Industrial Training Levy (Construction Board) Order 2003

HL Deb 06 February 2003 vol 644 cc401-10

5.29 p.m.

Lord Davies of Oldham

My Lords, on behalf of my noble friend Lady Ashton of Upholland, I beg to move that the draft Industrial Training Levy (Construction Board) Order 2003 be approved. I shall speak also to the draft Industrial Training Levy (Engineering Construction Board) Order 2003.

The proposals seek authority for the Construction Industry Training Board and the Engineering Construction Industry Training Board to impose a levy on employers in the industries that they cover.

Industrial training boards—or ITBs as they are known—are non-departmental public bodies that operate under the provisions of the Industrial Training Act 1982. Their role is to ensure that the quantity and quality of training is adequate to meet the needs of the industries for which they are established. They provide a wide range of services, including setting occupational standards and developing vocational qualifications, delivering modern apprenticeships and paying direct grants to employers who carry out training to approved standards.

The Act contains provision for a levy on employers to finance an ITB's activities and to share the cost of training more evenly between the companies in an industry. It is for the employer members of a board to make proposals for the rate of levy for the industry it covers and for the Secretary of State to make an order giving effect to the proposals.

The orders before your Lordships give effect to proposals submitted by the CITB and the ECITB for their 2003 levy. Each proposal involves the imposition of a levy in excess of 1 per cent of payroll on some classes of employer. The Industrial Training Act 1982 requires such orders to be approved by affirmative resolution of both Houses. In each case, the levies are based on employers' payrolls and their use of sub-contract labour.

For both boards the proposals involve levy rates in excess of 0.2 per cent with no exemption other than for small firms. In such cases, a levy order can be made only if the proposals have the support of organisations representing the majority of those employers who pay most of the levy. It has been established through consultation with the main employer organisations in each industry that we are considering that the proposals have that support.

The Act requires ITBs to exclude small firms from the levy and each of these proposals does that. In setting the level at which the exemption takes effect, the boards have tried to strike a balance between helping small firms to grow and giving them unfair commercial advantage. However, both 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. 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 construction industry, a higher levy rate is imposed on employers' use of sub-contract labour than on their direct workforce. This 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 labour-only sub-contractors tend to have a transitory arrangement with the sub-contractors and are not normally involved in their training.

In the order before your Lordships, the CITB proposes that both its levy rates should stay the same as those approved by the House last year—namely, 0.5 per cent of payroll for direct employees and 1.5 per cent of net expenditure on sub-contract labour. Employers whose combined payroll and net expenditure on subcontract labour is less than £61,000 will not have to pay the levy. That equates to an employer who employs 3.5 persons full time throughout the year. It is estimated that the provision will exempt 40 per cent of employers.

In the engineering and construction industry, head offices and engineering construction sites are levied at different rates to reflect the fact that head offices, where workforces are more stable, are able to plan and manage most of their training needs themselves.

The ECITB proposes that both its levy rates should stay the same as those approved by the House last year. They are as follows: 0.18 per cent of the total payroll and net expenditure on sub-contract labour for head offices. Head offices whose combined payroll and net expenditure on sub-contract labour is £1 million or less will not have to pay the levy. This equates to an employer who employs around 40 persons full time throughout the year. It is estimated that the provision will exempt 80 per cent of head offices.

There will also be a 1.5 per cent of the total of payroll and net expenditure on sub-contract labour for engineering construction sites. Sites whose combined payroll and net expenditure on sub-contract labour is £75,000 or less will not have to pay the levy. This equates to an employer who employs four persons full time throughout the year. It is estimated that the provision will exempt 32 per cent of sites. The proposals are expected to raise between £109 million and £113 million for the CITB and around £11 million for the ECITB.

Your Lordships will know from our annual debate that the CITB and the ECITB exist because of wide support from employers and employer interest groups in these sectors. There is a firm belief that without them there would be a serious deterioration of training in these cyclical, peripatetic and project-based industries, leading to a real fear that their skill needs would not be met.

The draft orders will enable the two hoards to carry out their vital training responsibilities in 2003. I believe it right that the House should approve them. I commend the orders to the House.

Moved, That the draft order laid before the House on 20th January be approved.—(Lord Davies of Oldham.)

Lord Skelmersdale

My Lords, as the Minister said, the Construction Industry Training Board provides grants to the construction industry for training related to that industry. The majority of its training courses are devised for qualifying a construction workforce. I have no complaint about the CITB, which I know does an excellent job for the construction industry in general.

However, I want to raise a matter which, arguably, should not have to be mentioned on the Floor of the House but in a statutory instruments policy committee, which still does not exist in either House. However, as we heard during Questions last week, a proposal for such a committee is in the pipeline and will go before your Lordships' Liaison Committee at its next meeting. Be that as it may, there is a clear problem regarding the Construction Industry Training Board levy—although I am sure to be told that it has nothing specifically to do with this order.

In a nutshell, what should be the position of a firm or, indeed, a sector, that derives no benefit from the board's training activities? That is the position in which hire companies find themselves. There is a very limited number of training courses for them, yet they contributed a mammoth £2.7 million to the board last year. The modern hire and rental industry provides not only items such as concrete mixers and cranes, but marquees, mobile mortuaries, wedding dresses and speed cameras. All are covered by the board's activities.

It is therefore not surprising that during 2001, the Hire Association Europe—the trade body for the hire and rental industry—mounted a legal challenge to the levy in the Queen's Division at the High Court. On 23rd November 2001, Mr Justice Keith handed down his judgment on the argument mounted by the Hire Association Europe that one of its member firms, Gibbon Equipment Hire Limited, did not cierive any benefit from the training offered. He found that although he did not believe that this fact assisted in construing the legislation, he did believe that it would be a good argument for saying that the letting out on hire of plant equipment should not have been included in the list of activities covered by the board in the first place—in other words, it was not the then current CITB training levy order that was at fault but preceding legislation.

For some reason, which I do not know, it was not until a year later that a Member of another place took up the issue with the Minister, Mr Lewis, a colleague of the noble Lord on the Government Front Bench today. He pointed out, I am sure quite correctly. that levy orders did not specify who was to pay the levy, only how; and, as the Joint Committee on Statutory Instruments found out, a de minimis size of firm, not, I repeat, the type of firm, a matter to which the Minister referred in his opening remarks.

The Minister's colleague said that the types of firm are to be found in SI 1992 No. 3048. I regret to say that they are not. The 1992 order is merely an amending order relating to the construction of the board itself. The order he should have referred to in his letter is SI 1964 No. 1079, and specifically Schedule 1 thereto, which does list types of firm—interestingly, by the operations they conduct rather than by the type of firm per se.

Noble Lords may think, as I do, that the Minister's letter was less than helpful. Were it not for your Lordships' Library staff this morning, I would not have got to the bottom of all this. However, having now discovered what the Minister's letter should have said, I must be fair and concede that he went on to say: I am willing at any time to consider proposals from the construction industry or any sector of it, including the hire and rental sector, to change the definition". I am informed that a meeting between departmental officials and a Mr Coyne of the Hire Association Europe was held on 27th November last. However, to my knowledge, the results of that meeting seem to have disappeared into what the space industry calls a black hole.

Was the Minister briefed on the outcome of that meeting? What is his current thinking on the matter? Lastly, and most importantly, would the Minister be receptive to a meeting with me and officials of the Hire Association Europe in order that we may right a wrong which has persisted for many years?

Lord Puttnam

My Lords, I do not wish to delay the House—the debate of my noble friend Lord Plant is already much delayed—but each year I rise to make a point about this order, which I believe is one of the most important orders to pass through the House. To an extent, it is misunderstood and not sufficiently appreciated.

The order represents a triumph for two important industries which have organised themselves in such a way as to create adequate training resources for the reasons set out by the noble Lord. But that is only part of the story. In their manifesto, the Labour Government committed to reviewing the whole issue of training levies across the spectrum. Many industries conform to exactly the same conditions as the construction and engineering industries—that is, they are transient and cyclical—and, for the life of me, I cannot understand why the Government will not pay attention to this important issue. It is impossible to underestimate what damage would have been done to the construction industry and the engineering industry had the order not been in place originally.

I raise the question now because there will be an opportunity to take another look at this issue during the passage through the House of the Communications Bill. The draft Bill creates an opportunity for the film, television and communications industries to commission an audit of skills and to recommend industry training standards for the entire communications world.

I am seeking some kind of amendment under which Ofcom would have reserve powers to impose a levy in the event of the industry wilfully ignoring its self-imposed strategy. I do not believe that that is unreasonable.

The most important point made by the Minister is that this is an arrangement made by the majority in the engineering and construction industries. The biggest single problem in Britain, where there is an overwhelming skills deficit in many industries, is that those industries are forced to go ahead at the speed of the most reluctant and recalcitrant funders of training. That is bad for the economy, bad for Britain and bad for those industries.

I commend the order to the House as an example of what is possible when industries are far-sighted and have a full understanding of the long-term implications of their training requirements.

5.45 p.m.

Baroness Blatch

My Lords, I wish to preface my words by agreeing at least with the thrust of the remarks made by the noble Lord, Lord Puttnam, to the effect that the encouragement of training can only be a good thing. We shall debate how that should be achieved, but we shall argue about the means to the end rather than the principle itself. Like my noble friend Lord Skelmersdale, I have no difficulty in agreeing that the CITB does a good job and that it has served the construction industry extremely well.

However, I hope that the noble Lord, Lord Puttnam, will agree that certain questions must be raised. First, I believe that the whole policy needs to be revisited and I wish to put that question to the Minister tonight. Secondly, some form of redress must be provided for those concerns which feel hard done by. Each year the orders pass through the House almost on the nod. The industry itself determines the levy; noble Lords agree that it is a good thing and the orders are approved. But within the construction and engineering sectors some companies derive no benefit whatever from them. They face a compulsory tax which they have no option but to pay. Therefore there ought to be in place a mechanism for redress, but there is none. That appears to me to lead to compulsory pressure and punishment.

In paragraph 3 of the regulatory impact assessment it states that: An employer who provides no training will have to pay a levy but will get no grant from the Board". It is possible for companies to pay the levy and then to provide training at their own expense, but still receive nothing from the board. The board reaches a decision based on criteria approved by itself on who should or should not receive grant-in-aid. The sum quoted by my noble friend in relation to hire companies is £2.7 million. That is a great deal of money for which the companies see no return.

I wish to raise one or two further important questions. The House has two choices before it: either to reject the order or to accept it. The noble Lord on the Front Bench opposite need not send messages to his colleagues outside because I shall support the second option, but I do so with a number of reservations. In advising acceptance of the second option, the regulatory impact assessment states that the consequence of approving the order would be that, with its operating income secured, the board would be able to continue to organise, manage and fund the range of training services that have been developed on the industry's behalf. The cost would be shared between firms". Who monitors the process and who determines the quality? Given that this covers one of only two compulsory boards approved by the Government, how do they satisfy themselves that the proposal represents good value for money?

Secondly, a note in paragraph 20 of the regulatory impact assessment states that: The purpose of the Industrial Training Act is to encourage adequate training in any given industry"— at this point the points made by the noble Lord, Lord Puttnam, are important— The cost of training itself cannot be quantified in the examples which follow". I must ask why the cost cannot be quantified. The scheme has been running for so many years that it should be possible for the Government at least to have some form of quantification with regard to the cost.

The assessment goes on to state: It is not possible to estimate the extent to which the imposition of a levy/grant mechanism induces employers to incur additional training costs to those which they might or might not already be incurring, particularly as many employers will have operated under these arrangements for a number of years". Again, unless those estimates are made, how can anyone determine the value that is added by the system? I cannot believe that it is not possible to measure its value and I wish to press the Minister a little on the point. How can the House state that the system is good and is working well, providing high-quality and a sufficient quantity of training, when the Government are not in a position to know what is being delivered?

Paragraph 1 of the regulatory impact assessment states that, the Secretary of State [is empowered] to set up industrial training hoards to ensure that the quantity and quality of training are adequate to meet the needs of the industry for which they are established". However, the document also makes it clear that the Government cannot measure the quantity and quality of the training provided. How can the Government come before Parliament and state that they are ensuring that the quality and quantity of training is adequate to meet the needs of the industry?

As I have said, I seek to make two important points. The first concerns redress for those companies within the sector which feel hard done by because they are paying a tax from which they derive no benefit. in his opening statement the noble Lord on the Front Bench opposite stated that all those involved in the sector agree with the scheme, but noble Lords on this side have mentioned at least one rather substantial part of the sector, one which deals with its own training requirements, that receives no benefit as a result of the levy.

My final point relates to the examples given in the impact assessment. We are given a list of five examples, but no scenario is set out for any single one. We are told that there will be costs of £30 for completing a levy return and £30 for processing a levy assessment: we do not even know whether that is good value for money. Huge sums of money are incurred in completing grant claims. In one case it is £23,926; in another only £90; in another nothing at all. There are further sums mentioned of £2,364 and £21,000. It would be helpful to know the scenario for each of these examples in order to judge whether particular areas of industry within the sector are receiving value for money.

I support what my noble friend Lord Skelmersdale said on behalf of the board. It is incumbent on the Minister to give us the outcome of the meeting with Mr Coyne when at least the possibility of revisiting the 1964 order was discussed. If the meeting did not produce a definitive outcome, I should like to place on record our belief that the 1964 order should be revisited and that there should be a further examination of the definition of companies that qualify to come within the terms of this compulsory order.

Baroness Sharp of Guildford

My Lords, I have very little to say about the order. It is the first time that we have had the impact assessment when debating these orders. It is an interesting document to have, but I echo the words of the noble Baroness, Lady Blatch. It would have been more interesting had we been given slightly more information, and if, as she says, scenarios had been included with the figures. Blankly setting out the figures leaves one wondering what firms are involved and why the figures are what they are.

To echo the words of the noble Lord, Lord Puttnam, this is a scheme that the industry wished upon itself of its own volition when it had the choice of whether to carry the levy forward. It has received quite wide support. In the building industry there is a problem of what is termed "the lump"—the self-employed who in many senses are exploited—and the problem of the lack of qualifications. One sees that particularly in the domestic sector. Small firms are exempted from this provision, and the problem of the "cowboys" in the domestic sector is a very real one. It is one of the reasons why training is necessary. The danger of allowing each firm to say whether it will opt in or opt out is that those firms that opt out do not train anyone. We see this time and again. They spend no money on training and then they poach from those who have spent a great deal of money on training. That is the whole concept behind the levy system— otherwise, one gets free riders in the system.

It was agreed at the time when the industrial training levy boards were undone that those industries that wanted a levy system would hold a ballot and would agree among themselves. This provision is supported by the large firms in the industry which are beginning to do a great deal of training. Some are now pursuing a policy of not employing people who are not qualified—an approach we want to endorse.

On the whole, we endorse these procedures. We should like to see the issue of small firms in the industry considered; and perhaps some form of regulation on small firms considered more widely.

Lord Davies of Oldham

My Lords, I am grateful for the extensive debate we have had on the order, an increase of at least 50 per cent in the length of time spent on it last year. Useful contributions have been made. I shall take them in order and seek to reply as accurately as I can.

I hear what the noble Lord, Lord Skelmersdale, says about the question of whether an accurate response was received in the letter—namely, as to which order we are talking about. He is right that the scope of the industry does not come under this order, which is about the levy to be imposed. As I indicated, it is the same figure as last year.

Baroness Sharp of Guildford

My Lords, the hire equipment industry covers such plant as large cranes, and it is very important that people who are properly qualified operate them.

Lord Davies of Oldham

My Lords. I accept that point entirely; indeed, I accepted the entire contribution of the noble Baroness, Lady Sharp, when she emphasised the virtue of this system with regard to training. I was not indicating a restriction on the scope of the two training boards; instead, I was pointing out that this was not the order under which to debate the scope of their activities. This order is about the levy to be raised.

We have a small dispute with the noble Lord, Lord Skelmersdale, about whether we have accurately defined the situation in terms of the statutory instruments we are talking about. I do not want to be pernickety. but as we have just had a debate on agriculture which went on for about 50 minutes and revolved around the accuracy of the documents, I should point out that the reason we referred to the 1992 order is that it amended the Industrial Training (Construction Board) Order 1964. Therefore, if we are to effect change along the lines advocated by the noble Lord, we will seek to amend the 1992 order, which is more recent. That is the area I am seeking to clarify.

The noble Lord also made a more substantial point, to which the noble Baroness, Lady Blatch, referred, regarding the representations made by the plant and tool hire sector about the CITB's scope and whether it should be included. The noble Lord was very fair in acknowledging that these discussions have been going on for some time and that a significant number of representations have been made to Members of both Houses of Parliament. The Minister is in listening mode with regard to these representations; one meeting has already taken place. However, I assure the noble Lord that if he and his colleagues wish to make additional representations, now is the time to do so. Consultation needs to take place for a period of time and the outcome will determine whether amendments to the order are effected. I am grateful to the noble Lord for making that point and assure him that the Minister in another place will be pleased to receive representations on this front.

My noble friend Lord Puttnam was as creative as ever about the effectiveness of training in an area that he knows well. I hear what he says about the potential of the Communications Bill. In my experience, the Communications Bill has almost limitless potential for everything to come within its scope. He will know that Ministers in another place are struggling to keep a grasp on that which has already been fully covered in the legislation. I have no doubt that my noble friend is encouraging the Government to take the issue on board as well as serving due notice that he intends to use the debate on that Bill, when it arrives in this House, to further the important cause that he addresses so well.

Broadcasting has precious little to do with this order, but my noble friend tempts me. We all know that, as the noble Baronesses, Lady Blatch and Lady Sharp, said, the media are important areas when it comes to the effectiveness of training. My noble friend will seize his opportunity and I will also ensure that Ministers responsible for the Communications Bill—I have a very small part to play in it—will take due cognisance of his representations this evening.

I shall answer one or two specific points raised by the noble Baroness, Lady Blatch. There is a structure for appeals against payment of the levy. Employers can appeal if they believe that they do not fall within the scope of the ITB or if they think that their levy has been wrongly calculated. Appeal in the first instance is to the ITB.

Baroness Blatch

My Lords, that is the point I was making. As long as the employers were within the scope of the order, even the judge who was sympathetic to their case was unable to help them. Once within the scope of the order they cannot do anything about it and once the levy has been agreed by the industry and approved by Parliament, there is almost nothing on which they can seek redress. There needs to be a voice or some mechanism for them at least to ask for a reconsideration of the definition of whether they should be within the scope of the compulsory levy. That is why the 1964 order is relevant to this debate.

Lord Davies of Oldham

My Lords, I hear what the noble Baroness says, but let us be clear about the concept of both these boards. They reflect the wishes of employers on the operation of these issues.

The noble Baroness indicated earlier that some aspects of how the boards work can create controversy in the industry. She seems to be asking for much greater government direction and interference with the body. We are saying that the boards have proper responsibilities on behalf of the industry. They know what their training requirements are. As the noble Baroness, Lady Sharp, said, the levy is imposed on those who fall within the scope because of the range and scale of their activities, for the very proper reason that otherwise they would be poaching on those who contribute to the levy and do the training while they themselves were getting off scot-free of any such obligation. That is the philosophy behind the boards.

We recognise that the legislation has survived periods in office of governments of both parties and makes a valuable contribution to the development of training in this country—significantly and differentially so. After all, there are only two areas in which these training boards exist. In other areas other strategies are employed.

The noble Baroness also asked how the Government monitored the performance of the ITBs. They are required to submit an annual report of their activities together with a statement. A copy of the annual report is laid before Parliament. Officials from the department attend all ITB board meetings and receive copies of all committee papers and minutes. Information about the performance of the boards is kept and followed in departments.

We have had a range of questions today about the philosophy behind the board and about its scope. I emphasise again that the order is concerned solely with the levy, which is at the same level as was imposed last year. Accordingly, I commend the order to the House.

On Question. Motion agreed to.