Industrial Training Levy (Construction Board) Order 2006

– in the House of Lords at 5:10 pm on 9th February 2006.

Alert me about debates like this

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, with the leave of the House I will also speak to the Industrial Training Levy (Engineering Construction Board) Order 2006. These orders seek authority from the Construction Industry Training Board and the Engineering Construction Industry Training Board to impose a levy on employers in the industries which they cover.

Skills are vital to succeeding in an increasingly competitive global economy. The Government have made, and continue to make, major investments in training. This year, the Learning and Skills Council will fund further education and training to the value of £7.6 billion. Last year, we published our White Paper Getting on in business, Getting on at work, which set out our plans for the next major phase of reform for making this country a world leader in skills. We want to ensure that employers have the right skills to support the success of their businesses, and that individuals gain the skills they need to be employable and personally fulfilled.

In support of that aim, we have established a network of 25 sector skills councils—SSCs—to ensure that employers have a strong, clear voice to influence the provision of education and training. We have also promised that, where both sides of industry in a sector agree, we will help set up a statutory framework for training, as we are currently working with the film industry to do.

The two industrial training boards—ITBs—are models of the successful application of such frameworks. They are non-departmental public bodies set up under the Industrial Training Act 1982. Their role is to ensure that the quantity and quality of training are adequate to meet the needs of the industries they cover. They provide a wide range of services, including setting occupational standards, developing vocational qualifications, delivering apprenticeships and paying direct grants to employers who carry out training to approved standards. In fact, the CITB, in partnership with CITB Northern Ireland and the Construction Industry Council, operates as ConstructionSkills, the sector skills council for the construction industry. It has developed one of the first sector skills agreements, and that now underpins every facet of CITB's operations.

The engineering construction industry does not meet the minimum size criteria for becoming an SSC. I am pleased to say however that it has a memorandum of understanding with the Sector Skills Development Agency that firmly locates it in the Skills for Business Network. The board's status as a valuable sector body was further recognised last year when it won an award from Sector Skills Alliance Scotland as the:

"Most Effective Sector Skills Council or Sector Skills Body in Scotland".

The Industrial Training Act contains provision for a levy on employers to finance an ITB'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 for the industry it covers, and for the Secretary of State to make an order giving effect to the proposals.

That is the purpose of the two orders before us. They give effect to proposals submitted to us for a levy to be collected by the CITB in 2006 and the ECITB in 2007. Both involve 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 in both Houses. It is that affirmation which I seek today.

In each case, the levies are based on employers' payrolls and their use of sub-contract labour. For both boards, the proposals involve levy rates in excess of 0.2 per cent, with no exemptions 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 proposals from both boards meet that condition.

The Act requires ITBs to exclude small firms from the levy, but it does not set a minimum-size threshold. Each of these proposals sets a level that the industry considers to be appropriate. Employers who fall below the threshold are not however precluded from benefiting from grant and other support from the boards, and many of them do so.

In the order before your Lordships, the CITB proposes that both its levy rates this year should stay at the same level as that approved by the House last year. The rates will be 0.5 per cent of payroll for direct employees and 1.5 per cent of net expenditure on sub-contract labour.

Employers whose combined payroll and net expenditure on sub-contract labour is less than £69,000 will not have to pay the levy. This figure represents an increase from last year's threshold of £64,000 to reflect wage inflation within the industry. The level equates to an employer who employs three people full time throughout the year. Forty one per cent of employers come into this category.

A further 22 per cent of employers will not be assessed for, or will not pay, the levy for other reasons. For example, they may be in their first year of registration with the CITB or have ceased trading all together. This means that around 60 per cent of employers will not be required to pay the levy.

The higher levy rate on sub-contract labour is due to the fact that, according to the industry, the vast majority of training is carried out by those employers who have a directly employed labour force. Employers who opt to use sub-contract labour tend to have a transitory arrangement with their sub-contractors and are not normally involved in their training.

It is encouraging to see that the large contractors, who use significant amounts of sub-contract labour, are recognising their responsibility to contribute more than just cash to tackling the skills shortages in the industry. They have initiated action to encourage firms in their supply chains to recruit and train apprentices.

The ECITB also proposes to make no changes to last year's rates. The rates for sites will be 1 per cent of total payroll and net expenditure on sub-contract labour. Contractors whose combined payroll and net expenditure on sub-contract labour is £275,000 or less will not have to pay the levy. The level is unchanged from last year and equates to an employer who employs 15 to 20 persons full time throughout the year. It is expected that 62 per cent of sites will be exempted.

For head offices, the rates will be 0.18 per cent of the total payroll and net expenditure on sub-contract labour. Head offices whose combined payroll and net expenditure on sub-contract labour is £1 million or less will not have to pay the levy. This level also is unchanged from last year and equates to an employer who employs around 40 persons full time throughout the year. It is expected that 80 per cent of head offices will be exempted.

These proposals are expected to raise between £145 million and £150 million for the CITB, and £10.5 million to £11 million for the ECITB, which covers a much smaller industry. It is worth pointing out that the CITB currently returns £1.74 in direct and indirect training support for every £1 of levy received. For the ECITB, the figure is £1.45.

Noble Lords will know from our annual debates that the CITB and the ECITB exist because of the support they receive from employers and employer interest groups in their sectors.

There is a firm belief that without them there would be a serious deterioration in the quantity and quality of training in these industries, leading to a deficiency in skill levels. This was confirmed by reviews of both boards carried out by the Government in 2003, which found that the principle of the levy is still strongly supported in each industry. The boards' own annual employer surveys also demonstrate strong support for the principle of a levy system. The orders will enable the two boards to carry out their vital responsibilities in 2006. I beg to move.

Moved, That the draft order laid before the House on 9 January be approved. [14th Report from the Joint Committee].—(Lord Davies of Oldham.)

Photo of Baroness Buscombe Baroness Buscombe Shadow Minister, Education, Shadow Minister (Education)

My Lords, this is an important, if somewhat technical, matter that is worthy of consideration. The Minister has made a good case for the continuation of the levy, setting it in the context of the industry's importance. As he said, the Industrial Training Act 1982 established industrial training bodies to ensure that the quantity and quality of training adequately met the needs of the industries for which they were established. The 1982 Act also contained provisions for the levy on employers to finance ITB activities and share the cost of training more evenly between companies in the industry.

There are two ITBs covering the construction and drilling industries, as we can see from the orders before us, and we are taking those matters together. Both boards provide a wide range of services and training initiatives, including setting occupational standards, providing vocational qualifications, delivering apprenticeships and paying direct grants to employers who carry out training to approved standards.

These matters are significant because of the context in which we are considering them. Your Lordships will be familiar with the work of Kate Barker and her review of housing supply. Regardless of what one may think about some aspects of the report, one problem that Kate Barker identified, and on which we all agree, is the paucity of skills in the construction industry. That will act as a bar to the delivery of the targets that her report established as necessary. Indeed, the Government, in their own policy, have endorsed those targets. Undoubtedly, we will be unable to build on the scale proposed without significant improvement in the quantity and quality of skills available to the construction industry. I think it important to note at this juncture that, having followed the debate on these orders in another place, while we support them, we do not want to be diverted into the intricacies of house building policies. The Minister will know that I am referring to the failed attempts by the honourable Member for Normanton, Edward Balls MP—I think he prefers to be called "Ed"—to ensnare my honourable friend John Hayes.

However, it is worth saying a word about the Barker review. Mrs Barker warned:

"The track record of the industry, in areas such as consumer satisfaction, skills, innovation and local acceptance, is not sufficiently strong to inspire confidence in policy makers that it can deliver".

That is worrying indeed. In particular, Mrs Barker warned:

"The industry needs to address its weak record of innovation and remove barriers to the take-up of modern methods of construction and off-site manufacturing.

"Investment in skills needs to increase to produce higher levels of output in the future and to bring the take-up of apprenticeships towards the levels of leading international comparators. In the short-term, Government should consider increasing support for skills in the construction sector alongside any increases in the industry-funded training levy".

She refers specifically to the matter before us.

A report by the adult learning inspectorate, published in May last year, found that the construction industry's own research showed an acute shortage of skilled craftspeople. There are 300,000 fewer skilled craftspeople than the industry needs in terms of contracts already planned. During the 1970s, 100,000 people were being trained each year across a range of construction skills, but by 2004, that figure had declined to fewer than 40,000.

The standard of training currently offered can only make the situation worse. Some 40 per cent of those being trained in construction industry skills were found by the adult learning inspectorate to be trained inadequately, and only 34 per cent of trainees complete their apprenticeships. Those are worrying figures, and they are worrying for all of us, regardless of party.

While we are taking the orders together, I draw particular attention to the Construction Industry Training Board—the subject of the first of the orders. It is the largest provider of training in the building and crafts industries. It has 10,000 learners, but only 25 per cent of those will complete their qualifications. Nick Perry, director of inspection at the Adult Learning Inspectorate, commented that the construction industry must face up,

"to the critical problems endemic in its training methods today", if the industry is to develop the new houses that the Government have planned for. Quite apart from the other buildings that emanate from such efforts to a standard that our nation deserves, urgent action is needed to improve the provision of training in the construction industry.

The Minister said that there is support for the continuation of the levy at an appropriate level. That is vital. The level must be appropriate to deliver the sort of return that is needed. The Minister mentioned that support, and perhaps it is worth while amplifying his point by drawing your Lordships' attention to some figures: 72 per cent of employers support the continuation of the CITB levy-grant system; and 73 per cent believe that the amount of training in the industry would worsen in the absence of CITB construction skills.

I draw two worries to the Minister's attention, and I hope that he will respond.

First, in the past six years, the proportion of levy-paying employers who are members of the main employer federations has dropped from 58 per cent to just over 50 per cent. That reflects a decline in the percentage of construction employers who become federation members, rather than any diminution in support for the levy system in the industry. I mentioned the high level of support, but as fewer people become members of the federation, there is a worry that the levy system will cease to have the necessary depth of support to facilitate the outcomes that we all want.

Secondly, we on these Benches have real concerns about the apprenticeship framework. The major cause of the current low level of apprenticeship framework completions in the construction industry is the failure of further education colleges to find work experience opportunities for trainees who are enrolled on full-time courses. This is one of the examples—there are others—of a gap between what we do in FE and what we do in industry. We need a greater synergy between the activities of further education colleges and the demands of a range of industries, including the construction industry. Perhaps that should be the substance of a debate for another day, but for now, we support the orders.

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

My Lords, the Minister and I have exchanged views on these two orders in the past five years in this House. He will know that we on these Benches very much support the notion of the Construction Industrial Training Board and the levy-grant system that it incorporates here. The construction industry and the construction engineering industry are both characterised by a small number of very large firms, by a large number of very small firms, and perhaps above all by a great deal of sub-contracting in the industry. It is partly because of that tradition of sub-contracting that the industry has been plagued by the free rider problem of someone else always having to do the training. Firms that do the training find that their apprentices are poached by other companies as soon as they are trained. All the expense of training is therefore regarded to some extent as wasted because others benefit from it. In those circumstances, many firms say that it is not worth while training. This has characterised the industry to far too great an extent, which is why we have the levy-grant system that underpins it.

As the noble Baroness, Lady Buscombe, indicated, the system is endorsed by a large number of employers in both sectors. She quoted the figure of 72 per cent of employers in the construction industry who support the levy-grant system, and said that 73 per cent say that there would be less training if it were not there. It is notable, as the Minister said, that for every pound that is invested in training in the construction industry, it is reckoned that £1.79 worth of training is extracted. The figure is similar for the construction engineering industry; it is £1.45. So a good amount of leverage comes out of these expenditures.

Like the noble Baroness, Lady Buscombe, I wish to put to the Minister a number of worries. The first picks up on the noble Baroness's point about the low completion rate of apprenticeships. She suggested that that was partly because colleges could not find work placements for apprentices—a second worry—but many apprentices do not complete their apprenticeship because they are offered a job before that. Perhaps too many employers are prepared to offer a job to apprentices who have not obtained their qualification. As the Minister knows, the ordinary apprenticeship results in a level 2 qualification but the industry regards the NVQ 3 as the proper, full apprenticeship. The failure of many apprentices to go on from level 2 to level 3 is very notable in the industry.

The Minister might like to discuss the following point with his government colleagues in the other place. The Government will be funding a number of large construction projects, particularly in the run-up to the Olympic Games and, for example, in building schools for the future. They will be the major purchaser and funder of many projects. Is it not possible for the Government to write into their contracts the requirement that those employed should have the full qualifications necessary for the job? That would help good employers who fund training to encourage their apprentices to complete their apprenticeship, because they would be employing those with full qualifications rather than apprentices who dropped out half way through. Given the conditions written into many contracts—for example, those for motorways—it would not be an extraordinary contractual requirement.

Secondly, there are now many more young people applying for apprenticeships than there are places available—in a sense, that is a very good upturn—because colleges find it so difficult to find work placements. In particular, it is very difficult to find work placements with small and medium-sized enterprises. I put it to the Minister that it might be feasible to give greater incentives to small and medium-sized enterprises to take on apprentices.

The noble Baroness, Lady Buscombe, did not mention LSC funding of level 3 qualifications. As the Minister knows, the LSC will fund a level 3 apprentice up to 19. Many of those proceeding from level 2 to level 3 are over 19. Although there is an extreme shortage of skills in the industry, there is no public funding, and employer funding is required for post-19 qualifications. Quite a number of young men and women do not proceed to level 3 because they cannot get funding.

The industry has benefited enormously from the influx of immigrant labour, particularly from eastern Europe, over the past three years, but that is not a satisfactory situation. The age profile of the industry is skewed towards those aged 45 and over at the moment. We must replace those older people with trained younger people whom we grow ourselves rather than import. It is important that there is every incentive for people to proceed to get their full qualification.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I am grateful for the constructive contributions to this short debate on the training boards, which, it is recognised, play an important role in our economy. They could do better—all those who contribute to skills could do better, because we are all aware of the fact that it is an area of British education and training where we need to improve performance year on year. The identification of the issue goes back over decades, but the constructive action to deal with the skills shortages takes time before it makes an impact.

I heard the noble Baroness, Lady Buscombe, when she indicated that it would be remiss of us to stray to wider issues of house-building strategies and demand for housing, which was the fault into which the Committee drifted in the Commons. Members of the Commons are rather more prone than your Lordships to score points off each other from time to time. What was an exercise in innocent fun by my honourable friend the Member for Normanton enlightened the Committee, but far be it from us to get into a major debate about housing policy at this place and time; except to say, as the noble Baroness accurately identified, that proposals for increasing the number of houses to be built make demands on the industry, which is short of skilled persons at present.

I share the noble Baroness's worry about one aspect, which is that the decline of those firms that join the federation could lead us into great difficulty. If the number falls below the critical mass there is no way that we can operate, as we do within the framework of the law, the existing provisions with regard to levies. She is right about that matter but I am not sure if I detected a constructive answer on how it should be tackled. People join federations because they see benefits from the contributions the federation makes to the general work that they do, so we must look at ways in which the federations improve their standing. They have a long history and have been respected in the past, but she is right that an increasing number of companies are not joining, which is an anxiety.

Both noble Lords who spoke emphasised the problems with regard to FE colleges and finding places. That is a genuine problem. We have greatly expanded further education opportunities, more young people are staying on in education than ever before and our colleges are expanding, but to do their job as effectively in education and training in key skill areas they need opportunities for young people to obtain direct work experience. That is always a challenge. I recall over all the expansion of vocational courses in this country, whether at further education or higher education level, that the pressure on succeeding in getting good training opportunities outside the education institutions has always been acute. I am confident that the further education Minister will respond to the challenge because courses will not succeed in training students otherwise, but it means a growing awareness in wider society that training young people is the seed-corn of the skills of the future and the backbone of the economy for the future.

It is good to see that that is recognised on both sides of the House, as it was when the order was debated in the Commons, because we need to make the wider society aware of the necessity of contributions on all sides to improving skill levels and the opportunities for enhancing skills.

The noble Baroness, Lady Sharp, asked whether the Olympic Games could contribute through public sector funding, but the Olympic Games funding is not directly under any government departmental control.

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

My Lords, I used that as an illustration. There are a large number of public sector-funded projects in the construction industry which, if the contracts were drawn up appropriately, could encourage those involved in such contracts to employ fully qualified young people.

Photo of Lord Davies of Oldham Lord Davies of Oldham Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I was merely indicating that that particular illustration was not entirely valid because the games are not going to be funded by government. However, I accept the more general point that, where there is public funding, there are opportunities to be exploited in seeking assurances of this kind.

The noble Baroness will recognise that, in an intensely competitive market, it is largely for the industry to address itself to these issues. There are real problems about government contracts being restrictive in these terms and effective without making the price too high, against a background where we have got a structure for training which needs a greater stimulus. I am not too sure that the measure proposed by the noble Baroness would meet the point. It smacks, if I may put this without being too contentious, of a certain degree of illiberalism and of direction from the centre.

I am grateful to noble Lords for emphasising that we all share concerns about skills in our society. In construction and engineering the skill shortage is clear and needs to be remedied. These boards have crucial roles to play and that is why I commend the order to the House.

On Question, Motion agreed to.