HC Deb 30 April 1970 vol 800 cc1589-601

10.32 p.m.

Mr. Dudley Smith (Warwick and Leamington)

I beg to move,

That an humble Address be presented to Her Majesty, praying that the Industrial Training Levy (Construction Board) Order 1970 (S.I., 1970, No. 471), dated 19th March, 1970, a copy of which was laid before this House on 2nd April, be annulled.

In the past year or so there has been a fair amount of controversy about industrial training boards, and none more titan that over the Construction Industry Training Board whose actions have resulted in hon. Members on both sides of the House being bombarded with letters. Let me make it clear, though, that we on this side of the House, as the originators of industrial training as we know it today, support this concept and its major content, and, indeed, its implementation.

We believe, however, that the time has now come for a searching reappraisal of some of the aspects of industrial training. What has happened with the Construction Industry Training Board—to which, if I may, I should like to refer for simplicity as the C.I.T.B.—underlines the need for Government action. Some of us have been attempting to relay these feelings during the proceedings on the Industrial Training Bill, and we hope this may have been helpful.

This Order seeks to raise the sixth annual levy of the C.I.T.B. from this month until the end of February, 1971. It is important to recognise that the board's previous levies have been calculated on an entirely different basis from this one. The previous five levy Orders assessed the rate of levy on the basis of a percentage of a company's payroll. The first levy in 1965 called for 0. per cent. of payroll. In 1966, companies were charged 1 per cent. of payroll, and in 1967 1 per cent. The figure for 196–69 was deliberately cut by the hoard from 1 per cent. to 0.7 per cent. of payroll, and for 1969–70 the rate was 0.8 per cent.

It is important to note that the reasons for the cut in levy in the latter months of 1968 was that the board found itself with a considerable surplus. For the first two or three years of the levy and grant scheme, the take-up of training grants by building firms was fairly slow, and the total of grants claimed and paid fell far below the amount of levy which was paid. Quite fairly, in the opinion of many people, the board felt that it was wrong to hold on to a surplus of builders' money, and in the latter months of 1968, therefore, it cut the rate from 1 per cent. to 0.7 per cent., and also it delayed the collection of the new levy until April last year so as to use up the surplus.

Thus, the amount of the 0.7 per cent. levy was not demanded until last April, and firms then had not only a lower levy to pay but had an 11-month tax holiday, so to call it. By last year, however, the surplus, which had been about£5½ million, had already disappeared, and the board had moved into overdraft. The reason was the tremendous demand for grants from 1967 to 1969 as builders became progressively more aware of their rights in this respect. I would describe the rise in claims as spectacular, and it made an enormous difference to the board's financial position.

There were other complications. Throughout 1968 and 1969, there was growing dissatisfaction among certain sections of the construction industry over their assesments by the C.I.T.B. The system of assessment on the basis of a percentage of payroll, irrespective of the type of operation of the company, led, it was claimed, to inequity as between different sectors of the industry. For instance, companies in some sectors, notably civil engineering and some specialist contracting firms and builders merchants, had been able to claim back a fair amount of their grant. This was so because of their limited training requirements since they employed rather more general labourers than craftsmen, or because their particular demands were not adequately provided for in existing training schemes. On the other hand, companies such as those in mechanical and electrical contracting which have a high proportion of apprentices and craftsmen, and more complex training requirements, had been able to take up substantial grants towards their higher costs of training, and in many cases they had even made a profit.

To illustrate this point, I refer to the Annual Report of the C.I.T.B. for the year ended March, 1969. This shows that in the previous year the electrical contracting companies paid£805,276 in levy but received£1,974,834 back in grant. On the other hand, civil engineering firms paid£1,344,000 and received£735,277 back in grant. Builders and plumbers merchants paid£410,000 in levy and received£214,000 back in grant.

Strong representations were made by the civil engineering members and others and the board realised that the payroll system of assessment would have to be changed. It therefore decided that it must alter its assessment basis to an occupational one. The effect of this was that rather than a firm paying X per cent. of its payroll irrespective of the jobs of the men employed, it would pay£X per craftsman per year,£Y per administrative, professional or technical employees, and£Z for other types of employees. The builder members felt that much more research was needed into this matter, but the board in its wisdom decided to go ahead with the new basis of assessment.

We now come to last autumn, and the board then found itself in a most serious financial crisis. The sharp increase in grants, which I have mentioned, coupled with the disappearance of the previous surplus and the likelihood of an overdraft of fantastic proportions—£6 million or so—had coincided with the board's decision to change the basis of assessment. Added to this there was a serious recession in the building industry, which I need not go into tonight because I believe it is common ground on both sides of the House that this occurred.

Mr. Reginald Eyre (Birmingham, Hall Green)

Would my hon. Friend agree that apart from the recession in the industry during this period there was a fall in the number of apprentices, which is damaging the future prospects of the industry?

Mr. Smith

My hon. Friend has made a valuable point, because this came at the same time as the financial crisis. It caused the building industry considerable worry which I know was reflected in the strong representations made to the Opposition, and I think that the right hon. Gentleman and his colleagues had their share of protests. As my hon. Friend says, building firms were in trouble and many of them were faced with a grave cash flow arising out of their difficulties of obtaining the necessary bank credit to finance construction and, if it could be obtained, the high cost of borrowing money.

The board announced its preliminary proposals under the new system for 1970–71 last October. Summarised, the board made the following points. To meet forward grant claims,£21.7 million would have to be raised. A further£3 million would be needed to fund the likely overdraft of£6 million. On top of that a further£4.3 million would be needed for services to industry, capital, administration, and finance. This came to a total of about£29 million. The board said that the occupational basis of assessment would be£58 per year for each administrative, professional, and technical employee,£25 for each general building craftsman,£39 for mechanical and electrical craftsmen, and£8 for labourers.

To put it mildly, the reaction of the industry to these proposals was hostile in the extreme. As I have said, hon. Members were flooded with letters. The professional organisations of the builders were up in arms and were almost marching on St. James's Square. There were protests and representations about the board's inability to manage its own business and the need for efficiency and economy. There was talk of extravagant courses being given in expensive hotels, and many companies said that because of the crisis which my hon. Friend mentioned they just were not in a position to pay, and they could not possibly face the impost which was being placed on them by the board.

In December the board fortunately took note of the growing wave of dismay and it paid heed to the detailed representations made to it by the National Federation of Building Trades Employers, which appears to have done a good job in this connection on behalf of its members. The board then produced a new set of proposals. It said that the overall levy demand should be reduced from£29 million to£26 million. Of this,£18 million would go back to the industry in the form of grants,£4 million would be applied to reducing the expected overdraft, and£3.8 million would be spent on advisory services, training centres, administration, and so on. The new proposals for individual occupations were also reduced for administrative and technical workers from£58 to£41, but generally they remained unchanged for the other categories. But it was proposed that the very small firms employing three or fewer employees—there are many of these in the building industry—or those with a payroll of under£3,000 a year should be excluded. If this had come into operation, it would have affected 12,600 small firms.

But the industry remained very unhappy even about the revised proposals, and, in a strongly worded statement, the President of the National Federation, a Mr. Whittington, said that the £25 levy on building craftsmen was much too high, maintained that no levy at all should be paid on apprentices, and that the board's overdraft should be funded by the Government. This burning resentment in the industry continued until January, when at long last the leaders of the federation met the Minister of State.

He took this matter very seriously. In fact, the Department subsequently put out a Press statement saying that the industry had demanded further reductions in the levy call. Complaints continued to come in and the employers called for an impartial inquiry into the C.T.I.B. The right hon. Gentleman, to give him credit, invited the board to re-examine its proposals. It went back and had a further meeting. As a result, it made another cut in its proposals: the total demand was reduced from £26 million to £24 million. The rates of occupational levy for apprentices were halved. The board also changed its mind to exempt firms with a payroll below £3,000. This decision had not been popular with building firms because it was felt that the cost of training should be shared, and also because of the many borderline cases, which would create difficulties.

The board decided instead on a sliding scale for the small firms. Some 12,000 firms with a payroll of less than £3,000 will now pay 30 per cent. of the full levy, but will be able to claim full grant. Another 15,000 firms with payrolls of£6,000 to£14,999 will pay 75 per cent. of the levy but will also be able to claim full grant.

The result of all these changes is that the new levy will be marginally below that equivalent of 1.6 per cent. on the old payroll basis. A firm of leading accountants has been appointed to carry out a critical examination of the various aspects of the C.I.T.B.'s organisation, methods, levy-grant structure, and its procedure for controlling all aspects of its expenditure. I hope that the right hon. Gentleman will have something to say about that inquiry because I am sure that the industry regards it as of supreme importance.

The Government have approved the revised proposals, and they are in the Order. We are praying against it to draw attention to what has happened and to urge the Department, which after all has a father responsibility for industrial training boards, to ensure that this state of affairs does not happen again.

It is fair to say that many builders are still opposed to the levy proposals. As I understand it, the National Federation of Building Trades Employers feels that substantial concessions have been made and that generally the proposals should be accepted. I am sure that we shall await with interest the result of the inquiry. The industry will want to be satisfied that it is thorough and will do something to help the board put its finances in order, and that its recommendations will be speedily implemented. What is needed now is some constructive progress in training in the construction industry and some new unity and harmony, which has been signally lacking over recent months.

The C.I.T.B. has learned a valuable lesson from what has gone on. I hope that the Department has also learned a lesson about what might happen with every board, so as to do something to ensure that industrial training goes on along the right lines.

10.50 p.m.

Mr. David Mitchell (Basingstoke)

In 1968 the board had a surplus of£5½ million. By the autumn of 1969 that had been turned into a deficit of no less than£6 million. This coincided with a period of recession in the industry and I understand that the board is now having to pay overdraft interest on that considerable deficit.

This means that those who are having to pay the levy are having to pay an increased levy as a result of the misjudgment of the board, which landed it with a deficit of £6 million and the consequent need to service this substantial overdraft. The Minister who, as my hon. Friend the Member for Warwick and Leamington (Mr. Dudley Smith) said in his helpful remarks, is a father figure in relation to this Order, should say how much the industry is having to find by way of interest to service this overdraft.

Paragraph 4(3) of the Schedule to the Order reads: For the purposes of this paragraph 'emoluments' means all emoluments assessable to income tax under Schedule E (other than pensions), being emoluments from which tax under that Schedule is deductible, whether or not tax in fact falls to be deducted from any particular payment thereof. This has the effect of bringing in all employees of a company. This sounds straightforward until one realises that we are speaking of an industry which is comprised predominately—in terms of numbers of firms if not of employees—of small businesses; that is, small builders, electrical engineers, heating and ventilating engineers, plumbers' and builders' merchants, lavatory equipment suppliers and so on. These people make up an enormous cross-section of the industry and they have one feature in common, which is that they are overwhelmingly small firms. It would be interesting to know how many such firms are represented on the board.

If a man runs his own business he is an employer. He, on behalf of his employees, must pay the levy. But if he turns himself into a small company, then he is technically, in terms of Schedule E, an employee of that company. One may have in the same town two builders' merchants, ostensibly running identical businesses. One may be an employer with employees and the other a company with a working managing director who is an employee of his company in terms of Schedule E. As a consequence, those two firms, doing identical work with identical personnel, are classed differently in terms of paying the levy.

The Minister is aware of the problem which arises here because his attention was drawn to it in Committee on the Industrial Training Bill. We have an Order before us which is the crux of the matter. As the right hon. Gentleman rightly told the Committee, these sorts of problems were not such as could be dealt with by amendment of the main 1964 industrial training legislation, but were matters to be dealt with during the passage of training Orders. This is the first training Order going through the House since the Minister drew attention to the correct time at which to make representation.

I make these representations because we have a situation in which an employer of 2,000 or 3,000 and an employer of only a small number of men have to pay the training levy. The salary of an employer who is technically a managing director of a company and therefore technically an employee of the company goes in for levy. This means that he might be paying twice as much. This situation cannot be right as between two firms carrying on identical business with the technical difference that one is an employer and the other an employee of his company.

As this is the first opportunity since he was so helpful in Committee in drawing attention to this point, I ask the Minister whether he can do anything about it under this Order. If that is not possible at this stage, I ask him to give an undertaking that in future Orders this aspect will be taken care of, in particular in relation to the next Order dealing with the Industrial Training Board when it comes before the House. The industry initially proposed that employers whose total salary bill amounted to£3,000 should be exempt. Now they are all included and the problem to which I have referred is exacerbated as the first£3,000 is included for levy purposes.

I hope that the Minister will be able to give some assurance to the House about this matter, which is not of vital interest to large firms or large employers, but which is of great importance to the very large number of small firms which predominate throughout the construction industry. Since I spoke in Committee about this, I have had representations from people who drew attention to the fact that a number of other training boards are worried.

10.58 p.m.

The Minister of State, Department of Employment and Productivity (Mr. Edmund Dell)

The hon. Member for Warwick and Leamington (Mr. Dudley Smith) referred to the fact that many hon. Members have been bombarded with letters from firms in the construction industry about the C.I.T.B.'s levy during the various stages through which the preparation of the levy proposals went. I think there is no subject on which I as a Minister have had more letters than this one, or written more answers to representations made to me by hon. Members at the urging of their constituents. The fact that there are so few hon. Members present means, I hope, that some at any rate of those to whom I wrote were satisfied with my reply. I take comfort from the fact that the hon. Member has been advised by the N.F.B.T.E. that the levy Order in its new form should be accepted. So we have the comfort that at the end of the process of consideration of the Order it is accepted by a principal trade association. Tint is welcome, because I am sure that everyone working in the industry wants an active and influential training board operating within it, and any breakdown as a result of past difficulties would be regrettable from all our points of view.

The hon. Member for Warwick and Leamington went over the history so thoroughly and accurately that I do not think I need give any of the facts. I could detect no error in his statement of the history. I will therefore content myself with replying to the point made by the hon. Member for Basingstoke (Mr. David Mitchell), who asked about representation of small employers on the board, and also with making some general points about the situation in the industry.

The board is fairly representative of the industry. It has done quite a bit to keep the industry informed of its proposals and of its financial difficulties. There can be very great difficulties when boards come forward at a late stage with their proposals. The proposals of this board were put forward for public discussion in October. There was the reconsideration in December. There was the further reconsideration in January after its proposals had been sent back to the Board for it to take a further look at them. We shall be reconstituting the board this summer. In the course of doing so, we shall as usual take the advice of the relevant trade associations.

Mr. David Mitchell

The right hon. Gentleman said that he would reply to my point about representation of small employers on the board. He has not done so. Will he deal with that point, or at any rate give an assurance that it will be considered at the time of the board's reconstitution later this year?

Mr. Dell

The hon. Gentleman will be able to find the existing board members listed in the board's annual report for the period ending 31st March, 1969.

Members of the board arc not representatives. They are appointed by the Secretary of State. We take the advice of the trade associations. It is a matter of judgment as to how far a board member who is a member of a small firm is representative of small firms. One of the points I made to the trade associations during the course of our discussions on this levy was precisely that they had people on the board. At one point in the discussion I made the slip of describing those persons as "representatives". I was immediately told, "They are not representatives. They are your appointees". This is formally true. They are appointed by the Secretary of State. Nevertheless, we take the advice of the trade associations because we want a hoard that is acceptable to the industry.

The board has been faced with one of the most serious problems of any first generation training board. It covers a large and widely scattered industry, but, unlike the other large first generation board—the Engineering Industry Training Board—it was dealing with an industry having relatively little systematic training. It therefore had to build up training, and this is what it has been doing since it was set up.

It had the difficulty that at the beginning claims for grant were not made and it built up a surplus. It decided that it should reduce the surplus by reducing the levy, and having reduced the levy, which it thought was an action that would he acceptable to the industry, it found that the claims for grant were coming in in greater numbers and it ran into the deficit to which hon. Members have referred.

Nevertheless, this series of events, from some points of view regrettable, is perhaps explicable in terms of the board's inevitable lack of experience in running an industrial training scheme in this industry, an industry without the long tradition of training of the engineering industry. We can take comfort from the fact that the claims for grant are now coming in and are certified as being justifiable, which indicates that training is taking place in the industry. This is important for its future.

Third, although there is an increase in the levy demand it can be exaggerated. In certain of the correspondence with which I have had to deal there was a certain exaggeration of the extent of the increase. The 1969–70 levy of 0.8 per cent. covered only eight months and is equivalent in a full year to a levy of 1.2 per cent. The current proposals are equivalent to a payroll levy of about 1.6 per cent., an overall increase of about 30 per cent. The increases to individual employers naturally vary above and Mow that figure. That is the intention of the occupational basis of this levy.

There are two points on which the board deserves commendation. First, it has introduced an occupational levy. This is intended to relate the employer's liability to the cost of training the personnel he employs. The second point is the full consultation the board had with its industry before the levy proposals were finalised.

The hon. Member for Basingstoke put to me a point he raised in Committee on the Industrial Training Bill, which I promised to consider. It related to the different position in which a firm can find itself in respect of levy depending on the position of the employer or managing director, as the case may be. That problem is very much less here, because there is an occupational basis for the levy. There is a fixed sum per head for different types of people. Therefore, it is a very different order of problem. The problem, if relevant at all, is relevant only in the case of the smaller firms, where certain rebates are given depending on the total payroll.

The board is taking measures to bring its expenditure under more effective control, and as a result of economies and other adjustments it expects to reduce its deficit, which was£7 million at the end of March, by£2 million by next March. It has reviewed its grant scheme for the year August, 1970, to July, 1971, and has decided, in addition to abolishing or reducing certain grants, to impose a ceiling on grant expenditure for that year. It has also commissioned a study by Cooper Brothers of its administrative and financial organisation and structure. The study is well advanced and is expected to be available to the board in about a month.

Mr. Dudley Smith

Will the report be made available outside the board's province?

Mr. Dell

It is my wish that it should be. I think I can say that there is at any rate a probability that it will be published so that the industry shall be made fully aware of the contents. This is a report to the board and a matter for the board's decision.

The House should also bear in mind the work which the board has been doing over a wide front. Perhaps I might give one or two examples. First a new pattern of training for craft and operative skills has been set. On the basis of a report by the Building Research Station the board has introduced a modular scheme of training, which attempts to reflect current and future needs for flexible use of manpower and is a complete break from traditional training arrangements.

Second has been the establishment of a training centre at Bircham Newton. A number of courses held have been pioneering ventures in the application of systematic training techniques to the jobs concerned. Third has been the buildup of training staff in the industry. In 1964 the training officers in the industry could probably be counted on the fingers of one hand. Not only have more than 1,000 training officers, instructors and senior executives now gone through courses sponsored by the board, but the board has more than 250 of its own training staff in the field together with others engaged on all-important development work at headquarters. There has also been work by the board in management training.

Finally I would refer to the work of the board among small firms. The board had built up group training schemes. In 1964 there were no group training schemes in the industry. There are now well over 200.

This is the constructive record of the board and, despite all the criticism that has been made of the board's activities, this constructive attitude should be borne in mind because it establishes a very considerable credit balance for the board which is now going out of existence, to be reconstituted. I hope that in view of my reply the hon. Gentleman will feel able to withdraw the Motion.

Mr. Dudley Smith

I am grateful for that explanation. We shall watch developments with interest. On that basis I beg to ask leave to withdraw the Motion.

Motion, by leave, withdrawn.