Industrial Training Levy (Engineering Board) Order 1986

HL Deb 15 May 1986 vol 474 cc1336-46

7.14 p.m.

Lord Lucas of Chilworth rose to move, That the draft order laid before the House on 14th April be approved. [19th Report from the Joint Committee.]

The noble Lord said: My Lords, I beg to move that the draft Industrial Training Levy (Engineering Board) Order 1986 be approved. The order is before your Lordships today because one part involves a levy in excess of 1 per cent. of emoluments. It therefore requires an affirmative resolution of each House, under Section 12(6) of the Industrial Training Act 1982. I will outline in a moment the full details of the levy order.

Your Lordships will be well aware of the importance of the engineering industry, which is the largest manufacturing sector in terms of employment. Engineering output rose in 1985 by 5 per cent., the fourth consecutive year of growth. Mechanical engineering experienced its strongest growth since 1974, with output 6 per cent. above its 1984 level. If the industry is to build on these achievements then it is important that all firms play their part in training. We must ensure that employers continue to develop the skills of their workforce in order to increase productivity and growth.

The levy is expected to raise about £171.5 million, before taking exemption into account, and just over £19 million after exemption. The levy will cover a period of 12 months to 31st August 1986 and makes no changes to arrangements currently operating which were approved by your Lordships in July of last year.

The levy is in two main parts. First, in the mainstream engineering establishments a levy of 1 per cent. of emoluments is made in respect of establishments with 1,000 or fewer employees, of which 0.06 per cent. is non-exemptable. In larger establishments, 0.06 per cent. is non-exemptable in respect of the first 1,000 employees and 0.054 per cent. is non-exemptable in respect of the remainder.

For establishments in the mechanical and electrical engineering construction industry sector, the levy is in several parts. For off-site employees, no levy is payable by establishments of up to 30 employees. For establishments of more than 30 employees, 1 per cent. of total emoluments is payable, of which 0.15 per cent. will be non-exemptable. For site employees, no levy will be paid on the first £50,000 of emoluments: on emoluments over £50,000 a non-exemptable levy of 1.12 per cent. will be payable. That is the reason for the necessity for the affirmative resolution which is before us today.

Essentially, this means that the smaller employers, who have wage bills for site employees of less than £50,000 sterling, do not pay any levy; but where an employer's wage bill for site employees exceeds that amount he has to pay the full rate of levy of 1.12 per cent. on that part of the wages bill which is over the £50.000 limit to which I have referred. There is no reduction or indeed exemption from levy in respect of training carried out.

The employer and employee members of the Mechanical and Electrical Engineering Construction Industry Sector Committee jointly agreed to the levy unanimously, and the proposals were subsequently approved by the board without dissent. Letters of support have been received from the two major employer organisations in the sector. There is thus consensus in the industry for the proposals, as required by the 1982 Industrial Training Act. I therefore commend the order to your Lordships. It has widespread support and it is necessary to meet the perceived future training needs of the industry. I beg to move.

Moved, That the draft order laid before the House on 14th April be approved. [19th Report from the Joint Committee.]—(Lord Lucas of Chilworth.)

Lord Bruce of Donington

My Lords, the House will be grateful to the noble Lord for having outlined so lucidly the effect and the text of this order. If I may say so, it was explained with a great deal more clarity than was the case in another place a little while back when the broad effect of the order was not put forward as lucidly as the noble Lord has put it forward tonight; and for this we are grateful.

I have a number of purely technical questions to ask regarding the order itself and one or two general observations to make. But I shall constrict my remarks to the shortest possible time because I know that my noble friend Lord Scanlon, who is extremely expert in these matters, will do much more than I can possibly do to enlighten your Lordships on the impact or this order. I am not of course well versed professionally in this field.

I should like to start with one general observation on the whole impact of training itself. I have no doubt that the Industrial Training Act 1982, the text of which I have had the opportunity to examine, is designed in the main to ensure effective examination by the board itself of the training abilities and training potentials of the employers in this field, from which it follows that the greater the number of exemptions, the more efficiently in the view of the board the industry is functioning. This leads to the rather odd position of the noble Lord being able to inform us first of all or the gross yield of the levy, which of course is never levied at all because by far the greater amount of the employers in the country are themselves exempt.

I have to take as a reference period, as the noble Lord would expect me to do, the year 1978–79. I observe that the percentage of firms exempt by size has increased considerably. For firms with between 61 and 99 employees there are now 76 per cent. exempt, whereas it was formerly 37.4 per cent. For firms with 100 to 249 employees it was at the end of 1984 some 84.7 per cent. as against 56.1 per cent. And so the figures go on and show in each case that, at any rate in the view of the training board, there has been a progressive increase in the efficiency of what I shall loosely call for the moment "in-house training" by the firms involved.

This sounds extremely encouraging. If one looks further—I am referring now to page 57 of the accounts for the year 1984–85—one finds a very similar trend when one examines the percentage of employees. This follows, broadly speaking, the same upward trend.

It is here that I venture to enter a caveat in case we should become too optimistic on the basis of the observed results. I do not challenge for one moment the ability of the board and its expert staff to be able to assess the relative training facilities in force at the firms that come under its purview. In all probability the figures, unlike some of the figures produced out of the hat by the noble Lord, Lord Young of Graffham, bear some resemblance to the facts of the situation.

My caveat is this—and we come back to what are sometimes called unit labour costs, a term which at the moment does not appear to be perfectly understood by Her Majesty's Government, or at any rate by those of their spokesmen who honour us with their observations in this House. It is assumed that a rise in unit labour costs somehow reflects an increased remuneration of the employees. It is a term quite often used, particularly, if I may say so in his absence, by the noble Lord, Lord Young of Graffham, in conjunction very frequently with remarks such as, "We are paying ourselves more than we are earning". The irresistible inference which the House has been asked to draw is that because unit labour costs are rising this is somehow due to increased remuneration paid to employees and that this in some way affects British competitiveness.

I venture to use this opportunity, as we are meeting in comparatively tranquil and non-partisan terms today, to repeat the observations which do not yet appear to have sunk in. Unit labour costs are the result of two factors—not only the wage costs of the employee working on the machinery, but also the efficiency of the plant and machinery on which he works. If unit labour costs go up, it is not necessarily the result of increased wages paid to the employee, whether it is on an hourly or a bonus basis; it is also a reflection of the efficiency, or obsolescence, or increased efficiency, of the machine itself. Until that point is assimilated, particularly in conjunction with the fact that industrial investment in this country's manufacturing industry is still lagging way behind that in France, Germany and Japan, the true significance of unit labour costs will not be understood.

I have said this on at least three occasions. I have not been contradicted by any Member of the Government Front Bench on my analysis of the position as an accountant. I hope therefore in future that when the term "unit labour costs" is used it is used well within that qualification. Training is meant to improve the efficiency of the individual in being able to work the machines and the plant which it is his task to manipulate in order to produce objects of value, in order to produce manufactures and so on. We sincerely hope that, in order to match the obviously successful endeavours that are being made by the training boards themselves, some effort will be made by industry to modernise itself with far more efficient plant than it is able to do in many cases—not in every case—at the present time.

Having used this occasion to redeliver that homily, which I hope I do not have to present again, perhaps I may now turn to the order itself on which I have some questions. The noble Lord said that the levy was in respect of the year ended 31st August 1986, whereas the interpretation clause of the order at paragraph 2(g) refers to "the twenty-second levy period" which is the period between the date that this order comes into operation and 31st August. Therefore, on the assumption that the date that the order comes into operation is 1st June, the levy period appears to be not one year but three months. I shall be glad if the noble Lord can clear that up because it is important.

Paragraph 3(4) of the order states that: The levy assessed in respect of an establishment wholly or mainly engaged in engineering construction activities shall be the aggregate of— (a) an amount equal to 1.12 per cent. of the sum of the emoluments of all site employees employed in the twenty-second base period at or from the establishment by the employer in so far as that sum exceeds £50,000". The noble Lord has already given the explanation of that provision. I am just anxious to determine beyond all reasonable doubt what is the quantum of the levy. Is the quantum of the levy based on the emoluments within one year—as defined by the noble Lord—on 31st August, 1986, or is it limited by the duration of the base period, which, I hazard a guess, may be from 1st June to 31st August 1986, which is a period of three months?

I also ask the noble Lord to explain a point in respect of paragraphs 6(3)(a) and (b); the significance of the figures given there of the portion of the levy that is equal to 0.054 per cent. of the sum obtained by multiplying the average emoluments of any employee by the number by which the number of relevant employees exceeds 1,000. In the next paragraph, there is a reference to 0.06 per cent. within certain other conditions. I am of course familiar with the whole theory of marginal relief as it applies in the taxation statutes but I wonder what is the particular significance of the figures of 0.054 per cent. and 0.06 per cent.

I have only one further query. The policy of the Government as I understand it and as far as it has been articulated (and it is articulated in varying voices from time to time), particularly by the noble Lord, Lord Young of Grafiham, who, unfortunately, because of other duties, is not able to be here today, is that the Government believe in the future prosperity of the country resting to a very large extent on small firms.

I am unskilled in these matters, and my noble friend Lord Scanlon will probably be able to enlighten me if the Minister is not able to supply a reply. However, it seems to me that in exempting firms employing fewer than 40 people, we may be affecting the training that is given to employees in those smaller firms. The noble Lord probably has a perfectly good answer to that point. It just occurs to me as a matter of common sense that, if one rests one's economy, which apparently we are supposed to do now, on the ability of small firms and on the contribution that they can make to the nation's economy, which is a suggestion I would not query for a moment, then one ought to be attending to the training of individuals working for firms who employ fewer than 40 people.

After all, a man is a man, whether he is employed by a firm employing 40 people or by a firm that employs more than 1,000 individuals. He is still the same essential individual employed in the same trade, and so on. I wonder whether the noble Lord can enlighten the House further on that particular point.

Those points are not put forward in any contentious attitude towards the Government. They have already received the approval of all the parties concerned. After a very brief and singularly barren discussion in another place, they appear to have received approval there. We therefore approve them. However, I sincerely hope that the noble Lord will take steps to ensure that the annual report and accounts of the EITB for 1985–86 will be reproduced with some rapidity. On going through the annual report and accounts for 1984–85, I observe that most of the statistical material takes us only to the end of 1984. With the drive for extra efficiency and cost effectiveness that is so resolutely pursued by the Government, we could have a rather greater show of efficiency in the production of those documents. It is never very pleasant on this side of the House, which does not have all the resources of information that are available to the Government through their boards of statistical researchers. It would be helpful if we could occasionally be provided with more up-to-date particulars. Having said that, we wish the order well and we entirely support it.

Lord Rochester

My Lords, from these Benches I should like to join in thanking the noble Lord, Lord Lucas of Chilworth, for the clear way in which he has explained the order to the House and has told us why it is necessary to seek parliamentary approval for it. We are glad to know that representatives of both employers and employees support the amount of levy proposed.

I do not intend to use this occasion to widen the debate unduly but, like the noble Lord, Lord Bruce of Donington, I feel that I must say just a few words about the present general position concerning industrial training as I see it. The noble Lord may recall that, on a number of occasions since so many industrial training boards were disbanded under the Education and Training Act 1981, I have expressed disquiet about the absence of adequate national training standards, and I have canvassed the idea of introducing a national training levy, with remission of the levy to the employers to be conditional on their providing training conforming to certain specified criteria.

Various other proposals of the same kind have been put forward, all based on the proposition that a clear link has been established between adequate training and industrial success. One proposal favoured by my noble friends is a remissible tax system under which companies spending more than a standard payroll percentage upon their industrial training would have all the excess remitted to them from public funds. Companies spending less than the prescribed amount would have to pay a tax equal to their underspending.

A recent report commissioned jointly by the Manpower Services Commission and the National Economic Development Office, suggested, as the noble Lord will know, improved tax incentives to stimulate greater investment in training and a statutory requirement that companies should disclose in their annual reports how much they spend on training. I recognise that it is desirable that any such provision should take account of the quality as well as the quantity of training and avoid undue bureaucratic interference.

In my view, however, it is essential that the present unsatisfactory position should somehow be improved in order that we can keep pace with our main trading competitors. It is significant that the authors of the report to which I have referred themselves felt that if some of the things they suggested were not speedily introduced on a voluntary basis they might have to be enforced by statute.

From an answer given by the Secretary of State for Employment to a Question on the subject that I asked two weeks ago, I understood that the whole matter is now under examination. I have also been pleased to learn from the statement made by the Under-Secretary of State when the order was debated in another place on 28th April last that he had recently written to all the non-statutory training organisations previously covered by the industrial training boards that have now been disbanded, asking them precisely what they are doing at the moment. I shall be grateful for any further information that the noble Lord, Lord Lucas, can give the House about that consultation exercise. In particular, will he please confirm that its findings will be made known to us and will he tell us when this is likely to be done?

Subject to those important qualifications, and of course, to any telling points that the distinguished former chairman of the Engineering Industry Training Board, the noble Lord, Lord Scanlon, may put before us in a moment, we on these Benches are willing to approve this order.

7.45 p.m.

Lord Scanlon

My Lords, I welcome this opportunity to support this order. In doing so I should like to mention some of the achievements of the EITB. Achievements in training do not receive the banner headlines that disputes and other aspects of the engineering industry receive, so I think it is right and proper that we should use this opportunity of placing before your Lordships' House some of those achievements.

Almost from its inception the Engineering Industry Training Board introduced module training—that is, training to standards and not training to a fixed period of time. Unfortunately, at that time neither employers, trade unionists nor educationists were convinced of the correctness of such a policy. However, over the time that has since elapsed all have been converted to this principle.

I say "all" because my own union was the last in this line; but I am pleased to report—again, it received no banner headlines—that in April of this year the largest union within the engineering industry accepted this principle. This opens the way to really meet the challenge of new technology. It paves the way for multiskill training and it paves the way for the retraining which will be so essential for future generations. No longer will recruits to industry be faced with the position of one set of training in their industrial life. Indeed, three and perhaps four different sets of training will be necessary so rapid is the pace of new technology. It is this achievement of the EITB in bringing about the acceptance of training to standards that will, I hope, make these things possible.

There are many other achievements but time will not permit me to outline them. However, let me say that the field of small firms, mentioned by my noble friend Lord Bruce of Donington, is receiving attention. The unused talents of so many women who could make a contribution in this industry, particularly in the new technologies, is not wasted on the EITB.

Lastly, I mention its work in the mechanical and engineering construction section which is responsible for the building of power stations, chemical plants and offshore oil rigs. It has introduced a national training scheme in spite of geographical and other difficulties. Indeed, it is that industry which, perhaps more than any, is responsible for this order which your Lordships are presently considering.

These, then, are some of the achievements of the EITB, but industry as a whole will be facing many challenges in the coming years. Not the least of these challenges is the massive decline in training over the past few years and the resultant skill shortages which will take place. Let me give your Lordships some facts and figures. Since 1978 training in the engineering industry has fallen by three-fifths, while management training—which after all is responsible for the good conduct of industry—has been cut by four-fifths. The number of technicians under training has been cut by half. The only occupational category in which training has increased is the critical category of professional engineers, scientists and technologists; but even here the 5 per cent. increase in those under training has to be set against the approximate 44 per cent. increase in the numbers in this category which will be necessary to meet the challenge of the future.

Apprentice recruitment has declined from around 25,000 in the mid-1970s to about 9,000 in the 1980s. Although much of that fall was to be expected because of the overall decline in employment, apprenticeships have declined far more rapidly than employment has declined. Before any of your Lordships say that this does not matter because of the YTS, let me say that the figure of 9,000 includes those trainees on the YTS who are undertaking engineering training. The result of this massive decline in apprentice recruitment is that not enough craftsmen and technicians are being produced. Skill shortages over the next few years are an absolute certainty and I am afraid that the most likely places to be affected in our country are those places where high-technology industries are concentrated.

Already there is plenty of evidence that skill shortages are beginning to affect British industry. At a time when there are nearly 4 million people unemployed, such skill shortages are holding back output, thwarting opportunities to develop new products and processes and stunting growth opportunities. A recent survey by the CBI and the MSC showed that one in seven manufacturing firms are expecting skill shortages to limit output. Among mechanical engineering firms, one in four said that skill shortages were limiting output. These shortages included professional engineers, machinists, technicians and electrical, electronic and mechanical fitters. There is no need to go further in this category because your Lordships' own Sub-Committee on Science and Technology, together with ACARD, have consistently brought before the House the importance of devoting time and resources to meet this anticipated shortage in all sections.

The implications have already been shown in a study by the National Institute of Economic and Social Research and if we leave our own examinations and consider the position with our industrial competitors the picture is even worse. The gap between ourselves and West Germany on training averaged a 63 per cent. German advantage over our training position. The most important reason for this was not lack of modern machinery but lack of technical expertise and training in Britain relative to Germany.

Finally, this question of training must be contrasted with the state of our whole manufacturing base. If we are to survive at all as a nation I submit to your Lordships that it can only be on the basis of a viable manufacturing base in which the engineering industry plays a predominant role. Within the engineering industry training is an absolute must to meet this challenge. It is with those aspects in view and in the hope that the EITB will be allowed to continue its role which, in my submission, it has so adequately fulfilled in the past, that I am pleased to support this order.

Lord Lucas of Chilworth

My Lords, I am most grateful to all three noble Lords for their reception of the order which I have put before your Lordships' House this evening. I do not quarrel with the fact that we have in this last 45 minutes or so moved into some rather wider areas, but I think that noble Lords will not expect me to pick up every single point as perhaps one should like to do in a debate on training in industry. However, there are a number of points on which I think the House would wish me to comment.

The noble Lord, Lord Bruce of Donington, does himself an injustice; I have not known the noble Lord to come to the Dispatch Box opposite without being very well versed in the matters that he intends to discuss. I should like to pick up one particular point that he made when he took some little time to discuss with us his views about unit labour costs, because when he and I have discussed this matter on previous occasions I think he would accept that I have always agreed that wages in fact are one contributory factor, but that there are others. I am sure that he will understand, in the light of today's report, which suggests that in fact wages are 8 per cent. higher than they were last year—against a background of a falling index for retail prices and the big fall in inflation—that one does not wonder why so much emphasis is put on the labour content of that cost.

Lord Molloy

My Lords, perhaps the noble Lord will forgive me for interrupting him, but we are not quite sure whether he said 8 per cent. increase in wages or 80 per cent. I think many noble Lords on this side of the House should like to know precisely what he said.

Lord Lucas of Chilworth

My Lords, I said 8 per cent. I have to say also that against that fact in the engineering trades and industries manufacturing output, investment, profits and indeed exports are all increasing. Output itself was some 6 per cent. higher than in 1985. In mechanical engineering there has been the highest annual growth since 1974. So I think it is not unreasonable to suggest that the industry is doing well and making its contribution.

The noble Lord, Lord Bruce, asked me specifically about the report and accounts for 1984–85 in relation to the number of firms exempted by size. I do not think that that indication of the number of firms gives quite the right guide to the volume of training that is being carried out. As the noble Lord, Lord Rochester, said, my honourable friend in another place, the Parliamentary Under-Secretary of State in the Department of Employment, has undertaken a review of the non-statutory training organisations to see exactly what has been achieved. Certainly I do not anticipate that my honourable friend in another place will expect to wait too long before drawing conclusions. Such conclusions will be made available to interested parties.

The noble Lord, Lord Bruce of Donington, also asked very specifically about the time period. This refers to the 12 months ending on 31st August. In fact the training levy amounts are coincidental with the academic year, while the governmental financial year is a different year, and the annual report and accounts are again different. I am sorry for that confusion, but I think that puts the record fairly straight.

A number of your Lordships mentioned the board itself. Perhaps I may remind your Lordships that the board was reconstituted in July 1985 for three years. We are awaiting a further appointment to the board to replace Mr. Terry Duffy, whose death sadly depleted his own union, the engineering industry and indeed this board. We hope that the Confederation of Shipbuilding and Engineering Unions will shortly make their choice for a reappointment. It is important that I mention the board because it has done rather well. It has introduced its new corporate plan which will be launched in a matter of weeks, and I think that this will give the noble Lord, Lord Bruce of Donington, some answers to the kind of questions he raised with regard to the figures in respect of training and so on. Certainly we—that is, the Department of Trade and Industry—are extremely pleased with the vigour that the new board has exercised since its appointment.

The noble Lord, Lord Rochester, raised the point of a national training levy. We have never felt convinced that this would be the best way forward. We believe that a national training levy would involve additional financial burdens for firms. It would certainly increase the amount of bureaucracy and I think that it would reduce the direct influence of employers on training that is currently being carried out.

While I am on the question of training, of course I recognise the points which the noble Lord, Lord Scanlon, made about skill shortages in engineering; but I would point out that overall the skill shortages remain at a relatively low level compared with previous economic cycles. Training and retraining of staff is now one of the major methods used by firms to overcome shortages. Though the board forecasts a shortfall in craftsmen and technicians, its corporate plan will be developing detailed action plans to help overcome these shortages. In particular, the board has committed £1 million to a grant programme designed to help in alleviating shortages in high technology key skills; and £200,000 has come from the MSC.

We recognise, as does the noble Lord, the importance of women in engineering and the great contribution that they can make. Of course it is a theme which your Lordships will recognise as coming from everything that all of us have been saying this year, which is Industry Year. The Engineering Industry Training Board proposes to use the YTS scheme to secure support for the first two years' initial training for 800 additional technicians and 500 craft trainees.

The board has also introduced an advanced technology task force—a new field force—which will be able to give quite positive help to firms in those areas over which they have been criticised for some little while. I remain quite convinced that, in accepting the Motion in my name, your Lordships will give the boards and indeed the industry further and greater encouragement themselves to invest some of their own profits in further training and, importantly, retraining, because, as the noble Lord, Lord Scanlon, said, it is upon those skills that our very future in engineering depends.

I hope that I have commented quite adequately in those last few minutes on the various issues that have been raised. I commend this order to your Lordships.

Lord Bruce of Donington

My Lords, I shall not press the noble Lord further in view of the time, but when he examines the Official Report tomorrow he will find that I asked a number of detailed questions with which he has not found it convenient to deal. As I say, in view of the time I wonder whether he will look in Hansard at the specific questions and references and will kindly reply to me by letter so that my files may be put entirely in order and I may have the complete picture from the Government's standpoint.

Lord Molloy

My Lords, may I also ask the Minister whether at some stage he will take up the point which my noble friend Lord Scanlon made and which has caused apprehension among those of us interested in the EITB—even long before it was established? For example, it appears that the German and sometimes the French equivalents of our training board seem to have more assistance and to be doing a more efficient job. That is a genuine reason for concern on both sides of the House.

Lord Lucas of Chilworth

My Lords, I apologise to the noble Lord, Lord Bruce, if I did not answer specifically a number of his detailed points. I shall look through Hansard, write to him in detail and, as is the convention in your Lordships' House, place a copy of the letter in the Library.

I say to the noble Lord, Lord Molloy, that I shall look at what was said and will comment in greater detail in a letter. But sometimes I am a little wearied when comparisions of a rather general nature are made with France, Germany or elsewhere, where conditions are very different. Their education system is different. Let me say this. In government we are sufficiently concerned to encourage more schools to adopt technology in their curriculum, thereby at an earlier stage introducing it for the consideration of young people. They may then take up the great opportunities that there are in our engineering colleges, polytechnics and universities, and thereby overcome to some extent the concern that the noble Lord raises. Noble Lords should not feel that that is a point that is ignored, although sometimes I find it difficult to match the comparisons.

On Question, Motion agreed to.

Lord Brabazon of Tara

My Lords, I beg to move that the House do now adjourn during pleasure until 10 minutes past eight.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 8.2 until 8.10 p.m.]