Industrial Training Levy (Engineering Construction Board) Order 2005

– in the House of Lords at 6:52 pm on 20th July 2005.

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Photo of Baroness Crawley Baroness Crawley Government Whip, Baroness in Waiting (HM Household) (Whip) 6:52 pm, 20th July 2005

rose to move, That the draft order laid before the House on 18 May be approved. [5th Report from the Joint Committee, Session 2004–05].

Photo of Baroness Crawley Baroness Crawley Government Whip, Baroness in Waiting (HM Household) (Whip)

My Lords, the proposals before us seek authority for the Engineering Construction Industry Training Board (ECITB) to impose a levy on employers in the engineering construction industry. Skills are vital to succeeding in an increasingly competitive global economy. We have made, and continue to make, major investments in training.

This year the Learning and Skills Council will support further education and training to the value of £6.5 billion. We have established a network of 23 sector skills councils (SSCs) to ensure that we have a strong, clear voice from employers informing the provision of education and training. The engineering construction industry does not meet the minimum size criteria for having an SSC, but I am pleased to say that a memorandum of understanding has been agreed with the Sector Skills Development Agency that will position the ECITB clearly within the Skills for Business Network.

We also recently published our adult skills and workforce development White Paper setting out our vision for lifelong learning in the future. We will ensure that employers have the right skills to support the success of their businesses, which still lag behind many of our key competitors. We will also help individuals to gain the skills that they need to be employable and personally fulfilled.

We have promised that where both sides of industry in a sector agree, we will help to set up a statutory framework for training. The Engineering Construction Industry Training Board is a model of such a framework. It is, as noble Lords will know, a non-departmental public body set up under the Industrial Training Act 1982. Its role is to ensure that the quantity and quality of training are adequate to meet the needs of the engineering construction industry. It provides a wide range of services, including setting occupational standards and developing vocational qualifications, delivering apprenticeships and paying direct grants to employers who carry out training to approved standards.

The Industrial Training Act contains provision for a levy on employers to finance an industry training board's activities and to share the cost of training more evenly between companies in an industry. It is for the employer members of a board to make proposals for the rate of levy and for the Secretary of State to make an order giving effect to those proposals.

That is the purpose of the order before us. It gives effect to proposals submitted to us for a levy to be collected by the ECITB in 2006. The levy is based on employers' payrolls and their use of subcontract labour. It involves the imposition of a levy in excess of 1 per cent of payroll on some classes of employer. The Industrial Training Act requires such orders to be approved by affirmative resolution of both Houses.

The proposals involve a levy rate in excess of 0.2 per cent with no exemption other than for small firms. In such cases, a levy order can be made only if the proposals are necessary to encourage adequate training in the industry and if one of three conditions is satisfied. The first condition is that the proposals have the support of organisations representing more than half the employers who together are likely to pay the majority of the levy. The ECITB's proposals meet that condition.

The Act also requires ITBs to exclude small firms from the levy but does not set a minimum size threshold. The ECITB's proposals set exclusion levels that the industry considers to be appropriate. In the order before us, the ECITB proposes to impose the same rate as last year on site contractors—that is, 1.5 per cent of total payroll and net expenditure on subcontract labour. Contractors whose combined payroll and net expenditure on subcontract labour is £275,000 or less will not have to pay the levy. That equates to an employer who employs 15 to 20 persons full-time throughout the year. It is estimated that it will exempt 48 per cent of sites.

Last year the board decided to concentrate on activities at the craft, supervisory and first-line management levels and no levy was raised on head offices. In these proposals, it will reintroduce the head office levy at the same rates as in the 2003 order—that is, 0.18 per cent of the total of payroll and net expenditure on subcontract labour. However, head offices whose combined payroll and net expenditure on subcontract labour is £1 million or less will not have to pay the levy. That equates to an employer who employs around 40 persons full-time throughout the year. It is estimated that it will exempt 80 per cent of head offices.

The Government recognise the vital need for employers to develop their workforce in a manner that meets their current and future skill needs. I therefore congratulate the ECITB on recognising the need to secure increased employer engagement at all levels of its activities. It is taking action to achieve that by restructuring its own management and operations to become more regionally focused. The benefits of this are already becoming apparent and I have no doubt that it will result in a step change in the commitment to training from employers throughout the industry.

These proposals are expected to raise between £9 million and £10 million. It is worth pointing out that in 2004 the ECITB returned to the industry £1.45 in direct and indirect training support for every £1 levy received.

Noble Lords will know from our annual debates that the ECITB exists because of wide support from employers and employer interest groups in the sector. There is a firm belief that without it there would be a serious deterioration in training in the industry, leading to a real fear that its skill needs would not be met. That was confirmed by a review of the board carried out by the department in 2003, which found that the principle of the levy is still strongly supported. The board's own annual employer surveys demonstrate equally strong support for the principle of a levy system.

The draft order will enable the board to carry out its vital training responsibilities in 2006. I believe that it would be right for the House to approve it. I commend the order to the House.

Moved, That the draft order laid before the House on 18 May be approved [5th Report from the Joint Committee, Session 2004–05].—(Baroness Crawley.)

Photo of Baroness Buscombe Baroness Buscombe Spokespersons In the Lords, Education, Shadow Minister (Education) 7:00 pm, 20th July 2005

My Lords, I thank the noble Baroness for giving such a clear and thorough explanation of the order before us. This order, concerned with boosting and supporting skills and training in the engineering industry, falls within the remit of the Department for Education and Skills, yet it is clear from the debate in another place and from the speech just made by the noble Baroness that we have almost crossed over into DTI territory. I well appreciate that to sustain a competitive economy we must constantly strive to provide solid foundations in training and skills.

Our engineering and manufacturing industries have been hard hit in recent years by redundancies and bad press. Hundreds of thousands of vacancies remain unfilled each year because of skills shortages; this costs UK employers billions of pounds every year. It is not surprising, therefore, that the levy which the order proposes is imposed at the suggestion of employers. It is done with the consent of and at the request of the industry, which sees the levy as providing greater benefit to it in the dynamic and demand-led training and skills which it provides.

Benefits include boosting standards, ensuring consistency in training provided, developing vocational training and apprenticeships and other vital roles. This is one very positive example of co-operation between the Government and the private sector in the interests of our national economy and our engineering industry as a whole. It appears that "everyone's a winner", including small businesses, which I am pleased to see are exempt from paying the levy if they fall under a minimum threshold. For this reason, we on these Benches firmly support the order.

However—and there is always a "however" from Her Majesty's Opposition—will the Minister consider the other side of the equation? Instead of levying employers to cover costs of skills training to keep up with the ever-growing demand for skilled workers, the Government might think about ways of addressing the ever-decreasing higher and further education training which supplies such skills at an earlier stage. I am talking about the decline in universities and schools in teaching and fostering science, in particular chemistry and engineering. I am talking about university engineering departments closing down, valuable research departments running out of funding and the growing prevalence of young people to opt for easier A-levels instead of physics and maths.

A levy on employers should be seen in conjunction with a concerted effort to address the problem of this decline. Will the noble Baroness say what action, if any, the Government are taking along these lines?

We have before us a significant engineering challenge in the shape of the 2012 Olympics, as mentioned by my honourable friend in another place. I hope that this will inspire and encourage our native industries to prosper and grow to show off our engineering capabilities at their finest to the rest of the world.

Photo of Baroness Sharp of Guildford Baroness Sharp of Guildford Spokesperson in the Lords, Education & Skills

My Lords, I think this must be the fifth year I have debated this order on behalf of my party. Normally it comes in tandem with the Construction Industry Training Board levy. Could the noble Baroness tell us what has happened to that levy? Have we already approved that? I see that we have. Clearly I was not involved in that this year, but I have been in the past.

The levy is a remnant of the old industrial training arrangements of the 1960s—the levy grant system. With the industrial training legislation in the 1980s, this was the only industry which maintained the levy grant system. It is entirely voluntary, as the noble Baroness stressed. The industry has positively to ask for the levy to be levied and shared out. As she indicated, it is strongly supported by the firms which pay it—the larger firms in the industry. It does not apply to small firms. The Explanatory Notes show that it has a tougher impact on the larger firms which pay it than the smaller firms.

The construction industry and the engineering construction industry have suffered from an endemic problem of the free rider and industry cowboys. Firms that are good citizens and spend money on training can find that their expenditure is for naught because as soon as they have trained somebody that person leaves to join a cowboy firm which does not spend anything on training and, as a result, can afford to offer higher wages. It was to avoid the free rider problem that the concept of the levy grant was originally introduced.

The engineering construction industry has been in the forefront of industries in trying to improve the skills situation, in particular to overcome the cowboy skills problem. The ACE scheme, which assures competence in engineering construction, is under way. The aim is to train 20,000 workers up to level 3 standard—the equivalent of A-level but in the vocational area—by 2008. In the engineering construction industry in particular, health and safety is very important. It is vital that people are well trained and understand the importance of health and safety regulations. All this is covered by the training provided under the scheme.

We on these Benches very much approve of the scheme. As the noble Baroness, Lady Buscombe, indicated, it is a co-operative partnership scheme of self-help. We applaud it and only regret that more industries do not follow this example. We would like to see the scheme applied more widely within other industries where training remains a very important issue.

Photo of Baroness Crawley Baroness Crawley Government Whip, Baroness in Waiting (HM Household) (Whip)

My Lords, I thank both noble Baronesses for contributing to this short but valuable debate. The noble Baroness, Lady Buscombe, asked about the Government's investment in science and engineering; she was critical. There is a skills strategy in play. In July 2003, we published 21st Century Skills: Realising our Potential, which set out a cross-government agenda for tackling longstanding weaknesses in the demand and supply of skills.

Our aim is to ensure that employers have the right skills to support the success of their businesses and that individuals have the right learning and skills they need to be both employable and personally fulfilled. Significant progress has been made; the infrastructure is largely in place to tackle the issues that the noble Baroness raised.

On higher and further education, in 2003 we launched the Success for All strategy to raise standards and improve post-16 participation. That continues its work to improve the quality of teaching and learning. The national roll-out of the first phase of teaching and learning materials continues for the Success For All strategy. The noble Baroness will of course know about the centres for vocational excellence that have been set up in further education. She will know that we have invested £220 million in further education to support centres of vocational excellence.

The noble Baroness, Lady Sharp, asked what had happened to the construction board order. That was passed in February this year and was debated in Grand Committee. The noble Baroness also referred to the problem of free riders. I know that she has raised this issue previously. She saw that the levy system is to some extent an answer to that problem because it shares the costs of training across the whole industry, so that firms which do little or no training nevertheless contribute to the costs of training carried out by others. So, to some extent, it is a block on the free rider problem.

I thank noble Lords for this short debate. The proposals before the House relate to a specific industry, the engineering construction industry. It continues to be the collective view of employers in this industry that training should be funded through a statutory levy system in order to secure a sufficient pool of skilled labour. I believe from our useful debate that this is not in dispute. I believe that the order should be approved and I commend it to the House.

On Question, Motion agreed to.