Monday, 20 May 2013.
Reservoirs Act 1975 (Exemptions, Appeals and Inspections) (England) Regulations 2013
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Reservoirs Act 1975 (Exemptions, Appeals and Inspections) (England) Regulations 2013.
Relevant document: 23rd Report from the Joint Committee on Statutory Instruments, Session 2012-13.
The amendments to the Reservoirs Act 1975 by Schedule 4 to the Flood and Water Management Act 2010 introduce a more risk-based approach to the management of large raised reservoirs, and these regulations are a key component of this process. The regulations are required to be brought into force as soon as the substantive provisions amending the 1975 Act are commenced.
By way of background to the Reservoirs Act 1975, while it is rare for a large raised reservoir to fail, the impact of such failure on life and property could be considerable. During the 2007 summer floods, there was a near-miss incident at Ulley reservoir where a complete reservoir failure was averted only by emergency action. In his review of the 2007 floods, Sir Michael Pitt made recommendations for improvements to reservoir safety. These recommendations were addressed through amendments to the 1975 Act made by Schedule 4 to the Flood and Water Management Act 2010.
Regulation-making powers inserted into the 1975 Act by the 2010 Act include the allowance of specific exemptions from the 1975 Act, the introduction of appeal rights and clarity on the timing of inspections. The regulations relating to exemptions specify what are not to be treated as large raised reservoirs for the purposes of the 1975 Act. Exemptions from the 1975 Act include tips that are covered by mines and quarries legislation and canals and inland navigations, and these exemptions are maintained. Due to the new definition of a large raised reservoir as a result of the 2010 Act, other bodies of water potentially fall within the scope of the 1975 Act. This has led to a new exemption for road and rail embankments with drains that have not been artificially blocked, such as with gates. Where a road or rail embankment effectively acts as a flood storage reservoir, it should be recognised as such and managed accordingly.
The regulations also provide undertakers of large raised reservoirs with the right to an appeal. An undertaker may appeal against the designation of a large raised reservoir as high risk and against notices given by the Environment Agency either to appoint an engineer or to carry out a recommendation of an engineer in the interests of safety. The regulations provide that the First-tier Tribunal will hear all appeals under the amended 1975 Act. To maintain the credibility of the 1975 Act and the efficacy of the designation regime, it is important that the appeals mechanism is independent, efficient and comprehensive and is a fair and cost-effective way of adjudicating any disputes. The process for bringing an appeal is governed both by these regulations and by the Tribunal Procedure (First-tier Tribunal) (General Regulatory Chamber) Rules 2009.
The regulations also set out the timings of inspections. Previously, under the 1975 Act, all large raised reservoirs had to be supervised and inspected, whereas the 2010 Act amends this to include only those large raised reservoirs designated as high risk. Transitional arrangements will be in place to ensure the smooth introduction of these requirements. The regulations also require the Secretary of State to review the operation and effect of these regulations and to publish a report within five years after they come into force. The powers to make these regulations are contained in the amendments made by Schedule 4, which were commenced in October 2011. The substantive provisions introducing a more risk-based approach to reservoir management cannot be implemented without these regulations.
The amendments to the Reservoirs Act 1975 introduce a more risk-based approach to the management of large raised reservoirs and these regulations are a key component of that process. They are a necessary and appropriate statutory obligation and I therefore commend them to the Committee.
My Lords, anyone observing this debate might think that, based on attendance, there is little interest in these regulations. However, I think that this is one of those circumstances where attendance signifies consent, and lack of attendance signifies positive consent. I think the fact that more noble Lords have not attended the debate simply demonstrates the extent to which the regulations are not contentious.
I remember well the floods of 2007 and how perilously close we came to real disaster when emergency action averted the failure of Ulley reservoir. That was why the previous Government, of whom I was a member, asked Sir Michael Pitt to carry out the review, and the Pitt report recommended these improvements to reservoir safety legislation and, in particular, this risk-based approach. It would be extremely churlish of me to be anything but supportive of these regulations given that they reflect the work that was done following the Pitt review. It merely remains for me to ask two or three questions that arise from the regulations.
The first, which might sound slightly oppositional, is straightforward. Why has it taken so long to bring forward the regulations given that Sir Michael Pitt carried out his review some time ago? They are dealing with significant matters of risk in respect of flooding and we have had a lot of flooding activity in the past 12 months. Everyone has noticed the nature of the weather during that time and the flooding that goes with it, so it would be helpful to know whether more could have been done to bring these forward sooner.
The second question is on Regulation 3 and those items not treated as being large raised reservoirs. As the Minister said in his opening comments, certain items such as tips, which have been exempted as large raised reservoirs, and other items are being added here. Assuming that some of those items might have some high risk attached to them on a risk-based approach, how is that risk being assessed? Who is inspecting them and how is the risk then being raised and dealt with by the owners of those bodies of water? If none is of high risk because of its very nature—such as its embankments or drains—then to ask whether the risk-based approach would not have dealt with it without this piece of legislation is perhaps rather a pedantic, subsequential question to that.
Finally, Regulation 4 deals with the right to appeal first against designation and Regulation 5 with the right to appeal against a notice. The basis of that appeal is to be able to go to a First-tier Tribunal. Can the Minister update us on how much capacity the Tribunals Service has to deal with these appeals? What is his expectation regarding the volume of appeals? As we refer more things to the Tribunals Service, there is a general concern that the service’s funding is not growing. I am quite confident in saying that. I suspect that it might be shrinking, and yet we are asking it to do more work. In these matters of public safety, which is what these regulations are dealing with, we would certainly not want appeals to be delayed because of a backlog at the Tribunals Service due to its lack of capacity.
That is probably my most significant question. The Minister has been assiduous in writing to me when things do not initially seem as forthcoming as they could be, and any information that he could give us about the Government’s assessment of the Tribunals Service’s capacity would be very helpful. Incidentally, if an appeal is unreasonably delayed in the Tribunals Service and an incident then occurred, where would the liability fall? Would it fall with the owner of the reservoir or with the Government because they did not have sufficient capacity in the Tribunals Service?
My final question also relates to the Tribunals Service. There was some mention either in the impact assessment or the Explanatory Notes of discussions that are still going on with the Tribunals Service about how it will deal with technical matters as opposed to legal matters when appeals are being heard. If the Minister has any update to put on the record about those discussions that would obviously be very helpful.
To summarise, we on this side are extremely happy to see the Government coming forward with these regulations, although we would have liked them to have happened a little quicker. There are one or two issues of concern in terms of the tribunal arrangements for appeals, but it is right that people should be able to appeal and it is right that it should be done in the context of the Tribunals Service. I therefore do not have any substantial argument with the way in which this is going forward. On that basis, I hope that I have given the Minister enough time, by talking a little longer, for him to give us some answers.
My Lords, I thank the noble Lord for his comments and questions: I will do my best to answer them. As he kindly said, if there is anything that I am unable to answer now I will of course write to him.
The noble Lord's first question was why in the broadest terms it has taken this long to get to where we are today. I acknowledge that phase 1 has taken longer than I would have liked. He was kind enough to acknowledge, and he is right, that resources have to be prioritised. It has been, as everyone knows, important to deal with ongoing, relatively widespread instances of flood emergency. That simply has to take priority and I think that everyone would acknowledge that life and property must take first place.
The noble Lord also asked about the prioritisation of reservoirs, and if reservoirs are excluded from this regulation then how the risk is encompassed. Tips and so forth are covered by the mines and quarries legislation, save for other extant arrangements there, and the Health and Safety Executive leads on that. I hope that that is adequately helpful to him. Canals are managed using risk-based management approaches.
The noble Lord asked about the right to appeal under Regulation 4 and he was specifically concerned about the capacity of the Tribunals Service. We are in discussion with the service about the likely workload and the resources needed at the moment and I cannot at this stage go further. However, he has pinpointed the right question. We agree with him and are investigating how we will deal with it.
On that basis, I hope that noble Lords will agree that the Grand Committee has considered the regulations.
Duty to Participate in Education or Training (Alternative Ways of Working) Regulations 2013
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Duty to Participate in Education or Training (Alternative Ways of Working) Regulations 2013.
Relevant document: 23rd Report from the Joint Committee on Statutory Instruments, Session 2012-13.
My Lords, I am grateful to the legislation committee for its consideration of this order on 27 March. Noble Lords will be aware that the necessary consultation has been undertaken and that the regulations are being debated in the other place.
I shall start by setting out the background to these regulations. The Education and Skills Act 2008 places a duty on all young people in England to participate in education or training. Later this year, we will commence that legislation to require young people to continue in education or training until the end of the academic year in which they turn 17. From 2015, that will rise to their 18th birthday. As noble Lords will be aware, this is termed “raising the participation age”. This does not require young people to remain in school and they may choose an educational path that is best for them. This could be full-time education at a school, college or elsewhere, an apprenticeship or full-time employment combined with part-time education or training.
While this legislation was put in place by the previous Government, we are committed to supporting as many young people as possible into education or training and will be commencing the central part of this legislation shortly.
Continuing in education or training means that our young people will gain higher skills and qualifications, making them more attractive to employers and giving this country a more productive and competitive workforce. Our aim is that young people will be better educated and better prepared for higher education and for productive, sustainable jobs. The evidence is clear that participating in education post-16 improves young people’s life chances. It means that they are more likely to attain higher levels of qualifications and have increased earnings over their lifetime, better health and improved social skills—for instance, young people with two or more A-levels earn around 14% more than those without.
However, there are still a number of young people who are NEET—not in education, employment or training—and this number has been too high for too long. The most recent national statistics show that at the end of 2011 more than 90,000 16 to 17 year-olds were NEET—7% of that age group.
Participation in education or training is not an end in itself, so we are also substantially reforming the post-16 education system, taking significant steps to improve the quality of education and training and the outcomes for young people.
All the evidence shows that the better-educated children are pre-16, the more likely they are to continue in education post-16. Therefore, our reforms to the school system, increasing the freedoms of schools and providing additional support through the pupil premium, will mean that in the long term more young people continue in education for longer. By increasing the number of university technical colleges and studio schools, and supporting colleges to enrol 14 to 16 year-olds, we will ensure that pupils inspired by vocational education are better prepared to continue post-16.
From this September, all 16 to 19 year-olds will be able to take a study programme, which will include one or more substantial qualifications or extended work experience. Students who do not have a GCSE in maths and English at grade C or above will continue to study these subjects. These are exactly the areas that employers say they value most strongly, so study programmes will help all young people to be better prepared for work.
We know that many young people are highly motivated by the prospect of work. We are introducing a new high-quality traineeship programme that will better prepare young people for apprenticeships and sustainable jobs. Traineeships will offer a combination of high-quality work placements, work skills training and English and maths, together with other flexible training and support to suit individual young people’s needs. We know that some young people need additional help to overcome the barriers and difficulties that currently prevent them from participating in education or training. Through the youth contract we are providing intensive support for 70,000 of the most disengaged 16 and 17 year-olds with no or low qualifications. Some young people also need financial support to enable them to continue in education or training. Our £180 million 16-to-19 bursary fund provides targeted support, with guaranteed bursaries of £1,200 for the most disadvantaged.
The two instruments under consideration today are simple steps to ensuring that the legislation that was passed in 2008 is still fit for purpose. One is technical in content only. The other is in line with both the primary legislation and feedback from public consultation and is supportive of young people gaining experience from a range of valuable opportunities. I will briefly address each in turn.
The consequential amendments order is made under the Apprenticeships, Skills, Children and Learning Act 2009. That Act established the Office of Qualifications and Examinations Regulation, commonly known as Ofqual. This order simply updates the 2008 legislation to take account of that Act. It is important for raising the participation age, as young people undertaking full-time work are required to combine that with part-time study towards a qualification that is recognised and transferable.
I now turn to the Duty to Participate in Education or Training (Alternative Ways of Working) Regulations 2013. A key way for young people to meet the duty to participate in education or training will be through getting a full-time job and combining that with part-time education or training. This will be an important route for young people who are motivated and able to secure employment, while also allowing them to get rigorous transferable qualifications. Gaining experience of employment before the age of 18 is a key way to begin building the skills and experience that will lead to a long, fruitful career. However, there are also alternatives to paid work that can provide valuable experience to young people and we would not want to prevent young people from pursuing these activities for fear of falling foul of the legislation.
The 2008 Act makes allowance for further activities described as “ways of working” that could be considered in the same way as paid employment. These could be combined with part-time study to meet the duty set out in that Act. We consulted on the possible options available to young people in this regard, and that consultation agreed with the three routes that are proposed in the 2008 Act. These are: self-employment; working not for reward, for example by volunteering; and holding a public office. In all these instances, the requirements are the same as those set out for full-time employment in the 2008 Act. These ways of working must be full-time and accompanied by accredited part-time study or training.
In summary, these regulations amend and give detail to the 2008 legislation to ensure that it is still fit for purpose and allows young people to undertake the full range of opportunities that will stand them in the best stead for their future lives. I therefore commend them to the Committee.
I thank the Minister for her comprehensive introduction to these statutory instruments. As she rightly said, they bring into force legislation that we introduced in 2008, which I think, without appearing to be overly indulgent, was a smart bit of legislation. Rather than raising the school leaving age but the participation age took into account the fact, as the Minister said, that not every youngster wants to stay on in full-time education.
I want to draw out a few things raised by the Minister. She talked about the study programmes, and I wonder whether she can come back to that in her reply, as I am interested in that. The Minister gave a figure on the youth contract support but unfortunately I did not have time to note it down. Who will be employed in that? It seems that it might refer to young people who have not been in significant employment or education. I do not know whether it related to the NEETs.
A group of people that I am particularly interested in is those with disabilities. I was at a specialist school that deals with autism last Tuesday. In talking to a group of 15 and 16 year-olds when we got to the end of the visit, it was interesting how small their chances of employment are. I think that in their experience, they have managed to have one or two jobs but it is really very difficult, and I wondered whether they were going to be included in that youth contract support.
The other questions that I wish to raise are in my general contribution. As the Minister rightly said, we raised the participation age in the Education and Skills Act 2008. It was a Labour Party policy. We agree that if Britain wants to seek to maintain its competitive edge, it is absolutely essential that we upgrade our skills base and ensure the well trained workforce which is essential to that. We know that part of our challenge is the long tail of poor performance within the 16-to- 18 age group, so raising the participation age—as I said, it is not the school-leaving age—is an essential part of confronting that challenge. We are certainly not seeking to oppose these powers today but I have a number of questions, which I would be grateful if the Minister could answer.
While we are happy to agree that self-employment, volunteering and holding an office could combine with part-time study to meet the duty to participate, we remain unclear as to the precise description of holding an office. There seems to be no explanatory guidance, so I would be grateful for some examples. If they are not available, I am sure that the Minister can write. I would also be keen on an update on the Minister’s discussions with the Department for Work and Pensions on how the requirements for education and volunteering align with benefits conditionality, as set out in the July 2012 consultation, and what impact, if any, universal credit will make.
Within the consultation, there was some concern that home schooling might be exploited as a loophole when raising the participation age. I would be grateful for the Minister’s thoughts on how this will be addressed. We saw only last week the vulnerable situation that many young carers find themselves in, so I would be grateful to know what special considerations have been given to young people with caring responsibilities. It seems clear that if we are not to repeat the mistakes made in relation to some low value apprenticeships, which were revealed in the Government’s system, we need a proper system of agreements to ensure that young people are not simply engaged in low-level activity at work but learning decent skills and having proper training. The consultation document speaks of working with relevant organisations to draw up such agreements. Can the Minister explain how that will be taken forward?
Chapter 3 of Part 1 of the Act puts duties on employers to take certain actions in respect of young people who meet the duty by combining work with education and training. The Minister has said that these duties will not be brought into force at this stage and that the possibility of commencing them will be kept under review. I would certainly like some indication of the timetable of that review and who will be conducting it. Finally, a series of responsibilities are placed on local authorities by this legislation to ensure compliance. Will these apply to pupils in academy and studio schools, and in university technical colleges?
Perhaps the real challenge in raising the participation age is that we are inevitably going to raise expectations—at least, I hope we are—that at the end of this process the young will find a job. That is going to be the biggest challenge, no matter who is in power, and I do not wish to make light of it. We know of the significant numbers of young people who are now in unemployment; it is nearly 1 million. It was disappointing to see that if you looked at the number of apprenticeships in the 16 to 18 year-old group, in 2012-13 that had dropped to 69,600 compared to 79,100 in 2011-12, which is a 12.1% drop. Although I pay tribute to the Government’s efforts to increase the number of apprenticeships, there is sometimes a lot of emphasis on the overall figure, which includes a significant number of those aged 19 and above, whereas for us and society as a whole, the biggest challenge is the 16 to 19 group.
I have said on other occasions that one way that the Government could not only set an example but create more apprenticeships is by public procurement. The last time I raised that, I seem to remember the Minister telling me that we could not do that because it was against EU legislation. I looked at the issue and noticed that, for instance, the UK Office of Government guide, Promoting Skills through Public Procurement, suggests that,
“a contracting authority could, through contract conditions: require that successful contractors have a formal training plan in place for the development of their project workforce; require that a specified proportion of the project workforce be trainees, apprentices or long-term unemployed”.
I also draw attention to the fact that EU legislation did not seem to prevent us doing that for both Crossrail and the Olympics. I urge the Government to reconsider, because it could make an important contribution—not only symbolic but numerical—in a vital area. We are also still faced with the challenge that only a small number of companies are participating in providing apprenticeships and work experience opportunities.
There were a lot of good intentions in the Minister’s contribution about work experience, apprenticeships, et cetera, but if you go around talking to young people, you know that their biggest concern, along with participation, is whether they will find a job at the end of that road. Make no mistake, we welcome the legislation, which follows what we introduced. I look forward to the Minister’s response.
I thank the noble Lord for his comments and agree with him that raising the participation age was a very good move to make to the breadth of possibilities to young people. On the figures which he said that he had not had, the study programme is for 16 to 19 year-olds with qualifications and extended work experience. On the youth contract, there is intensive support for 70,000 of the most disengaged 16 and 17 year-olds. That was in my opening remarks.
To pick up some of the noble Lord’s points on this, the raising of the participation age will indeed be reviewed annually from spring 2014. We have not yet agreed the members of the review team, but they will be agreed later this year. He asked about holding an office. Obviously, that may be a bit more difficult for 16 to 17 year-olds, but we have already had the example of someone being an adviser to a police commissioner or a charity trustee. There are things that young people might find, and if they do, that will count for them.
The noble Lord mentioned young carers. They receive a carer’s allowance, and that could certainly be classified as a way of working for they would get credit. Home education is allowed under the scheme, and local authorities will check with parents to confirm that that is indeed taking place in a robust and proper manner.
We have published the document about re-engagement programmes and are involved with organisations such as the Prince’s Trust to try to assure them. On universal credit, we remain in discussion with DWP on how that will fit in with the orders.
The noble Lord also mentioned learners with learning difficulties. Of course, we recognise that too many children and young people do not get the support that they need and that their families have to battle for services, but we are reforming the special needs system. That will come through in the Children and Families Bill, which is in the other place at the moment and coming to us later this summer. That will provide points for debate, and we look forward to hearing the noble Lord’s views on those proposals, but we hope that that will be a distinct advantage for those with special educational needs. I think that I already mentioned the study programmes.
There is a good story to tell on apprenticeships. I will always give credit to the noble Lord and his Government for what they did to beef up apprenticeships and increase the numbers going through. The coalition Government have taken that forward, with significant increases in the number of apprenticeships. They will be looked at again in the light of the Richard review. We are engaging more and more employers in taking on apprentices and some of the bigger companies such as BAE Systems, BT and BP have well accredited schemes. Some of them have more applicants for places than for some of our best universities. That is raising the profile of apprenticeships and the fact that young people, their parents and indeed their schools and careers advisers are aware of the possibilities of apprenticeships and what an excellent way they can be of getting into fulfilling careers. We have a great deal of work going on in that regard and obviously we will work with the noble Lord to make sure that that programme continues.
The noble Lord also raised again the possibility of making apprenticeships contingent on government contracts. Sadly, I have to disappoint him because I have no answer other than the one I gave him previously on that. It is for the employers to decide how that will proceed. I do not have a different answer. We have not found it possible to insist on it in the contracts. Of course, a great many government contractors have apprentices.
There may be one of two points that I have not covered: the noble Lord was raising them slightly more speedily than I was able to note them. But if there is anything I have not covered in those replies I will of course write to him.
Meanwhile, the legislation for raising the participation age will bring a historic and significant change to the English education system. It will bring benefits to young people, especially the most disadvantaged, and our country as a whole socially and economically. The Government are taking decisive action to improve the quality of education in this country and are providing support to the most vulnerable young people so that they can also continue in education and training. We want as many young people as possible to receive a high-quality education that will equip them to progress into higher education or sustainable employment.
The two instruments under consideration today should not be contentious. As I said at the start of the debate, one is technical in content only. The other is in line with both primary legislation and feedback from public consultation and is supportive of young people gaining experience from a range of valuable opportunities. I will come back to the noble Lord if there is anything that has not been covered.
I have a couple of points before the Minister sits down. Her answer on public procurement was slightly different this time. Last time it seemed to be emphatic that there were legal barriers. I am challenging that. That does not appear to be the case, and I would welcome the Minister taking that away and giving me a more considered answer on that issue. I am quoting from the UK Office of Government Commerce guide.
I encourage the Government to look again. The Minister cited the large employers. Yes, they are good and if they were all like them we would not have a problem, but the difficulty we face is the point that the Minister made herself. Places are vastly oversubscribed. The demand is huge. We will raise the demand even further when we raise the participation age. My question to the Government is how we are going to meet that demand. Although the overall picture looks good, we still face the problem that in the 16 to 19 year-old age group there is a drop. I do not raise that to score any political point. I want the Government to succeed in this area, but somehow I do not detect enough urgency in the Government’s approach to this.
The more you meet young people—I go out and speak to lots of sixth formers—the more you realise the chances of a group of them getting more and more disillusioned and saying, “What is the point? When I get to the end of this what are my chances of getting a job?”. We know what the figures are for unemployment in various parts of the country.
We really should be straining every sinew to ensure that we give a work experience or job opportunity to every young person. That should be the target, and not at some distant point. If we do not do that, we will be in danger of creating another lost generation, and a generation that becomes disillusioned does not always respond in the most constructive way, as we witnessed not all that long ago. Therefore, I hope that the Government will reflect on this. There are lots of good intentions within these two statutory instruments and I do not challenge any of those.
There is one other point to which the Minister might reply in writing. We also need to check on the quality of training that employers provide. We know that lots of young people are going into a job. For those who want to do so and can get a job, that is great, but we want to make sure that every employer who takes them on has a proper training programme laid out, otherwise that will be another objective. I am not sure whether that was covered in the Minister’s response. If she does not have the answer to it now, I would welcome a reply in writing. Other than that, we will be supporting these instruments.
Perhaps I may pose one further question to the Minister. Chapter 2 of Part 1 of the Act places quite a number of obligations on local authorities—in particular, the rather difficult obligation of chasing up and identifying the young persons not meeting the Section 2 duty. Guidance is to be published on the Department for Education website, but I wonder when it is likely to be published and what proposals it is likely to make. Given that the diversity of schooling now means that it is not necessarily so easy to chase up what young people are doing and how they are participating, I think that this is going to be quite a difficult task for local authorities.
Picking up the point that the noble Lord, Lord Young, made—
In reply to the first point, the guidance was published in February, so it is available. We also have a recently published document on traineeships, and there is more detail in that. We see the traineeship programme as providing another very valuable route for young people, and it will be rolled out further once the first programme has been established. We understand that local authorities will have a central database to try to monitor it.
I fear that this debate is rather moving away from the order and regulations. However, it is very interesting and valuable, and I am sure we will go into great detail when we come to discuss other aspects of this. I will indeed undertake to write to the noble Lord about the public procurement apprenticeships, and I will look at the other points that have been raised and try to come back to both my noble friend and the noble Lord. Meanwhile, I think that we have discussed the regulations, which I commend. I hope that the Committee is fully supportive of our ambitions and this legislation.
Apprenticeships, Skills, Children and Learning Act 2009 (Consequential Amendments to Part 1 of the Education and Skills Act 2008) Order 2013
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Apprenticeships, Skills, Children and Learning Act 2009 (Consequential Amendments to Part 1 of the Education and Skills Act 2008) Order 2013.
Relevant document: 23rd Report from the Joint Committee on Statutory Instruments, Session 2012-13.
Industrial Training Levy (Engineering Construction Industry Training Board) Order 2013
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Industrial Training Levy (Engineering Construction Industry Training Board) Order 2013.
Relevant document: 23rd Report from the Joint Committee on Statutory Instruments, Session 2012-13.
My Lords, the purpose of this order is to seek authority for the Engineering Construction Industry Training Board—the ECITB—to impose a levy on employers in its industry in 2014, and this will relate to an assessment of employers’ payroll in the 2012-13 financial year. The prime purpose is to meet the skills needs of the industry.
I believe that it is worth spending a little time elaborating on the reasons why there is a statutory training levy in the engineering construction industry. The engineering construction industries construct and maintain the power and utilities essential to the UK’s infrastructure. The industries include coal and gas power, offshore oil and gas, chemicals and pharmaceuticals, steel and metal smelting, nuclear power and renewable energy. The construction and maintenance requirements for these industries call for a mobile, flexible and highly skilled workforce. It is the employers in these industries who have, since 1991, come together to support collective action through the levy to develop the workforce, manage risks and address skills needs.
Similar statutory arrangements are in place for the wider construction industry, which operates under a separate levy order passed in Parliament in 2012. The Government have made, and continue to make, major investments in skills and training. However, while the Government have a role in setting the framework for success, employers need to be in the driving seat if we are to equip the workforce with the skills that employers need. The ECITB has a central role in training the workforce and supporting the industry to achieve sustainable growth. In doing this, the Government look to the ECITB to minimise bureaucracy and ensure that support to employers is relevant and accessible. The ECITB is employer-led, rather than government-led, and its role is to encourage the provision of adequate training of employees and prospective employees in its industry. It provides a wide range of services, including setting occupational standards, developing vocational qualifications and delivering apprenticeships, as well as paying direct grants to employers who carry out training to approved standards.
Employers in the engineering construction industry continue to support a statutory framework for training. The ECITB is a model of the successful application of such a framework, and the order that we are considering today will enable these statutory levy arrangements to continue. I welcome this order as evidence that employers in the engineering construction industry want to continue to invest in the skills of their workforce.
The ECITB operates under the provisions of the Industrial Training Act 1982. That Act permits the ECITB to raise a levy on employers so that the costs of training are shared more evenly between companies in the industry. This order gives effect to proposals submitted to us for a levy to be collected by the ECITB in 2014. It is a condition of the ITA that a levy order is made affirmative as a resolution in the House where it involves the imposition of a levy estimated to be in excess of 1% of emoluments—that is, essentially wage costs—for some employers.
The orders can be made only if the Secretary of State is satisfied, first, that the amount of levy is appropriate in the circumstances; secondly, that the proposals are necessary to encourage adequate training in the industry; and, thirdly, that the previous levy order received support from the majority of employers and the levy rates remain unchanged. I confirm that my right honourable friend in the other place, the Secretary of State for Business, Innovation and Skills, is satisfied that these conditions have been met.
The Act also requires the ECITB to include proposals for exempting small employers from the levy. This order therefore provides that small firms will be exempt if their expenditure on payroll and sub-contract labour is below a certain threshold that the industry considers to be appropriate, and I will come to the details of the thresholds in a moment. Those firms that are below the threshold and exempt from paying the levy are still able to benefit from grants and other support from the ECITB, and indeed many of them do so.
The ECITB does not propose to make any changes to its levy rates or small firms exemption thresholds. The rate for site employees will remain at 1.5% of total payroll, plus net expenditure on sub-contract labour. Employers who spend £275,000 or less on payroll costs for on-site employees will not have to pay the levy. The rate in respect of off-site employees—often referred to as “head office” employees—is 0.18% of total payroll, plus net expenditure on sub-contract labour. Employers who spend £1 million or less in respect of payroll costs for off-site employees will not have to pay the levy.
Of all the establishments which are considered to be leviable by the ECITB, it is expected that around 35% will be exempted from paying the levy. For the ECITB, the one-year proposal is expected to raise around £20 million in levy income. The Committee will note that the ECITB order covers a one-year period. The Industrial Training Act requires ITBs to submit proposals—and I quote—“from time to time”. These proposals may provide for levies to be imposed for a period of up to three years.
The ECITB has proposed a one-year levy order because, in view of the current economic conditions, employers considered that flexibility should be retained on the issue of future levy rates. It is anticipated that next year the ECITB levy order will also cover a one-year period, with the intention of realigning with the Construction Industry Training Board to a three-year levy cycle from 2015 onwards.
The Committee will know from previous debates that the ECITB exists because of the support it receives from employers and employer interest groups in its sectors. As I indicated earlier, there is a firm belief that without the ECITB there would be a serious deterioration of the quantity and quality of training in the industry, leading to a deficiency in skills levels. Consultation with the industry in 2012 demonstrated that there is strong support among employers for a levy system, with 71% of employers liable to pay a levy in 2014 supporting the levy arrangements. Only 2% of employers indicated that they opposed the levy. Those that did not express a view are not counted as supporting the levy. This draft order will enable the ECITB to continue to carry out its vital training responsibilities, and I commend it to the Committee.
I thank the Minister for his comprehensive contribution. I must admit that I found it interesting because, by mentioning all the different industries, he stressed their importance. As he rightly said, this is a mobile, flexible and highly skilled workforce. Our one concern is the point that he raised near the end of his contribution: because of the somewhat fragile state of the economy, which is clearly impacting on these industries, they are going for only a one-year levy. I do not expect the Minister to have the answer to this but I should be interested to know what impact this will have on the number of apprenticeships that are likely to be offered. These are highly skilled industries and these apprenticeships are highly sought after, so it is a bit worrying that they have decided to go for only one year.
It was interesting as well that the Government are proposing an alignment with the ECITB in 2015, which is probably a step in the right direction. I could not help reflecting that, in looking at that level of support from the employers, a levy is perhaps one way of ensuring that all employers contribute to training in industry. It gets us away from the idea that so many employers have. They seem to think that they do not have to bother and can poach their skills from other employers. However, with those couple of questions and that slight caveat, we offer our support to this statutory instrument.
I thank the noble Lord, Lord Young, for his general support for this order. I will indeed refer back to him in writing on the one-year levy and the impact that it has on apprenticeships. I should make the point that the support that the ECITB is giving for skills is over and above the other schemes and initiatives that this Government are taking, which the noble Lord will be aware of. I listened in briefly to the previous debate in this Committee concerning apprenticeships, and it is the case that the previous Government indeed started off much on the apprenticeship scheme. This will add to that. It is pleasing to note that apprenticeship numbers are holding up and, indeed, increasing. There were 849 apprentices recruited in 2012, a figure which I hope I can improve upon with an increase as time goes on.
The other point to make about apprenticeships is that they remain the prime route into the industry; the noble Lord raised this point. The ECITB supports and promotes apprenticeships to employers. That is a very important part of what it does. It also provides financial support and grants for apprenticeships. In 2012, demand for apprenticeships was much tighter than expected, indicating rising employer confidence and additional demand from employers—in particular, in the nuclear sector. I know that I could say more about apprenticeships but I am very pleased that there is overall support for this order. I commend it to the Committee.
Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2013
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2013.
Relevant document: 23rd Report from the Joint Committee on Statutory Instruments, Session 2012-13.
My Lords, the Collective Investment in Transferable Securities (Contractual Scheme) Regulations 2013 set out the legal framework under which tax-transparent funds will be introduced to the UK. We are introducing two new vehicles, both of which will be subject to Financial Conduct Authority authorisation and which are collectively known as authorised contractual schemes. The first of these schemes is the co-ownership scheme; the second is based on existing limited partnership models. As a matter of course, I can confirm that the provisions in the regulations are compatible with the European Convention on Human Rights.
The UK investment management industry serves millions of customers all around the globe and is one of the UK’s success stories. It is a key part of the UK’s financial sector, managing £4.9 trillion of funds and earning an estimated £12 billion a year for the UK. About a third of European assets under management are managed out of the UK and the industry is a significant provider of high value-added jobs and skills, with clusters of expertise in London, Scotland, and across many UK regions.
However, this sector is about more than just the management of funds, it is also about where the funds themselves are located. The establishment of a tax-transparent fund vehicle is an important part of our programme to ensure that the UK remains competitive as a European centre for fund domicile.
Once introduced, these funds will be suitable for use in many roles, whether by themselves as stand-alone schemes, or as part of more complicated structures. Introducing them will also help to ensure that the UK is able to take full advantage of the opportunities presented by the Undertakings for Collective Investment in Transferable Securities IV—UCITS IV—Directive. That directive governs more than 70% of the net value of European funds for collective investment in transferable securities. The directive in 2010 enabled fund managers for the first time to operate cross-border UCITS master funds. That means that feeder funds from across different member states can invest into a much larger master fund, pooling their assets and thereby benefiting from economies of scale and greater investment diversity.
For that structure to work well, the master fund must be tax transparent. That means that there is no taxation of income in the master fund itself. The feeder funds and any other investors are then taxed as normal in their own jurisdiction on their investment return. In this way, the Exchequer does not lose revenue. Instead, investors pay tax as appropriate based on their circumstances.
As I mentioned, we are introducing two types of authorised tax transparent funds. Both of the types being considered are contractual funds under the UCITS IV directive. One type is the co-ownership scheme. This is a new type of fund structure in the UK, but is already in place and used extensively in other European member states.
Legislation being introduced separately will provide that for the purposes of UK capital gains tax, such funds will be treated as opaque. That means that the investors’ holding in the fund will be the relevant asset for investors’ capital gains tax purposes, not the underlying assets held by the fund. That will avoid some of the complex reporting and accounting requirements associated with investment in fully tax-transparent entities.
We are also introducing an authorised limited partnership scheme, which will be based on the already well-recognised unauthorised limited partnership vehicle currently used in the UK, and which will be fully transparent for both income and gains. Given the existing availability of these funds in other domiciles, there is commercial demand to have similar vehicles in the UK.
Once introduced, the tax transparent funds will enable UK fund managers to take advantage of the opportunities created by UCITS IV and establish master funds here in the UK. These funds will also be suitable for other purposes, and fund managers will be able to make commercial decisions over how best to employ them. For example, the new fund structure will also allow some investors, in particular pension funds and charities, to retain the benefit of lower rates of withholding tax on their foreign investments under double taxation treaties. These benefits cannot be retained if investment is made through non-transparent funds.
Whether forming part of a master-feeder structure or not, these new funds are an important part of our strategy to support the UK as a competitive location for fund management and domicile.
The Government consulted widely with industry to ensure that these vehicles are as competitive as possible. The consultation responses were strongly supportive of the introduction of the new vehicle. Many respondents have stated that the new structure would enhance the UK’s reputation as a fund domicile and help promote the UK investment management industry.
The instrument is to be made under the European Communities Act 1972 to provide for the formation of UCITS in accordance with contract law. Specifically, the instrument inserts a new Chapter 3A in Part 17 of FSMA to govern the authorisation and supervision of contractual schemes by the FCA. It extends to contractual schemes the FCA’s power to make rules for this purpose in relation to unit trusts. As with other authorised collective investment schemes, and to ensure consistency and coherence of tax treatment, the rules will also extend beyond UCITS to non-UCITS retail schemes and to qualified investor schemes. These latter more lightly regulated schemes will be within the ambit of the new AIFMD directive. As well as providing consistency with other UK funds, this will give greater flexibility to fund managers.
Other primary and secondary legislation is amended to provide for contractual schemes broadly in line with provisions already made for unit trusts and open-ended investment companies. The Limited Partnerships Act 1907 partly governs limited partnerships and is modified for the operation of partnership schemes. The Insolvency Act 1986 and insolvency rules and equivalent legislation for Northern Ireland are modified to enable co-ownership schemes to be wound up in the event of insolvency.
In addition to this legislation, there will be additional regulatory changes to bring the tax-transparent funds into effect. Regulations governing the tax treatment of UK resident investors in the new funds will shortly be laid before the House of Commons. These regulations will cover the capital gains tax, stamp taxes and VAT treatment of these funds. Regulations covering stamp duties and VAT are being made through the negative resolution procedure; the capital gains tax regulations are subject to affirmative resolution of the House of Commons. Before any new schemes can be launched it will also be necessary for the FCA to approve its own rules which govern their regulation. This regulation is necessary to ensure the schemes are operated in a responsible and appropriate manner.
These changes pave the way for the introduction of effective and competitive tax-transparent funds to the UK. These funds will help to provide improved returns to investors, as well as providing new opportunities to industry and strengthening the UK investment management sector. I therefore commend these regulations to the Committee.
My Lords, I thank the Minister for introducing these regulations and for the speed with which he read his brief. I have looked at the regulations and particularly at the impact assessment, as well as all the various issues related to the regulations, and it seems to me that they are good news for everybody who has been consulted—and they seem to be pretty good news in general. However, the consultation has essentially been with the industry, and a couple of words that I heard in the Minister’s speech were “lightly regulated”. We have had light regulation in the past, and, clearly, that is good for the industry, fund managers, and so on. But I seek an assurance that the regulations have been carefully checked so as not to increase the opportunities for tax avoidance and that there will be no increase in tax avoidance as a result of our approving the regulations.
My Lords, I am grateful to the noble Lord for his speedy response to my speedy introduction. I think that I can give him the assurance that he seeks. In terms of tax avoidance, the great advantage of the new vehicles is that, by being transparent in the country of domicile, they ensure that each taxpayer is accountable for domestic tax payable in the country where they are based. So we are content that they will not become tax-avoidance vehicles.
I used the phrase “more lightly regulated” in respect of one relatively small category of schemes. The schemes will be fully regulated and, because of the scale of investment involved, will be taken very seriously by the FCA. On that basis, I hope that the noble Lord will be happy with the regulation.
Cash Ratio Deposits (Value Bands and Ratios) Order 2013
Considered in Grand Committee
My Lords, the draft order makes changes to the cash ratio deposit scheme, which is how the Bank of England funds its monetary policy and financial stability functions. Under the Bank of England Act 1998, banks and building societies of a certain size are required to place a proportion of their eligible deposits in a non-interest-bearing account in the Bank of England. The Bank of England then invests these deposits in interest-bearing assets, specifically gilts, and the return it makes funds its monetary policy and financial stability functions.
The Government continue to believe that the cash ratio deposit scheme is the right way to fund the important policy work of the Bank. The operation of the cash ratio deposit scheme means that the Bank’s income is subject to changes in two variables: first, changes in the gilt rate; and secondly, the size of deposits eligible for the scheme, which is largely driven by the performance of the banking sector. Over the past five-year period, both of these have been lower than expected, which has caused a shortfall in funding for the Bank. The Government seek to address this shortfall by recalibrating the parameters of the cash ratio deposit scheme to current economic conditions.
Specifically, the order increases the proportion of deposits that eligible financial institutions are required to deposit at the Bank of England from 0.11% to 0.18%. It also increases the total amount of deposits that an institution has to hold to be eligible for the scheme from £500 million to £600 million. These changes, when taken alongside efficiency savings to be made by the Bank, aim to ensure that the Bank of England’s income is able to cover the costs of its policy functions over the next five years.
The Government have come to this conclusion after conducting their five-yearly review of the cash ratio deposit scheme. The parameters for the scheme were last set out in 2008, and, of course, economic circumstances have changed significantly since that time. I shall set out some of the more detailed findings of this review.
The total costs of the Bank of England’s monetary policy and financial stability functions between 2008 and 2013 are expected to be around £600 million. The income that the Bank of England is expected to receive over the same period is only £520 million. This will generate a shortfall of £80 million, which the Bank will have to recoup from its reserves, resulting in a reduction in the dividend that the Bank passes over to the Exchequer. This has largely arisen because the return the Bank has received on its investments over the past five years has been lower than expected. At the time of the previous review, the Bank had estimated that its investments would generate a return of 5% based on market expectations of gilt yields in 2008. However, the Bank’s average return is now expected to be about 4.25% between 2008 and 2013.
In addition, the level of deposits that the Bank has received under the CRD scheme has grown slower than expected. In 2008, these were expected to grow at 4.5%. They have instead grown by just under 2%, reflecting the performance of the banking sector during the financial crisis. Should no action be taken, the review found that the outlook for the coming period is much worse. The projected costs of the Bank’s monetary policy and financial stability functions over the next five years are expected to rise to £670 million. This increase is driven by the costs of additional responsibilities that the Bank is taking on, including the supervision of clearing houses and security settlement systems, macroprudential regulation and the setting up of the Financial Policy Committee to identify, monitor and take action to reduce risks to the financial system.
In contrast, the income that the Bank will receive will fall further because market expectations of gilt yields remain low over the next five years. This means that if no action is taken, the Bank’s income will be £440 million and its costs will be about £670 million in the next five-year period, generating a £230 million shortfall. In meeting that shortfall, the Bank is playing its part. It has committed to bearing down on its costs. In particular, it will seek efficiency savings through establishing a shared corporate services model with the Prudential Regulation Authority. The Bank’s budget for the next five-year period takes these savings into account.
There are opportunities for the Bank to make further efficiency savings. These potential savings have not yet been incorporated into the Bank’s budget and are likely to reduce the Bank’s running costs further over the next five years. The Treasury will review the Bank’s progress in achieving these savings once the shared corporate services model with the PRA has been established. As part of this review, the Treasury will consider whether there are implications for the Bank’s funding requirements and, in turn, the cash ratio scheme. For the time being, however, the changes set out in the order before us today should increase the income that the Bank receives over the next five years to ensure that it is closely aligned with the Bank’s costs.
The amount that most institutions are required to deposit at the Bank under the cash ratio deposit scheme is small. In December 2012, 86% of deposits were made by just 20 institutions, with eight institutions each contributing more than £50 million. The large majority of contributions to the scheme are very clearly from larger banks and building societies.
Under the new parameters of the scheme, some financial institutions will need to hold higher deposits with the Bank but, again, it will be the larger banks and building societies that will be affected. Indeed, by increasing the minimum amount of deposit that financial institutions have to hold to be eligible for the scheme, 14 smaller institutions will be removed from the scheme altogether, and a further 12 will see the amount they are required to deposit fall.
These changes are sensible and ensure that the Bank’s important monetary and financial stability functions are fully funded. I commend the order to the Committee.
My Lords, I thank the Minister for presenting this order. I would almost say that the scheme is essentially a tax on banks and effectively a charge—a way by which the Bank of England receives appropriate revenues to support its policy activities. My understanding from the paperwork—I briefly read the report—is that in essence the revenue from this scheme has proved to be significantly less than predicted. Essentially, the Bank got its forecasts wrong, and therefore it needs to adjust the parameters of the scheme to raise its income over the next five-year period.
The report says that the Government announced the setting up of a review on 18 September 2012. I just wonder how thorough this review has been, because it concludes that this scheme is the best way of going about this but there is little argumentation. It seems to be quite an elaborate scheme. Banks and building societies funding this policy activity is an entirely reasonable idea but the scheme does seem elaborate and I believe that it would bear a more careful review. Therefore, my first question is: in how much depth have the Bank and the Treasury looked at this scheme of requiring banks to place non-interest-bearing deposits with the Bank of England to fund the Bank of England? How much study has there been into whether this is the best way of doing it?
The increase in the levy—a de facto levy—is pretty substantial. As the Explanatory Memorandum points out, the expected revenue will rise from £436 million if the parameters have not changed to £657 million over the period under consideration. That is a 50% increase.
I note from the consultation that there has been no great squeal from the banks which will be paying it, and therefore one must assume either that these sums of money are lost in the roundings of such institutions or that the banks feel that the increase is fair. Nevertheless, it calls into question the efficiency of the Bank of England and whether, in what I loosely call the 2013 review, the efficiency has been properly considered.
In listing the outcomes of the review, the report goes on only to explain the parameters which have changed requiring a review and one efficiency saving, which is in the back-office joint operation with the PRA. Does the Minister feel that the efficiency of the Bank has been properly reviewed? Does he feel that there should be further mechanisms to review the level of funding of the Bank of England in the circumstances?
I have a very open mind on this. I think that the Bank of England should be as efficient as possible. Equally, however, given the tremendous change in circumstances and the responsibilities of the Bank of England, not only do we need an assurance that the Bank of England is as efficient as possible; we need an assurance that the resources are adequate to meet the exceptionally increased responsibilities now being placed on it. Has the Court of the Bank of England carefully considered the funding over the next five years, and can we be assured that the court feels that it is adequate for these new responsibilities?
I turn to my final question. This number might be too small but, again, it is in the roundings. The Explanatory Memorandum says that the larger institutions will have to top up their deposits with the Bank to the tune of £1.558 billion. To a mere mortal that is quite a substantial sum. I do not understand from the EM the extent to which this sum impacts on the balance sheet and capital reserves of the banks and the extent to which that will have an impact on their lending capability. The whole of industry, and in that sense the nation, is looking to the banks to lend more, to create more liquidity and to increase industrial activity. It is crucial that we do not see any significant impairment in the banks by the changed parameters in this scheme.
I would be grateful if the Minister could answer those questions. As I said, we do not want the Bank to be underfunded. We want it to be efficient and therefore, in the generality, we support the order.
My Lords, I am grateful to the noble Lord. I will attempt to deal with his questions. He asked about the basis of the scheme. There was a significant review in 2008 which considered whether a fee-based approach would be a better way of funding the Bank. That review concluded that the benefits arising from the Bank’s activities accrued to the whole banking sector and that it was not possible to apportion the service being received in that way to individual firms. That remains the case.
We asked the banks whether they agreed with that. Some 154 organisations were proactively invited to respond to the Treasury's consultation which ran earlier in the year, in February and March, and the Treasury received three responses. Broadly speaking, the responses were sympathetic to what was being sought. I think that we can take it that this is one of those cases where the banking community is not up in arms about what is proposed.
The noble Lord asked about efficiency and whether this will be properly reviewed, whether resources are adequate and whether the Bank is operating efficiently. The background is that the Bank’s real-term budget is not any higher now than it was in 2000-01, so there has not been a drift. It is fair to say that the Bank has not been subject to significant savings over the past year or two. However, the Government’s view is that the past year or two has been a period of almost unrivalled change in the financial services and regulatory architecture and in the role that we wish the Bank to undertake. Therefore, this was not the time to have a root-and-branch look at efficiency, particularly given that many of the efficiencies that we are talking about will be realised only when the PRA is up and running and it is possible to see how well the joint operation of the back-office activities is going and how much can be saved in that way. Between now and the next review, the Treasury and the Bank itself will look at efficiency afresh in the light of the new arrangements which are happening all around them and the new responsibilities that the Bank itself has taken on in terms of the FPC and direct regulatory roles. Yes, we are concerned about efficiency, but we need to get the balance right and we will be looking very carefully at that over the next year or two.
Finally, the noble Lord asked about the effect of the cash ratio deposits on the Bank’s ability to lend. The cash ratio deposits continue to count as assets for the financial institutions making them so they do not have an impact on the capital requirements. Obviously, however, they represent an opportunity cost as the cash is tied up with the Bank without a return. Nevertheless, as he suggested, this opportunity cost is relatively small. The best estimates of the extra return they will forgo is about £220 million and this will be split between 150 institutions, albeit not equally. Although this is a not-insignificant sum, it is insignificant compared with the £13.8 billion that the banks have drawn from the Funding for Lending scheme. Taken together, the banks are bearing a modest cost. I think that that is why they were content when we undertook the consultation.
I hope that I have answered the noble Lord’s questions. On that basis, I commend the order to the Committee.
Committee adjourned at 4.57 pm.