Skip to main content

Industrial Training Levy (Engineering Construction Industry Training Board) Order 2007

Volume 689: debated on Wednesday 21 February 2007

rose to move, That the Grand Committee do report to the House that it has considered the Industrial Training Levy (Engineering Construction Industry Training Board) Order 2007. 8th Report from the Statutory Instruments Committee.

The noble Lord said: With the leave of the Committee, I shall speak to the Industrial Training Levy (Construction Industry Training Board) Order 2007 at the same time. The orders, which are broadly familiar to the Committee from previous years, 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. First, I will set out the wider context. In 2002, we established the Skills for Business Network of 25 sector skills councils to ensure that employers have a strong voice to influence the provision of education and training in their respective sectors. The network is beginning to deliver real benefits, initially through the development of sector skills agreements and now by the establishment of national skills academies and the development of specialised diplomas for 14 to 19 year-olds. Recognising this, the recent report by the noble Lord, Lord Leitch, recommends the establishment of a new Commission for Employment and Skills, which will re-license and empower sector skills councils, giving them an enhanced role in driving up employer demand and investment, alongside a new universal adult careers service.

We have already promised that where both sides of the industry in a sector agree, we will help to set up a statutory framework for training that applies in that industry. The two industrial training boards, set up under the Industrial Training Act 1982, are models for the successful application of such frameworks. Their role is to ensure that the quantity and quality of training are adequate to meet the needs of the industries that they cover. They provide a wide range of services, including setting occupational standards, developing vocational qualifications, delivering apprenticeships and paying direct grants to employers who carry out training to approved standards.

The Construction Industry Training Board, in partnership with the CITB Northern Ireland and the Construction Industry Council, operates as ConstructionSkills, the sector skills council for the construction industry. It developed one of the first sector skills agreements, which now underpins every facet of the CITB’s operations. During the past year, it has maintained its position at the forefront of training developments by developing and launching one of the first three national skills academies. The engineering construction industry does not meet the minimum-size criteria for becoming a sector skills council. I am pleased to say, however, that it has received funding from the Sector Skills Development Agency to scope out its future role in the Skills for Business Network, and discussions on the nature of the ECITB’s future relationship with the Skills for Business Network are continuing. The board’s status as a valuable sector body was further recognised in 2005, when it won an award from Sector Skills Alliance Scotland as,

“the most effective Sector Skills Council or Sector Skills Body in Scotland”.

That is an excellent example of what can be achieved by a levy-funded body.

The Industrial Training Act contains provision for a levy on employers to finance a training board’s activities and to share the cost of training more evenly between companies across an industry. It is for the employer members of a board to make proposals for the rate of the levy for the industry that it covers and for the Secretary of State to make an order giving effect to the proposals. That is the purpose of the orders before us this evening. They give effect to proposals submitted to us for a levy to be collected by the CITB in 2007 and the ECITB in 2008. Both orders involve the imposition of a levy in excess of 1 per cent of payroll on some classes of employer. The Industrial Training Act requires such orders to be approved by the affirmative procedure 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 are necessary to encourage adequate training in the industry and if one of three conditions is satisfied. The first condition is that the proposals have the support of organisations representing more than half the employers, who together are likely to pay the majority of the levy. The proposals from the CITB meet that condition. The ECITB proposals are supported by the industry’s employer organisations. However, those organisations currently represent slightly fewer than half the employers, although together those employers are likely to pay the vast majority of the levy. The first condition has therefore not been met fully in the case of the ECITB. 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 a former levy order giving effect to proposals in respect of which the first condition was satisfied. There is also a third condition, which is that a Minister considers that the levy is necessary to encourage training in the industry. However, it has not been necessary to invoke this third condition, as an order was made in 2006 that had the support of the employer associations, and at that time, they represented more than half the employers. Those employers also paid the majority of the levy. That means that for the current proposals, the second condition is satisfied in respect of the ECITB.

The Act requires the industrial training boards to exclude small firms from the levy but does not set a minimum size threshold. Each of the proposals sets a level that the industry considers to be appropriate. However, employers who fall below the threshold are not precluded from benefiting from grants and other support from the boards, and many of them do so. In the order before the Committee, the CITB proposes that both its levy rates should stay the same as those approved by the House last year. The rates will be 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 £73,000 will not have to pay the levy. That is an increase from last year’s threshold of £69,000, to reflect wage inflation. The level equates to an employer who employs three people full time throughout the year, and 43 per cent of employers come into that category. A further 22 per cent of employers will not be assessed for, or will not pay, the levy for other reasons; for example, if they are in their first year of registration with the CITB or if they have ceased trading. That means that around 65 per cent of employers will not actually be required to pay the levy.

The higher levy rate on sub-contract labour is because, according to the industry, the vast majority of training is carried out by 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. It is encouraging to see that large contractors, who use significant amounts of sub-contract labour, are recognising their responsibility to contribute more than just cash to tackle the skill shortages in the industry. Through the CITB’s ConstructionSkills programme-led Pathways initiative, large contractors have initiated action to encourage firms in their supply chains to recruit and train apprentices.

The ECITB also proposes to make no changes to last year’s rates. For sites, the rate will be 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 £275,000 or less will not have to pay the levy. The level is unchanged from last year, and it equates to an employer who employs 15 to 20 persons full time throughout the year. It is expected that 40 per cent of sites will be exempted. For head offices, the rate will be 0.18 per cent of the total of payroll and net expenditure on sub-contract labour. 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 level is also unchanged from last year, and it equates to an employer who employs around 40 persons full time throughout the year. It is expected that 76 per cent of head offices will be exempted.

The proposals are expected to raise between £160 million and £165 million for the CITB and between £12 million and £13 million for the ECITB, which covers a much smaller industry. It is worth pointing out that the CITB currently returns £1.88 in direct and indirect training support for every £1 levy received. For the ECITB, the figure is £2.19.

I hope that I have adequately explained the orders. The Committee will know from our annual debates that the CITB and the ECITB exist because of the support that they receive from employers and employer interest groups in their sectors. There is a firm belief that without them there would be a serious deterioration in the quantity and quality of training in these vital industries, leading to a deficiency in skill levels. That was confirmed by reviews of both boards carried out by my department in 2003, which found that the principle of the levy is still strongly supported in both industries. The boards’ own annual employer surveys also demonstrate continued strong support for the principle of a levy system. The orders that we are considering will enable the two boards to carry out their vital training responsibilities in 2007. It is in that spirit that I warmly commend the orders to the Committee.

Moved, That the Grand Committee do report to the House that it has considered the Industrial Training Levy (Engineering Construction Industry Training Board) Order 2007. 8th Report from the Statutory Instruments Committee.—(Lord Adonis.)

I thank the Minister for his explanation of the changes that are currently being made to the process of approving the two levies. Although the debates approving the continuation of the levies have been useful in the past for highlighting concerns about the provision of training for these skills, we appreciate that the annual confirmation of the levy lays a burden on the affected industries, and we are glad that it will be reduced when the Further Education and Training Bill passes through both Houses.

As the Leitch report made clear, we are facing a skills crisis among our workforce that is only going to get worse. Unskilled manufacturing jobs are being lost, and a growing number of skilled jobs are becoming available. The provision of skills training is therefore critical, and is going to become even more so. We cannot rely on skilled immigration, especially as other EU counties start to open their job markets to recent entrants, and nor would we want to. The levies are an important tool in training provision. I am glad that they continue to enjoy the support of the relevant industry federations, but I hope that the decline that was noted last year in the number of firms joining the federations has been reversed. The involvement and support of local employers is necessary to make sure that courses are relevant and rigorous. We are pleased at the decision of the film industry to initiate a levy on its members to finance training for its workforce, and we hope that success there will cause other industries to consider taking the same step. Voluntary levies are a reassuring sign that employers are getting involved in training their workforces.

The annual report of the Adult Learning Inspectorate made clear how important that involvement is when it highlighted the failings of the programme-led apprenticeships that remain in the engineering sector. It noted that students coming out of the course without on-the-job experience were unable to handle the tight deadlines and rigorous standards that apply in the workplace. That is why we must increase employer involvement at every level, from strategy and course development at the top to assessment and work experience at the local level. The annual report also highlighted the worrying number of students dropping out of apprenticeships before fully qualifying. Only about half of construction apprentices are successful, and the figures for engineering are not much better. However, those figures are a rapid improvement on past years, so I hope that when we next debate the levies we will be able congratulate the providers on better statistics.

Another worrying statistic in the report is the lack of students who progress to level 3 skills; fewer than a third go on to further skills development. The inspectorate raised the possibility that if this state of affairs were to continue, the accepted standard of competency would fall to a level 2 qualification. Many things contribute to the failure to raise the skills level of so many construction workers, including the difficulty of finding funding for those over 19 years old. One of them is certainly the lack of industry incentives to attain higher level qualifications. I hope that the report will motivate a change here and that employers will learn to appreciate the benefits that come from a higher skilled workforce and will continue to support their employees through further training. A lack of level 3 skilled workers will not only cause problems for firms currently looking to hire, but will also cause long-running difficulties in recruiting supervisors, teachers and assessors, with consequences for both training provision and the long-term health of the industry.

Notwithstanding all that I have said, we welcome the orders. Despite the problems evident in reports and surveys on the provision of skills training, the sectors are improving, and are doing so rapidly in many cases. We wish them well.

I, too, thank the Minister for introducing the two orders. We have them every year, and every year we on these Benches reiterate that we support them. In this case, I have no wish to depart from that tradition.

The industry is distinguished by consisting of a small number of very large organisations and a large number of very small ones, and a great deal of contracting out. Those arrangements ensure that very few organisations can get away with being freeloaders in terms of training and paying for it.

I have two concerns, both of which have been alluded to by the noble Baroness, Lady Morris of Bolton. The first is the validity of the consultation in the case of the engineering construction order. Although the consultation took place and the proposals were supported by the main employer organisations, they now represent less than half the employers. I noted that last year the percentage dropped from 58 to 50 per cent, and this year it has gone down to 48 per cent. Clearly, it is a continuing trend. I wonder what the Government do to get the views of the other organisations, which do not belong to the federations and which are not consulted on these matters. In view of the fact that 83 per cent of the total levy is likely to be paid by those who did respond to the consultation, we cannot say that the consultation was totally invalid, but it is worrying.

The second issue is the number of apprenticeships that are not completed. I know that it is the industry’s view that a full, proper apprenticeship is up to an NVQ level 3. Yet a large number of apprentices either stop at level 2 or do not even get that far. That is particularly worrying. I think that it has something to do with the fact that the Learning and Skills Council funds up to the age of 19. Many of them have only got as far as level 2 at that stage, and do not go on to level 3 because the funding is not available and employers are not willing to spend the money on it.

In the light of the Government’s proposals following the Leitch report, and the Further Education and Training Bill that is currently before your Lordships’ House, can the Minister draw our attention to anything that is likely to improve that situation because it is vital that young people improve their skills in those two important industries?

Last year, when these orders were before us my noble friend Lady Sharp, who is not in her place today, made two suggestions. One was that part of the problem is the difficulty of getting work placements from small and medium-sized businesses. She suggested that the Government might consider giving some incentives to small and medium-sized businesses to offer these important placements where young people could get experience. I do not believe that the noble Lord, Lord Davies of Oldham, responded to that point on that occasion. I do not know whether the noble Lord, Lord Adonis, can reassure us that something is being done to encourage the smaller firms to provide those important training places.

The Government are large commissioners of building and construction projects. My noble friend Lady Sharp suggested that perhaps the Government would give some consideration to making it a stipulation of the contracts that apprentices should be properly qualified if they are to work on contracts. I think of the Building Schools for the Future programme as one example of where that might be done.

The response of the noble Lord, Lord Davies of Oldham, at that time was that those things are very competititve and it would put the price up. We all want high quality work, and at the same time we want to develop the skills of our young people. The Government are in a position to do something about that. I wonder whether the Minister has a different view from his colleague, or whether the situation has moved on, because the Government are now focusing much more on the important area of developing the skills of the young people of this country, and they might consider using their leverage in whatever way they can to ensure that is done. Those are my two areas of concern. I hope that the Minister can reassure me on them.

I hope that the noble Lord, Lord Adonis, got the letter that I sent him yesterday. I want to raise a specific point, and he may not have an answer, but I hope that I am not too late. I am very sad, because I tried to give him notice yesterday, and if the letter has not arrived it is a great pity. It is not a constituency point because we do not have constituencies in this House. Anyone who lives in north Norfolk, as I do, cannot fail to know about the Bircham Newton national college. That is what I wrote to the Minister about. The press said that it was going to be closed down today; I hope that the press is wrong. It is an old RAF airfield that has been converted into the National Construction College; it is not the only one, but it is the main one. As the noble Baroness, Lady Morris, said, surely at this point in time we need all the skilled people in the construction industry that we can get, not only in the basic trades, but crane drivers and people who can deal with heights and that sort of thing. The college does all that.

The difficulty about it is this; it still houses the students in the World War Two-era staff accommodation for the RAF, which is extremely unsatisfactory from the students’ point of view. People might not be there for very long, but possibly one of the reasons that it is not used to the extent that it should be is that employers do not want to send their trainees to a place where the facilities are not up to the standard that one would expect. It needs a bit of money. The noble Lord told us that the levy, which I know is an annual event, will raise a certain amount of money this year. Is there any hope that the board might spend a bit of that money on bringing up to date the residential accommodation for the people who go to that college? If it did, it would be very much more attractive. All the other facilities are there; the skills are there, the equipment is there and all the machinery is there. It would be the greatest possible tragedy if all those facilities and skills were lost. After all, it provides alternative tertiary education for those who want to learn manual skills as opposed to academic skills.

I am told by the cabinet member for Norfolk County Council that the college employs 200 people. In that part of north Norfolk, that is no small thing, because there are not very many other sources of employment. There is a bit of fishing, there is agriculture, if anyone ever employs anyone in agriculture any more, and there is tourism. There is that large college, and there are presumably highly skilled people who are there to train the students. It would be a tragedy if that were lost. The reason why there is a doubt about the future of this place is because of the standard of accommodation.

I suppose the Minister cannot tell me whether a decision has been taken today to close the college down. I hope not. If it has not, could minds be applied to the point I made about the standard of accommodation, because it would be a real tragedy if a place of such significance was to disappear for the sake of not very many millions of pounds for refurbishment of the accommodation? The noble Lord cannot be expected to answer the question today, because if he did not get my letter he will not know what I am talking about. Nevertheless, perhaps he will look into it; I am sure that he will. It is important that a place of this calibre should not be lost to the CITB.

I thank my noble friend the Minister for his comprehensive remarks when he spoke to the orders. We also heard concerned speeches from the other side of the Committee regarding training and employment. Do these orders signal that Her Majesty’s Government believe that they will be of great help to Britain’s manufacturing industries? Are the orders designed to support, enhance and encourage what now remains of Britain’s manufacturing? I would like to think that the orders will bring forth more and better quality apprenticeships and that there will be more effective skills training, which will enable our manufacturing industries, such as remain, to cope with very severe global competition. Our percentage of GDP with regard to manufacturing is slipping each year.

I note that in the Explanatory Notes, reference is made to the Industrial Training Act 1982. As it happens, in another place I had responsibility in the then-Opposition for employment and training. Opposite me was the Minister, the late Peter Morrison, Member of Parliament for Chester, and speaking for the Liberal Democrats was the rather famous Cyril Smith. In our debates on that Act and on the orders for the amalgamation of various training boards, great concern was expressed for the future of skills training, apprenticeships and manufacturing. Here we are, a quarter of a century later, telling each other of our concern for skills training and apprenticeships and of the need for Britain to have those skills to cope. I dare say I shall be able to hear the Minister tell me that it is a priority of our Government that Britain should retain and develop a manufacturing base.

The Minister may recollect my references in a Second Reading debate not too long ago to the great British aerospace industry, which is arguably the last sizable industry of skills remaining in our country. I assume that the orders are designed to promote that great industry, which earns billions of pounds by exports every year, now some £6 billion. It is not for me to detail the difficulties of Airbus and BAE. I look forward to hearing the Minister’s response on that matter.

Lastly, we have heard the plea from north Norfolk for Bircham Newton college. It was not a constituency speech; there was not one. The noble Lord will recollect that that college is but a mile, as the crow—or the buzzard of north Norfolk, for that matter—flies from Bircham Windmill, which is a notable tourist spot in the rather empty and beautiful north Norfolk. I wish him well in his objectives, and I look forward to hearing a strong voice of commitment to British manufacturing.

I greatly regret that I did not receive the letter from the noble Viscount, Lord Colville. I will, of course, respond to it fully. However, he underestimates the brilliance of my officials, who have been able to pass me a good deal of information about Bircham Newton that I hope will address most of the points that he made. I will amplify my answers in the letter that I will send to him.

It is important to explain the background to the issues faced by Bircham Newton college. As the noble Viscount rightly said, the facilities at Bircham Newton are in need of substantial renovation in order to comply with current legal and other requirements. It simply will not meet the requirements unless it is modernised. The sum of money at stake is quite large: it is estimated to be about £15 million. The CITB had planned to fund this, partly by selling off unneeded parts of the site for housing development, and it applied for planning permission to the local authority for this purpose. The planning authority refused that planning permission, and the CITB appealed to the Department for Communities and Local Government. The DCLG planning inspector rejected the appeal, despite letters of support emphasising the national importance of the college both for my departments and for those of the DTI. We did our utmost to support what appeared to be a thoroughly credible proposal for raising the funding, but the planning system took its proper course and the proposal was not accepted.

This has left the CITB with the major challenge of Bircham Newton college’s future. The college has not closed. The noble Viscount may have been informed that the CITB was meeting today. That is correct: the CITB met today to consider options. No decision to close the college has been taken, and I am informed that the CITB has been invited to set up a working group to consider options, with a report due in October. I cannot say with absolute certainty whether the CITB adopted that proposal, but I am told that that was very likely. I will see that the noble Viscount’s comments are drawn to the attention of the CITB and the working party as they conduct that review with a view to a report in October. I am told that the options do indeed range from complete closure—I should be quite frank about that; that is a serious option on the table—to other options that might enable the college to continue. The sums of money at stake are, however, substantial, and the CITB will have to weigh up all these issues.

The noble Baroness, Lady Walmsley, rightly drew attention to the fact that the CITB now represents under 50 per cent of employers. She said that consultation had shown that there was still significant support, but she also drew attention to the fact that the number of very large employers was very small. As she rightly said, however, although the employers who are members of the board now constitute only 48 per cent of leviable employers—that is, they are beneath the 50 per cent threshold, hence the need to go to the second condition to invoke the power to set the levy—together they are likely to pay 86 per cent of the total levy, which further justifies our decision to proceed with the levy request, even though the figure is under the 50 per cent threshold. I noted that the noble Baroness supported our taking that step because of the importance of training in this industry.

The noble Baronesses, Lady Walmsley and Lady Morris, talked about apprenticeship completion rates. They are quite right to draw attention to the fact that, historically, completion rates have not been satisfactory; they have been at the 50 per cent level, as the noble Baroness said, and are not what should be achieved. I am glad to say, however, that there has been a significant improvement in completion rates. Under the CITB-ConstructionsSkills managing agency, completion rates are now running at 65 per cent, which is a huge improvement on the 2003 figure, which was as low as 29 per cent. We have set a target to increase the number of completions to 75 per cent by 2008, and the CITB is working with further education colleges to enable the key skills tests to be taken earlier in the apprenticeship, which we hope will also lead to higher-end completion rates. We believe that the programme-led “Pathways” initiative will also contribute significantly to an improvement in the completion rates by providing college-based apprentices with the opportunity to acquire site experience, which is a requirement to complete their apprenticeships. Participants in the programme-led “Pathways” initiative tend to be older, and older participants tend to be more likely to complete their apprenticeship framework. We therefore hope that the 75 per cent target that we have set, which will be a welcome further improvement on the 65 per cent completion rate, will ensure that we have a better story to tell.

The noble Baroness, Lady Morris, drew attention to the provisions of the Further Education and Training Bill, which will, we hope, streamline the procedures, including the necessity for our annual debate in Grand Committee. Under the existing Industrial Training Act, industrial training boards,

“may from time to time submit to the Secretary of State proposals for the raising and collection of a levy”.

The Act does not specify any set frequency, but it has become normal for each ITB to submit such proposals annually. The Further Education and Training Bill will enable ITBs to submit proposals for levies only every three years, with provision, should economic or other external circumstances change significantly, for a board to come back to a Minister to change its order. There is general consensus that this is a more satisfactory regime than the one that we have at the moment.

I entirely concur with what my noble friend Lord Jones said about the importance of the manufacturing industry, and perhaps I may pay tribute to the work that he has done in this area, not least his own services to the aerospace industry. The manufacturing industry, as he knows, is not directly covered by the orders, but we hope that the good example that is being set in these sectors will be taken account of in other sectors, including the vital sectors that he highlighted. I completely concur with the view that we still need more level-3 work and high levels of training and achievement. Nonetheless, they are significant agents of training in these sectors. The £148 million that the levy raised in 2006 paid for, among other things, 40,000 apprentices; grants to 20,000 employers to train their workforce; 9,500 visits to small businesses to help them to identify and address their training needs; and a marketing programme to encourage young people to consider a career in the industry, which contributed to more than 20,000 online applications for apprenticeships. The £11 million levy income, which the levy generates for the ECITB, led last year to there being 1,250 apprentices in training, 2,900 units of craft training for existing workers and for new-entrant adults, leading to 108 level-2 and 500 level-3 and level-4 units, supervisory and project management training for 1,300 people, and a new programme of 1,100 discretionary grants for employer-specified training. I could go on. A substantial body of training is made possible by the sums raised by the levies, and we therefore strongly support their continuation.

The noble Baroness, Lady Morris, talked about the extension of levies to other industries. As she rightly said, our recent White Paper stated that,

“where both sides of industry in a sector agree, we will help to set up a statutory framework for training”,

which could lead to our approach towards these industries being extended to others. I am glad to say that, as the noble Baroness mentioned, the film industry has expressed a positive interest. Consultation with employer organisations and other partners in the film industry showed unanimous support—to secure unanimous support in such an industry is, I suspect, quite a high hurdle—to work with the Government to set up an ITB that will have the powers to raise a training levy. My officials are preparing an order that will establish a film ITB for England and Wales, which will be brought to Parliament for approval later this year. We see this as a significant step in the direction that Leitch set out.

I am afraid that, like my noble friend Lord Davies, I am unable to give the noble Baroness, Lady Walmsley, an immediate response on her point about small and medium-sized enterprises, which are vital areas for the two training boards. I am sure I have a good catalogue of measures that they support that I can tell her about, but I shall have to do so in writing.

On Question, Motion agreed to.