Industrial Training Levy (Construction Industry Training Board) Order 2009 — Motion to Approve

– in the House of Lords at 5:13 pm on 26th February 2009.

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Moved By Lord Young of Norwood Green

That the draft order laid before the House on 22 January be approved.

Relevant Document: 5th Report from the Joint Committee on Statutory Instruments.

Photo of Lord Young of Norwood Green Lord Young of Norwood Green Parliamentary Under-Secretary (Skills & Apprenticeships), Department for Innovation, Universities and Skills, Lords in Waiting (Skills & Apprenticeships), HM Household, Government Whip, Parliamentary Under-Secretary (Department for Innovation, Universities and Skills) (Skills & Apprenticeships) 5:14 pm, 26th February 2009

My Lords, I shall speak also to the draft Industrial Training Levy (Engineering Construction Industry Training Board) Orders 2009.

The orders seek authority for the Construction Industry Training Board and the Engineering Construction Industry Training Board to impose a levy on employers in the industries they cover. The House will be interested to note these are the first orders made in compliance with the amendments made to the Industrial Training Act 1982 by the Further Education and Training Act 2007 and cover three years.

In the current economic climate the importance of skills cannot be overstated. We therefore welcome the orders before us as evidence that, despite the current economic difficulties, these two industries will continue to invest in the skills of their work forces in the coming years. The industrial training boards, or ITBs, whose levy orders we are considering were set up under the Industrial Training Act 1982. Their role is to encourage the provision of adequate training for employees and prospective employees in the industry. They provide a wide range of services that include setting occupational standards, developing vocational qualifications, delivering apprenticeships and paying direct grants to employers who carry out training to approved standards. Under the Industrial Training Act 1982 an ITB may submit proposals to the Secretary of State to enable it to raise a levy on employers to finance the board's activities and to encourage adequate training in the industry. The existence of a levy also shares the cost of training more evenly across an industry. The board makes proposals for the rate of levy for the industry it covers and the Secretary of State may make an order giving effect to the proposals.

These orders give effect to proposals submitted to us for levies to be collected by the CITB in 2009, 2010 and 2011 and the Engineering Construction Industry Training Board in 2010, 2011 and 2012. As both involve the imposition of a levy which is estimated to be in excess of 1 per cent of emoluments—essentially wage costs—for some employers, the affirmative resolution procedure is required for these orders. As the levy rate is in excess of 0.2 per cent of relevant emoluments, a levy order can only be made if the Secretary of State is satisfied the proposals are necessary to encourage adequate training in the industry and that one of three conditions is satisfied. The relevant condition is that the proposals have the support of more than half the employers who together are likely to pay the majority of the levy. Both boards have followed procedures stipulated in the Industrial Training Levy (Reasonable Steps) Regulations 2008 and their proposals meet that condition.

The Act requires ITBs to include proposals for exempting small employers from the levy. The Act does not set a minimum size threshold. Both the CITB's and ECITB's proposals set a level for the exemption of small employers that the industry considers to be appropriate. Employers who fall below the threshold are not, however, precluded from benefiting from a grant and other support from the boards, and many of them do so. In the order before the House, the CITB proposes that its levy rates should be unchanged from those approved by the House last year. That is, 0.5 per cent of payroll in respect of direct employees and 1.5 per cent of net expenditure on subcontract labour. As I said earlier, small firms are not required to pay levy, therefore employers whose combined payroll and net expenditure on subcontract labour is less than £80,000 will not have to pay the levy. This is an increase from last year's threshold of £76,000. The level equates to an employer who employs three people full time throughout the year and 40 per cent of employers come into this category. The higher levy rate on subcontract labour is because, according to the industry, the vast majority of training is carried out by those employers with a directly employed labour force. Employers who opt to use subcontractor labour are not normally involved in training.

The ECITB also proposes to make no changes to last year's rates. First, in respect of site employees, the rates will be 1.5 per cent of total payroll and net expenditure on subcontract labour. Contractors whose combined payroll and net expenditure on subcontract labour for site employees is £275,000 or less will not have to pay the levy in respect of site employees. 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 54 per cent of sites will be exempted. Secondly, in respect of off-site employees, often referred to as head office employees, the rates will be 0.18 per cent of the total of payroll and net expenditure on subcontract labour. Employers whose combined payroll and net expenditure on subcontract labour for offsite employees is £1 million or less will not have to pay the levy in respect of offsite employees. This level is also unchanged from last year and equates to an employer who employs around 40 persons full time throughout the year. It is expected that 73 per cent of head offices will be exempted.

Over three years, these proposals are expected to raise between £535 million to £540 million for the CITB and between £55 million and £60 million for the ECITB, which, after all, covers a much smaller industry. It is worth pointing out that the CITB currently returns to its industry £2.20 in direct and indirect training support for every £1 levy received. For the ECITB the figure is £2.52.

The House will know from previous debates that the CITB and the ECITB exist because of the support they receive from employers and employer interest groups in their sectors. As I indicated earlier, 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. The boards' own annual employer surveys continue to demonstrate strong support for the principle of a levy system. The draft orders will enable the two boards to carry out their vital training responsibilities in 2009 and beyond and I believe it is right that the House should agree to approve them.

Photo of Lord de Mauley Lord de Mauley Shadow Minister, Business, Enterprise and Regulatory Reform, Shadow Minister, Children, Schools and Families, Shadow Minister, Innovation, Universities and Skills

My Lords, I am grateful to the Minister for explaining the two orders. We must surely all agree that to enable us to compete internationally and to emerge from the economic situation we find ourselves in, the safeguarding and enhancement of the skills of our workforce are vital, and not only in these industry sectors. Indeed, we on these Benches would like to see a massive expansion in the provision of real apprenticeships instead of simply, as this Government have done, proposing a statutory entitlement to them.

We believe under the status quo that there is an excessive requirement for paperwork associated with certification and we would simplify the current inspection regimes. Among other measures, because training should be available to people of all ages, we would remove the age cap on funding.

It is claimed in paragraph 10.1(i) of each of the two Explanatory Memoranda that in 2008 for every £1 raised in levy the respective industry training board calculated a return to the industry of £2.52 for the Construction Industry Training Board and £2.03 for the Engineering Construction Industry Training Board. Of these figures, the specific figures of £1.74 and 86p respectively are attributed to what is described as, in the case of the Construction Industry Training Board,

"productivity gains and completion values of apprentices"; and, in the case of both boards, what is termed as,

"the provision of trainee recruitment and selection, advice on training, the provision of schemes for recording achievements and the development of industry standards".

Can the Minister explain how these figures were calculated? He will forgive my suspicion of figures which are specified to the nearest penny, which somewhat limits my confidence in them.

I notice that, unlike the Construction Industry Training Board, the Engineering Construction Industry Training Board does not expect any return to arise from what the former calls,

"productivity gains and completion values of apprentices".

Why not? Indeed, what are completion values of apprentices?

In its response to the Leitch review, World Class Skills, the Government said they would consider if,

"it would be beneficial to introduce new enabling legislation to make it easier for sector skills councils to introduce levy schemes where they consider that these would help improve skills and productivity in their sector, where a clear majority of employers in the sector support them, and where impact assessments are positive".

Given the chronic economic situation, what further consideration has been given to this recommendation and the encouragement of other industries to use levies?

The Federation of Small Businesses expects 120 small firms to,

"go to the wall each day".

I note that the smallest companies will be exempt from the levy, but how does the Minister expect slightly larger companies—for example, with 20 to 40 employees—to fund their levy obligations?

When these orders were debated in the other place—on Tuesday this week—my honourable friend Mr Hayes asked, among other things, what proportion of labour in the respective industries is subcontracted. The assumption, which was not disputed by the Minister, was that, for understandable reasons, those who subcontract tend not to provide training, at least to anything like the extent of those who employ people directly. The Minister was not at that stage able to answer, and offered to write to my honourable friend. I did not catch whether the Minister himself answered that point. I wonder whether, with the benefit of a couple of days' notice, he is now in a position to give a response to that question.

My honourable friend also asked about the extent to which the skills pledge is being observed by those who have signed up to it. The Minister in the other place was again unable to answer, and again offered to write, but said,

"more than anything, the pledge is a statement of intent and commitment and is a badge of honour amongst employers".

The Minister will appreciate that we are somewhat sceptical about statements of intent and badges of honour, and would be most interested to hear whether, with the benefit of notice of that question, he is now able to give us more tangible details of the levels of observation of the pledge.

Finally, I have a couple of questions that concern another industry's training board levy. I raise them because the Minister's answers may be instructive regarding the Government's intentions in a wider context. In view of our country's brilliant successes this week in the Oscars—I do not think "brilliant" is too glowing a superlative—noble Lords will forgive me if I talk briefly about the film industry training board levy. First, following the success of that industry's training board's voluntary levy, can the Minister explain why it has been decided not to make that levy mandatory? It has been reported in the press that a number of concerns have been raised by those in the film industry about the lack of consultation before making the decision. What assurances can the Minister give that further changes will not be made without adequate consultation and, of course, due consideration to the economic climate?

Photo of Baroness Sharp of Guildford Baroness Sharp of Guildford Spokesperson for Innovation, Universities and Skills

My Lords, I, too, thank the Minister for explaining so clearly what these two levies are about. For the past nine years in this House, I have taken the annual statement of these levies, and I was wondering when the changes that we put into effect in the Further Education and Training Act 2007 would come into force. I am delighted that, with these two orders, we are making arrangements for the levies to exist for the next three years. I noted previously that they were set up under the Industrial Training Act 1982. The Construction Industry Training Board and the Engineering Construction Industry Training Board were the only two industry training boards that opted, under the Act, to have an industrial training levy. The reason is well indicated by the two surveys that we have before us. The industry has been well served by the levy. Others have remarked that as well as a number of very large firms, the industry has a very large number of small firms, self-employed workers and subcontractors, and the levy grant system has enabled the establishment of a training system across both industries that has proved to be very satisfactory.

Like the noble Lord, Lord De Mauley, we on these Benches see this type of system as being relatively satisfactory, and are surprised that more of the sector skills councils are not seeking to extend the system to other industries. We have talked about the skills pledge. One thing that the CITB has introduced has been the smart card, which has kept note of what qualifications people have acquired as they have proceeded through the industry. This has been an extremely successful experiment, and is being extended. It is a system that we on these Benches very much commend.

With regard to the benefits secured for each pound spent in relation to the Construction Industry Training Board, we note that the figures given in the Explanatory Notes are slightly different—it was £2.03 for the CITB, rather than the figure quoted by the Minister—but I suspect that he has more up-to-date figures. The Engineering Construction Industry Training Board reckons that it gets £2.52 back for every pound spent. Perhaps we are less sceptical than the other Benches but we take these figures as stated, partly because one sees the advantage to the industry of these schemes. We have no problem endorsing these orders and agreeing with the Minister that they should be passed.

Photo of Lord Young of Norwood Green Lord Young of Norwood Green Parliamentary Under-Secretary (Skills & Apprenticeships), Department for Innovation, Universities and Skills, Lords in Waiting (Skills & Apprenticeships), HM Household, Government Whip, Parliamentary Under-Secretary (Department for Innovation, Universities and Skills) (Skills & Apprenticeships) 5:30 pm, 26th February 2009

My Lords, I thank noble Lords for their response. I will deal with the noble Lord, Lord De Mauley, first. I was a bit disappointed with his response on apprenticeships, but I suppose it follows on from some comments by one of his colleagues in the other place. I find it astonishing; in my recent comments about apprenticeships I have likened them to a hospital patient, and when we encountered this patient in 1997, after the tender care of the previous Government, it was in intensive care. There were only 65,000 apprentices nationwide, and just over one-quarter of them completed their apprenticeships. If you wind the clock forward to last year, for the noble Lord's benefit, you find around 250,000 apprentices, nearly two-thirds of whom completed their apprenticeships. I regard that as a renaissance, and indeed the employers whom I meet share that view. So I am puzzled about that the noble Lord's comments.

I understand why the noble Lord talked about funding the age gap, where we fully fund those below 19 and then progressively up to a maximum of 50 per cent. Employers ought to pay some contribution towards the training cost. That is because we feel that the adult apprentice brings a bit more experience to the company and does not require quite the same amount of cost of care—they are a bit more productive. That is why there is that difference, but there is some validity in the noble Lord's point. Whether we have the funding to be able to do that, I am not so sure. We have been focusing, rightly, on protecting the maximum number of apprentices that we can where we encounter situations where they are made redundant and on sustaining and nourishing them so that we continue to make the superb progress that we have been making towards the targets we have set ourselves, as defined in the Leitch review. We have said that we want an apprenticeship available for every young person by 2013 and 400,000 when we reach 2020.

On the calculation of figures, the best thing I can do is to write to the noble Lord to explain. I believe we have provided those figures in good faith, but we will endeavour to sort out any discrepancy. I trust that the figures in my brief are the most accurate.

The industry levy is there because, as the noble Baroness, Lady Sharp, reminded us—I congratulate her on her staying power if she has been through so many of these debates—the industries believe that it is valid and plays a vital role in providing training and the necessary skills for those industries. They are absolutely right. However, that depends on those industries being willing to do it. If other sector skills councils shared that view and were prepared to make those contributions, we would make progress in that direction.

We have had different approaches, as noble Lords know. Other sector skills councils have embraced what they call sector skills compacts and have endeavoured to make significant progress in those directions. We have encouraged the growth of sector skills academies, again to ensure that employers have more buying power in the kind of learning they require. We are making significant progress, therefore, and spending large sums on apprenticeships—£1 billion per year for next year and the following year—and on initiatives such as Train to Gain.

I did not fully understand what was meant by the completion value of an apprenticeship and maybe I will need to respond on that. From my point of view, in a general sense, we have made it absolutely clear that an apprenticeship is not completed unless there is an employer placement. In the past there was some dubiety about how to count apprenticeship figures. Now we try to make this absolutely clear. There has to be an employer placement and it does not count as a completion unless that is the case.

We are now trying to deal with situations where some apprentices have been made redundant, especially in the construction industry, and may be in the last six months of their training. We try to place them with other employers or get the existing employer to enable them to complete their apprenticeship. We have had significant success here. The Construction Industry Training Board has created a clearing house where it has managed to place many cases successfully with other employers. There is more work to be done to ensure that we enable apprentices to complete their apprenticeship. It is important for the individual who has invested a lot of time and it is important for the brand so that neither the candidate nor their parents feel that the apprenticeship has been a waste of time.

There is considerable consultation within the industry on who the levy applies to. That is one of the good things about the process. There is wide consultation within the industry before it comes to its conclusions. Whether or not we change the formula in relation to companies with 20 to 40 employees ought to be a matter for the training boards to determine.

I cannot give the noble Lord an accurate figure for how many people fulfil all the terms of the skills pledge. I was surprised that he expressed such cynicism. What motivation has someone in signing a skills pledge? We do not give them any money to sign it although we help them with the cost of training. I have attended a number of Chambers of Commerce meetings around the country since I have been in this office. I have seen employers at those meetings who have previously signed the skills pledge telling the Chambers of Commerce members about the real benefits they have seen in training their employees, including improved customer service, improved productivity and improved returns on the balance sheet. The peer group, therefore, has constantly emphasised the benefits of training. For me to recommend it is one thing—people might be a bit cynical. When, however, their own business peer group tells them there is a real value in training all employees to level 2 and demonstrate practically the benefits they have achieved, we need not be cynical about it. However, we are monitoring the process.

The one point where I would agree with the noble Lord is to have statistical evidence to show, for example, where the thousands who have signed the skills pledge are in the process of ensuring that every member of their staff has reached level 2. I can assure the noble Lord, however, that I have encountered many examples of companies which have carried out the skills pledge and have testified to the efficacy and the benefits they have achieved within their company.

With regard to what the noble Lord said about the Oscars and the Film Industry Training Board levy, unless I have misunderstood the process, we do not impose a levy. The board will determine whether a levy is right. Given the uncertain nature of film financing, I think that it will take a long, hard look at it. I thank the noble Lord for that information.

I have tried to cover all the points raised. I am conscious that there were one or two where I was not able to give a complete explanation, but I assure noble Lords that I shall write in those circumstances. I thank again the noble Baroness, Lady Sharp, for her comments. I also endorse her point about the smart card in the construction industry. The clear record it provides of the courses that workers have undertaken—a sort of passport as they go from site to site—is a valuable initiative.

The proposals before the House relate to the construction and the engineering construction industries. It continues to be the collective view of employers in these two industries that training should be funded through a statutory levy system to secure a sufficient pool of skilled labour. I believe that it is not in dispute that the orders should be approved, and I commend them to the House.

Motion agreed.