HL Deb 19 January 2004 vol 657 cc887-93

5.52 p.m.

Lord Davies of Oldham rose to move, That the draft order laid before the House on 18 December 2003 he approved [4th Report. from the Joint Committee].

The noble Lord said: My Lords, I beg to move that the draft Industrial Training Levy (Construction Board) Order 2004 be approved and, with the leave of the House, I shall speak also to the draft Industrial Training Levy (Engineering Construction Board) Order 2004.

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

Industrial training boards—or ITBs as we know them—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 are 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 costs of training more evenly between 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 order before the House would give effect to proposals submitted to the CITB and the ECITB for their 2004 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 net payments for 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 are necessary to encourage training in the industry and that one of three conditions is satisfied.

The first condition is that proposals have the support of organisations representing more than half the employers who together are likely to pay the majority of the levy. The CITB proposals meet that first condition.

The engineering construction proposals are supported by the industry's employer organisations. However, currently those organisations represent fewer than half the employers, although together those employers are likely to pay the vast majority of the levy. The first condition in this case, therefore, has not been fully met. In this case, an order can be made only if one of the other two conditions is satisfied.

The second condition is that the order is made less than two years after the making of the former levy order giving effect to proposals in respect of which the first condition was satisfied. An order was made in 2003 that had the support of the employer associations representing more than half the employers. Those employers also paid the majority of the levy. This means that for the current proposals, the second condition is satisfied.

The Act requires ITBs to exclude small firms from the levy, but it does not set the minimum size threshold. Each of these proposals contains an exclusion provision that the industry considers to be appropriate.

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; that is, 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 sub-contract labour is less than £61,000 will not have to pay the levy. That equates to an employer who employs three people full-time throughout the year. It is estimated that the exemption will effect about 60 per cent of employers.

There is a higher levy rate on sub-contract labour 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 sub-contract labour tend to have a transitory arrangement with their sub-contractors and are not normally involved in their training.

The ECITB proposes to impose the same rate as last year on site contractors; that is, 1.5 per cent of total payroll and net expenditure on sub-contract labour. Contractors 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 to five people full-time throughout the year. It is estimated that the provision will exempt 37 per cent of the sites.

This year, however, there will be no levy on head offices. This is in response to recommendations from the board's recent quinquennial review and its own strategy review, which was carried out by external consultants. Both reviews recommended that, for the short term, the board should focus its activities at craft, supervisory and first-line management levels. These are currently the areas of greatest skills shortage. The proposals are expected to raise for the CITB between £116 million and £120 million and for the ECITB £8 million to £9 million.

Your Lordships will know from our annual debates 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. That was again confirmed by the recent reviews of both boards, carried out by the Department for Education and Skills last year. The reviews found that the principle of the levy is still strongly supported in each industry. They recommended that CITB and the ECITB should continue to act as statutory industrial training boards with levy-raising powers.

The draft orders will enable the two boards to carry out their vital training responsibilities in 2004, and I believe that it is right that the House should agree to approve them. I commend the order to the House.

6 p.m.

Baroness Seccombe

My Lords, I thank the Minister for outlining the measures in the orders. I understand that there is a general acceptance within the construction industry of the work done by industrial training boards and, as a consequence, there are no significant objections to the levy charged. We agree that boards are necessary because of the nature of the industry. Left to themselves employers are reluctant to take on the significant burden of training their employees. Therefore, in order for there to be a well trained workforce, the costs of training must be met collectively.

I am pleased to hear that the boards do a good job setting standards, developing qualifications, facilitating modern apprenticeships and paying grants to employers. Today I have received a letter from CITB Construction Skills which says that, in 2002 for every £1 of levy received, 93p was paid out directly in training grants, allowances and college fees, and the industry received £1.61 in total benefits, payable from the total income from CITB-Construction Skills and not just the levy". That is indeed worthy of congratulation.

Small businesses are exempt from paying the levy, and the orders set out the maximum net expenditure on subcontract labour possible for a firm before it has to pay the levy. It is obviously important to get the amount right. Too high or too low would have a negative impact and distort the market. On the figures of £75,000 and £61,000, I ask the Minister whether there is consensus on this issue. In addition, is the issue of a firm falling within the remit of the two industrial training boards a contentious subject? What consultation has the Minister had with the industry or any part of it in the past year regarding a possible change in the definition of a firm covered by the order?

I would also like to take this opportunity to ask the Minister about the progress of sector skills councils, of which one, out of only four that have been fully licensed so far, is for construction. Can he reassure the House that the progress made over the past year represents value for money, given the fact that £12 million has been paid out of public funds for all sector skills councils, and the chairman is quoted as saying—this is a little unnerving— we have the power because we have this big budget"? The benefits that training brings to the economy and to the country in general is hard to underestimate and any measure that serves to enhance the number and quality of skilled workers must be welcomed. However, it is essential to keep an eye on the benefits that industrial training boards bring to the construction industry because we must avoid the levy becoming yet another tax on business. For the mean time, I am satisfied that the benefits are significant. They will justify the levy charged and, as a consequence, I will not be resisting the orders.

Baroness Sharp of Guildford

My Lords, I, too, thank the Minister for introducing the two orders which come up regularly at this time of year. From these Benches we regularly welcome them. Both the Construction Industry Training Board and the Engineering Construction Industry Training Board represent what, in our eyes, is in many senses an ideal situation. The levy imposed is voluntary and it has the support of all sides of the industry. It enables the cost of training to be spread evenly across the industry with the exception of very small firms, whose turnover is, as the noble Baroness, Lady Seccombe, identified, respectively £75,000 and £61,000.

Revenues obtained from the levy are used by the industry to provide a wide range of training. I particularly welcome initiatives that have been taking place within the industry to make employment in the industry contingent on all employees meeting minimum standards of training and commitment on the part of the major employers to ensure that that is so and to ensure that all employees are offered opportunities to upgrade their qualifications when appropriate.

It seems to me that the differential levy on direct and subcontract labour, which has been a source of some contention within the industry, is justified. Within the industry there are the continuing problems of the cowboys who pay nothing for training and poach from others who have contributed to training. The great advantage of the levy is that it limits the degree of poaching; it limits the free-riders in the industry.

I have very few questions because we have seen such orders on previous occasions. However, I would like to ask about the progress of sector skills councils. The construction industry is an area where we have seen a sector skills council established but it would be interesting to know whether other sector skills councils are in the wings waiting to be launched and how far progress is being made. I also wonder whether any other sector is showing an inclination to have an industrial training levy along the same lines. It is within the ambit of the Employment Act that was enacted some two years ago. It was left to each of the sector skills areas to decide whether they wished to go for a levy grant system of this kind. I wonder whether any other sectors are interested in moving in that direction.

Lord Davies of Oldham

My Lords, I am most grateful for the response of both noble Baronesses who have spoken in this short debate. As they have both indicated, we have been here before. Exceptionally, this year there is no change to the levy. We feel that we are going over well tilled ground. None the less, it is essential as the levies are subject to the affirmative procedure and, therefore, we are duty bound to consider them with all the seriousness that we bring to such debates.

I am extremely grateful to the noble Baroness, Lady Seccombe, for the figure of 93p in the pound. It was not contained in my notes. I have various measures of value for money, as I believe that we hold these boards in high regard for the work that they carry out, but I cannot think of a more graphic illustration than that given by the noble Baroness. I am grateful for it. I have no doubt that, if I am in the privileged position of addressing these issues again at the Dispatch Box, I shall keep an eye on that figure an excellent measure.

The exemption criteria for small firms is not government-imposed. The industry itself brings forward a proposal for the cut-off point for levies. Therefore, it is the industry that has produced the figures of £75,000 for employers with about four employees and about £61,000 for employers with three employees. The noble Baroness asked whether there was consensus on that and the answer is that there is. As to whether everyone would agree with that, I can think of some on the margin who would clearly not agree. As with any other concept of this kind, there is bound to be fairly lively debate on the margin. However, this exemption formula has held for a number of years and has been considered to be representative of what the industry expects.

With regard to sector skills councils, we have made considerable progress. It will be recognised that the Construction Industry Training Board was the first to get off the ground. We know the reasons for that. We know the way in which the industry is organised and how its specific skill needs have to be met from within the industry. That is one reason that the industry has a training board when so many other industries do not.

On the question of what wider progress has been made, 10 sector skills centres have been established. We are on course for the majority of them, if not all, to be set up by the summer of this year. Therefore, considerable progress has been made in that respect, although it has not happened as rapidly as we might have liked. As soon as one sees one such skills centre in operation, one always thinks that everyone else is being a little tardy in getting on board. Nevertheless, within the realistic expectation that they would all be up and running this year, we are just approaching the half-way stage in terms of the numbers established and we are confident that we shall meet the target over the course of this year, as was the original expectation.

I am grateful that the two boards receive the plaudits that they do. They carry out very valuable work. It is not surprising that the CITB is a trail-blazer in terms of the sector skills proposals. If our whole industrial life were organised to the patterns of these two bodies, I believe we should feel a good deal more optimistic about the general skills levels in our society. However, we also know the needs of these two areas and why they match up in such an excellent way. Therefore, I am grateful for the support expressed in the contributory speeches today.

Baroness Sharp of Guildford

My Lords, before the noble Lord concludes, I want to point out that there is a real concern among larger employers about the lack of training by small employers in the industry. Clearly such training must be carried out at a local level. However, these days, many small employers do not take on apprentices in the way that they used to do, and it is being left largely to the larger employers to do so. One reason for that is the sheer bureaucracy and the amount of paperwork involved in having apprentices. I believe it should be placed on the record that there is considerable worry in the industry about the lack of training by small employers.

Lord Davies of Oldham

My Lords, I accept what the noble Baroness says. She is well experienced in this area. This is one of the perennial debates that take place in any organisation. The larger employers usually blaze the trail for all the obvious reasons. However, the noble Baroness is right to call attention to the fact that all employers need to be alert to the fact that, without investment in their workforce and without the necessary training, they will render themselves vulnerable in the rapidly changing industrial and economic environment that we all face. We all know that we compare ill with many other advanced countries in relation to skill levels. Of course, the Government must take responsibility for their role in these issues. That is why it is an important priority for this Administration. However, it is also the case that employers in other countries are often far more committed to the concept of training than is the case here.

I hear what the noble Baroness says about bureaucracy. Form-filling is irritating but I believe that, if it leads to effective training, it is both necessary and something to be desired. I am sometimes conscious of the fact that upbraiding bureaucracy is an easy way to shelve one's responsibilities, and I believe that that has been the case in certain areas of training.

That is why, when we have models that work quite well. and particularly where some employers do very well indeed, we should build upon that. On that basis,

I commend the order to the House.

On Question, Motion agreed to.