HL Deb 14 January 1999 vol 596 cc354-8

8.2 p.m.

Lord Hunt of Kings Heath rose to move, That the draft order laid before the House on 1st December be approved [3rd Report from the Joint Committee].

The noble Lord said: My Lords, it may be for the convenience of the House if I speak to this order and the following order together.

The proposals before your Lordships this evening seek authority for the Construction Industry Training Board and the Engineering Construction Industry Training Board to impose a levy on the employers in their industries to finance their training activities, including grants schemes, and to fund the operating costs of the boards. Provision for this is contained in the Industrial Training Act 1982 and the orders before your Lordships would give effect to proposals submitted by the two boards.

The proposals from each board include provision to raise a levy in excess of 1 per cent. of an employer's payroll. The Industrial Training Act 1982 requires that in such cases the proposals must be approved by affirmative resolution of both Houses. In each case the proposals are based on employers' payrolls and their use of sub-contract labour.

As required by the Industrial Training Act, both boards have provided for the exemption of small firms from the levy. The level at which this exemption takes effect is unchanged from last year and aims to strike the right balance between helping small firms to grow and giving them unfair commercial advantage. However, the boards are committed to supporting the training efforts of small firms, whether or not they pay levy. All companies need a skilled, competent workforce if they are to be competitive and small firms in these sectors are encouraged to take advantage of the services offered by the boards and to provide opportunities for trainees and apprentices.

In the case of the Engineering Construction Industry Training Board, the proposals are different from those approved by your Lordships last year in that the higher rate on net payments made by employers for labour-only services has been removed. That is because the rationale for the different rates was questioned in the last independent review of the board and the board was recommended to move to a single rate. Additionally, the rate for off-site establishments is reduced.

The Engineering Construction Industry Training Board treats off-site establishments and construction sites separately and proposes to raise a two-part levy. For off-site employers the rate is reduced from 0.4 per cent. to 0.18 per cent. of the total of payroll and net expenditure on labour-only sub-contracting. Those off-site employers employing 40 or fewer employees are exempt from paying the levy. The rate for site employers is 1.5 per cent. of the total of payroll and net expenditure on labour-only sub-contracting. There is exemption for site employers with combined payroll and net labour-only payments of £75,000 or less.

The CITB proposes to raise a two-part levy: 0.38 per cent. of payroll and 2.28 per cent. of net expenditure by employers on labour-only sub-contracting; employers with combined payroll and labour-only payments of less than £61,000 are exempt from paying the levy.

These rates represent an increase for directly employed labour—the previous rate was 0.29 per cent. The board states that the increase is necessary for two reasons. First, there are continuing changes in employment practices in the industry which significantly affect levy arrangements. Employers are still moving from labour-only sub-contracting towards direct employment and, because the levy on labour-only sub-contracting is at a higher rate, this has led to a reduction in the board's income.

At the same time, the greater numbers of direct employees is expected to lead to an increase in the amount of training being carried out and a corresponding increase in grant and other support provided by the board.

The last independent review of the board also questioned the rationale for the different rates and the board was recommended to move towards a single rate. Subject to further consultation with the industry it is planned that this will be phased in over the next four years.

For both boards the proposals involve levy rates in excess of 0.2 per cent. with no provision for exempting employers who make their own training arrangements. In such cases the Industrial Training Act 1982 requires boards to demonstrate that the proposals have the support of the employers in the industry. I am satisfied that each board has obtained that support.

These proposals are expected to raise nearly £61 million for the CITB and around £10 million for the ECITB. Both boards will use the money to fund a range of training activities including grant and initiative schemes, new entrant training and operating costs.

Your Lordships will know from previous debates that the CITB and the ECITB are the only two statutory industry training boards. The last review of the boards looked at the need for their continuance and included a survey of the views of employers in each sector. The reviews concluded that both boards were widely supported by employers and sectoral interest groups and that, without them, there would be a deterioration in training in their sectors.

Each board has now developed detailed action plans which address the specific objectives and recommendations of the review. These are already starting to increase their effectiveness and further develop their capabilities, especially at the strategic level.

I am also pleased to tell your Lordships that each of the boards has successfully completed its first year as a government recognised national training organisation for its sector. It is an important development for them because it places them very firmly within the national network of sector-level training organisations, which is now largely complete, and puts a new emphasis on strategic activities and partnerships.

This is helping the boards to contribute even further to the National Skills Strategy. For example, both boards have developed nationally recognised labour market assessment systems, which will contribute to the important work of the Regional Development Agencies and the National Skills Task Force. Each has also set up New Deal initiatives.

The draft orders before the House will enable the two boards to carry out their training responsibilities in 1999, and I believe it is right that the House should agree to approve them. I commend them to the House. I beg to move.

Moved, That the draft order laid before the House on 1st December be approved [3rd Report from the Joint Committee].—(Lord Hunt of Kings Heath.)

8.8 p.m.

Baroness Seccombe

My Lords, I apologise for my voice, which is disappearing fast, but I hope to be audible. I am grateful to the Minister for the clear explanation of the orders. The two training boards referred to in the orders operate with the general support of firms in the construction and engineering construction industries. With that in mind, we see no reason to object to the raising of the levy in principle.

We on this side of the House, however, have a number of legitimate concerns which arise out of the arrangements. There are three areas which I wish to question. First, there is the question of the effects of the rebalancing of the rates. I recognise that there are valid arguments for the board's decision to increase the payroll rate on labour-only sub-contracting from 0.29 per cent. to 0.38 per cent. It seems a small increase, but in practice it could seriously affect some of the larger firms in the industry. To give but one example, an employer with 1,000 employees and a payroll of £20 million a year currently pays a levy to the CITB of around £58,000. Under the new arrangements, this contribution would increase to nearly £77,000. With the construction industry facing a recession, it seems a most inopportune moment to introduce the changes which effectively will put yet more burdens on industry. What estimate has the noble Lord made of the effects on employment in the industry of these rate changes?

We on these Benches recognise the contribution made to the economy by small firms. We are anxious to ensure that any arrangements will not hamper their development. But, while I recognise that there is a need for fairness and clarity, the question arises of how the Government intend to handle the problem of the status of smaller firms. The call for the lowering of the threshold for entry to the scheme is a result of the reduced income of the board, which in turn is the result of developments in the industry which are beyond the Government's control. There are a number of smaller firms which would rather not pay any levy but would still hope to gain the benefits of a better-trained workforce. Are the Government considering mandatory registration of firms? If the Government decide to introduce mandatory registration, will it be done next year under the order or will it be done under the interim period?

There are also questions about the way in which the Government's New Deal programmes interact with the existing grants systems. How will the orders relate to training for 18 to 24 year-olds under the New Deal? Will there be separate funding arrangements? If that is the case, will employers be able to draw on both sources of funding to finance training for 18 to 24 year-olds?

With those questions, which I hope the noble Lord will address this evening, I return to where I began. We accept that many firms in the industry welcome the scheme. We do not, therefore, object in principle to their continuation.

8.14 p.m.

Lord Hunt of Kings Heath

My Lords, first I thank the noble Baroness, Lady Seccombe, for her warm support for the proposals. She raised a number of points to which I shall endeavour to respond. The issue of the effect of the additional levy on large construction companies depends on the individual circumstances of an individual employer, particularly the mix of directly-employed and sub-contract labour that it has. The Construction Federation, the largest grouping of employers' organisations in the industry, has said that the movement towards a single unified rate of 0.87 per cent. in 2003 would have a fairly marginal effect for its members, who currently pay an average rate of 0.79 per cent. It is an average; some companies will be affected more than others. But it is important that we recognise that this is a phased introduction of change. Looking at the first year or two, we believe the relative change is modest, to allow companies to adapt to new circumstances.

In answer to the noble Baroness's point about the impact of this on the economy generally, it might be worth me saying that overall construction activities continue to grow in the sector, although there are signs of a slow-down. Contract prices appear to be rising faster than inflation, although the export of building materials continues to slow down. Experience of the economy over many years suggests that, even in a situation where the economy may be tight, the need for training is ever more essential. For that reason alone, we wish to support the activities of the two boards.

The noble Baroness asked why small firms are excluded when most employers' federations believe that all firms within the industry should pay. There is no doubt that in the last review there are views within the industry both for and against. But the Industrial Training Act 1982 states that a levy order should not be approved unless it provides for the exclusion of small firms. It is important to note that, if small firms were brought into the levy system, the possibility is that a great bureaucracy would come into operation without bringing any substantial increase in income.

The noble Baroness raised the issue of mandatory registration. It is not the intention of the primary legislation that the onus would be on the employer to register with the boards, but the training board raised the issue. It has been told that a change to primary legislation would be considered if a convincing case could be made, taking full account of the costs and the resulting benefits of such a change, as well as giving full consideration to the administrative and bureaucratic implications.

The work of these boards is important and deserves our support. I commend the orders.

On Question, Motion agreed to.