future as a result of these change proposals" but says there would also have been costs if polytechnics were left unchanged.

"The financial difficulties ITPs are currently facing have occurred before, and will recur again, if the cycle is left to continue," he said.

One of the biggest industry training organisations, the Skills Organisation, said the changes would disadvantage "thousands of apprentices and students".

Its chief executive Garry Fissenden said the changes would "create immediate uncertainty among businesses at a critical time in our nation's economic development".

"The changes will undermine the crucial role of [industry training organisations] and reduce employer involvement in the learning process which will manifest as an increased risk to business," he said.

"Employers may also no longer have the flexibility and choice to ensure the training programme for apprentices is relevant and immediately applied to their business needs."

He said the 11 training organisations had relationships with 25,000 small to large employers and 147,000 trainees and that the Government "has underestimated the value of these relationships in building workplace skills that meet the needs of businesses".

However Business NZ chief executive Kirk Hope said he was "very positive about the change".

"One thing we factored in is ensuring that the work that industry training organisations do in terms of engagement with employers is expanded, not shrink, so workplace learning and training is a much more cohesive system than it is at the moment," he said.

He said the current system was failing to provide skilled New Zealanders to meet regional labour shortages, forcing employers to import immigrant labour.

"In particular, ITPs should be performing much better. That is a weakness in the system," he said.

"We will be pushing for a greater integration of the workplace, and a greater appreciation of the value of the workplace, as a platform for learning."

Employers and Manufacturers Association Northern (EMA) chief executive Brett O'Riley said the EMA "has always been supportive of closer links and collaboration between vocational education providers and businesses, and is hopeful the reform is evidence of this approach".

Polytechnics employed 12,960 people, equivalent to 8150 fulltime staff, in 2017, and while Hipkins acknowledged there could be job losses, he said it was irresponsible to speculate how many.

He said those whose jobs would be affected would be offered the chance to retrain, and a long timeframe for implementation meant nobody was going to wake up and suddenly find themselves without a job.

"If we don't do anything, there will continue to be job losses.

"Disruption is disruptive, but if it creates a more stable platform for the future, it's the right thing to do."

The proposed NZ Institute of Skills and Technology could be in place by the start of next year, but Hipkins said it would take one or two more years for the changes to be fully embedded. In the meantime, the system would run as it does now.

National's tertiary education spokesman Shane Reti said the proposals would strip power from regional New Zealand and give it to Wellington bureaucrats - but his statement did not mention the 1000 job losses he was talking about last week.

"Businesses and the regions know what demand there is for skills in their own backyard. But this Government wants all of the decision-making to be done by a centralised body in Wellington," Reti said.

"Industry Training Organisations, which represent businesses and their needs will be disestablished. These are the groups that know and understand the demand for the trades better than anyone else."

He said the six-week consultation period was too short, but Hipkins said many aspects of the proposals had already been canvassed with the industry.

"The National Party needs to say what its alternative is," Hipkins said.

He said the proposals would see more training and opportunities for people in the regions, with greater involvement with local government and local iwi.

While there has been no detailed costings of implementing the proposals, he has asked for funding for the transition in this year's Budget, but would not say how much.

"Not doing anything will cost significant amounts of money."