Thursday, 26 February 2015.
European Union (Definition of Treaties) (Association Agreement) (Georgia) Order 2015
Motion to Consider
My Lords, I shall also speak to the EU definition of treaties association agreement orders for Moldova and Ukraine.
Today we are considering three draft orders that relate to association agreements between the European Union, the European Atomic Energy Community and their member states, and three countries: namely, Georgia, the Republic of Moldova and Ukraine. The purpose of these draft orders is to declare the agreements to be EU treaties, as defined under Section 1(3) of the European Communities Act 1972. The draft orders we debate today are a necessary step towards UK ratification of these agreements.
Georgia, Moldova and Ukraine have all chosen to pursue closer ties with the European Union. These countries have decided of their own free will to sign association agreements in order to support their own reform programmes and to seek closer political association and economic integration with the European Union. We fully support the sovereign choices of Georgia, Moldova and Ukraine and strongly believe that no third country should have a veto over their decisions.
These association agreements, with their deep and comprehensive free trade areas, are wide ranging. They provide strong mechanisms through which to deliver security, democracy and prosperity. They commit Georgia, Moldova and Ukraine to deep and meaningful reforms, to align more closely their legislation to EU norms, focusing on support to core reforms, including economic recovery and growth, good governance, improved respect for rule of law, and human rights. They will allow for the closer integration of Georgia, Moldova and Ukraine with the EU and will promote increased prosperity and stability in the European neighbourhood. That is not only in the interests of those three countries, but is clearly in the interest of the EU, including the United Kingdom.
The ratification of these three agreements is not an end in itself. They form part of a process to drive forward continuous reform in all three countries. The European Commission will prepare annual progress reports to reflect each country’s strengths and highlight areas for improvement. The scope and nature of the agreements are similar. That is why we are considering the draft orders together today. However, we should bear in mind that each country faces different pressures and has its own distinct priorities for its relationship with the EU.
The first order before us today, which I formally moved, relates to Georgia. Georgia has watched closely as events have unfolded in Ukraine. Both the Georgian Government and public have drawn parallels with the 2008 conflict with Russia. The Georgian Government are extremely concerned about the situation in Ukraine and its implications for their country, and have lobbied EU member states actively to ratify Georgia’s association agreement.
We remain clear, however, about the importance of Georgia continuing with reforms and fulfilling its commitments for signature of its agreement. Strengthened respect for democracy, human rights and the rule of law are part of the process of moving closer to the EU. While not without setbacks, Georgia’s progress in the areas of democratisation and economic reform over the last 10 years has been impressive. The agreement will further help to encourage Georgia to drive forward with genuine commitment and energy the reforms necessary for the country’s long-term security and prosperity.
The European path has widespread support across Georgian society and the country’s main political parties. Since Georgia’s parliamentary and presidential elections in 2012 and 2013, which witnessed the first peaceful transfer of power in Georgia—a rarity in the former Soviet space—the Georgian coalition Government have remained committed to and have continued on the pro-EU trajectory set by the previous Government.
The wider south Caucasus region is of strategic importance to the UK and the EU. Continued stability in this region is also essential for the UK’s prosperity and energy security goals. It is therefore strongly in our interests that Georgia continues along its EU path. Since the brief Russia-Georgia war in 2008, the EU has played an important role in conflict resolution through the EU special representative for the south Caucasus and EU monitoring mission that provides an effective monitoring presence along the administrative boundary lines between Georgia and its breakaway regions. Closer political association and greater economic integration into the EU is the most effective way to promote reform and modernisation in Georgia, as well as contributing to conflict resolution.
I turn to the order relating to Moldova. Moldova’s parliamentary elections of 30 November 2014 illustrate Moldova’s continued commitment to democracy. A new coalition Government were appointed by the Moldovan Parliament on 18 February. We hope that they will govern in an inclusive and accountable manner and make early progress with the implementation of Moldova’s association agreement. It will be important to maintain, even speed up, the progress that Moldova has made since 2009 in administrative reform, independence of the judiciary, combating discrimination, and ensuring that democratic processes and respect for human rights are more deeply embedded in Moldovan society and more able to resist pressure from destabilising outside forces.
The protracted conflict in Transnistria remains unresolved, largely because of the malign role of Russia. Despite attempts by the European institutions, EU member states and the Government of Moldova, the de facto authorities in Tiraspol refused to engage meaningfully in negotiations over the association agreement. Nevertheless, an increasing share—now more than half—of Transnistrian exports go to the EU. Many businesses in the Transnistria breakaway region have a strong interest in positive relations with Chisinau and the EU, and could provide a positive influence for change.
Before I progress to the order which relates to Ukraine, it may be for the convenience of the Committee if I update it on the latest situation there, before saying more about the Ukraine association agreement. This is not a debate about the situation in Ukraine, but I appreciate that this is a moving picture, and Ministers have a duty to inform the House.
As the Committee will know, an agreement on a ceasefire was reached in Minsk on 12 February. It includes provisions embodied in an original ceasefire agreement also agreed in Minsk in September 2014. These measures include the withdrawal of heavy weapons to agreed distances from the line of contact, and the withdrawal of all foreign armed formations, military equipment and mercenaries from the territory of Ukraine. The 12 February agreement also envisages fresh elections under Ukrainian law in the breakaway, separatist-held areas and for constitutional reform to bring a more decentralised system of government in Ukraine.
The Minsk agreements were endorsed by UN Security Council Resolution 2202 on 17 February. This underlines the need for all signatory parties to implement their obligations. This resolution will allow the Security Council to monitor that closely.
There must be a particular focus on ensuring that Russia and the separatists honour their commitments. In the weeks that preceded the Minsk agreement of 12 February, Russia stepped up military support to the separatists. It transferred heavy weaponry and maintains hundreds of regular soldiers, including special forces, in Ukraine. Even after the ceasefire came into effect on 15 February, separatist and Russian forces continued to mount attacks on Ukrainian positions, including in the town of Debaltseve, an important road and rail hub, which finally fell on 18 February.
The consequences of Russia’s actions in Ukraine have been devastating. Since fighting started, we have seen more than 5,000 dead, tens of thousands injured and more than 1.5 million people forced to take refuge elsewhere. It is Russia, through its support for the separatists, which is responsible for this and Russia which must be held to account. As the Prime Minister made clear at the European Council on 12 February, Europe must send a clear message to President Putin that until Russia changes its behaviour, sanctions will remain in place. Russia must recognise that Ukraine’s independence and territorial integrity should be respected and that Ukraine should be allowed to make its own sovereign decisions. The association agreement is just such a sovereign decision.
For Ukraine, the association agreement represents a very clear public commitment, by both the EU and Ukraine, to a deep relationship and close co-operation and to the continuation of much needed deep-rooted reforms. Although the provisional application of the deep and comprehensive free trade area has been postponed to 1 January 2016, the provisional application of important areas such as the rule of law and the fight against crime and corruption came into force on 1 November 2014.
The proposal to delay, at the request of President Poroshenko, the provisional application of the deep and comprehensive free trade area of the association agreement until 1 January 2016 was done in the spirit of peacebuilding, giving Ukraine and Russia time to discuss their economic relationship. The proposal offered a pragmatic solution to address Russia’s stated concerns about the deep and comprehensive free trade area, while leaving the text unchanged. In the mean time, the EU will continue the application of autonomous trade measures for the benefit of Ukraine until the end of 2015, granting Ukrainian exporters continued preferential access to EU markets without waiting for the trade provisions under the association agreement to enter into force.
These association agreements will be supported by continuing financial and technical support from the European Union on strengthening the rule of law, advancing judicial reforms, fighting corruption, ensuring respect for fundamental rights and freedoms, and strengthening democratic institutions. The EU provides funding to Ukraine, Georgia and Moldova under the European Neighbourhood Instrument. The Commission currently plans to allocate at the minimum €2.1 billion and, depending on the pace of reform, could allocate up to €2.6 billion to support Georgia, Moldova and Ukraine between 2014 and 2020. This is a significant increase on the previous period for all three countries.
In conclusion, we firmly believe that the implementation of the association agreements will bring mutual benefits to Georgia, Moldova and Ukraine, and to the EU. We should all be clear, however, that this will not happen overnight. It is a complex region—we have all noticed that and debated it. There are no easy solutions to the crisis in Ukraine. Georgia and Moldova both have protracted conflicts and disputed territories within their borders. The association agreements have the potential to have a positive impact in the region and on these conflicts as Georgia, Moldova and Ukraine become more economically successful and politically stable. But we, along with the EU and other partners, will need to stay closely involved to ensure that these agreements fulfil that potential and bring maximum benefits to the region, which is in all our interests. I commend the draft orders to the Committee and I beg to move.
My Lords, all of us will be grateful to my noble friend for her presentation of these orders. As outlined, the association agreements are intended to deepen political and economic relations between these states and other parties.
Neither Georgia, Moldova nor Ukraine is a member of the European Union; however, all three are members of the Council of Europe and its 47 states’ affiliation. By the Council of Europe, the three states are already held to account for meeting obligations. This occurs through its Parliament, through monitoring mechanisms—for example, CPT, ECRI and FCNM—and at the Court in Strasbourg.
Clearly, we want to avoid double handling or reinventing the wheel unnecessarily. This would occur if a branch of the European Union or some other improvised European process should try to set up its own rule of law mechanism for monitoring and deployment—not least if such should be attempted in connection with the association agreements that we are considering.
Can my noble friend assure us that such double handling is not envisaged and will not occur; and that, instead, today’s association agreements can therefore progress constructively and creatively, and be facilitated by Council of Europe structures that are already in place?
My Lords, I thank the Minister for her clear explanation of the orders, and I am sure that we are all grateful to her for bringing us up to date on the situation in Ukraine. I should say at the outset that I support the orders and the fact that the European Union has entered into these association agreements with Ukraine, Moldova and Georgia.
These countries have two things in common: first, they are victims of territorial disputes and, secondly, all have sought a European and westward-looking future. Ukraine is, of course, in the forefront of the news today, and the dispute over Crimea and part of eastern Ukraine sadly seems likely to be added to the list of frozen conflicts, joining those in South Ossetia, Abkhazia in Georgia, and Transnistria in Moldova.
I have just come back from the meeting of the OSCE Parliamentary Assembly, where discussion about the situation in Ukraine dominated proceedings. However, deep concerns were also expressed about Russia’s intentions in respect of Moldova and Georgia—and the Baltic states, which are outside the area we are discussing. We must do everything we can to anticipate Russian intentions towards these states and not allow the dissident parts to provide the excuse for Russia to undermine the rest of the country seeking a different, European and democratic future. We have already seen Armenia turn its face against an association agreement.
This afternoon is not the place to go into these situations in detail but, while I entirely agree that Russia should not have a veto over the future of any sovereign state, it is important that the position of the European Union and our Government is clear—namely, that although the agreements are a welcome step to inclusion of these countries in Europe, there can be no question of accession to the European Union while these territorial disputes exist. Unless we make that clear, we stand the risk of dashing the hopes of many citizens in those countries, and that can lead only to disillusionment with the European Union and the West in general.
Nevertheless, we should adopt the agreements with enthusiasm and offer as much assistance and economic help as possible to buttress the sometimes fragile democracies that exist in these countries. The agreements are with each of the three countries and the Governments of those countries do not recognise the independence of or the occupation of part of their respective states. It may be an academic point, but the agreements make no reference to these facts. My noble friend referred to businesses in Transnistria; are we quite satisfied that the benefits of these agreements cannot be claimed by businesses— which are no doubt very inventive as to where goods are produced and subsequently exported from—which are in fact based in these disputed territories? If that is considered to be too fanciful, are we in any circumstances under the agreements able to differentiate between the three sovereign states and their Governments and the areas over which they have no control and are in dispute?
My Lords, I also thank my noble friend the Minister for her helpful introduction and explanation of the situation. I spent many years making EU law, but perhaps not so much time implementing it, and therefore I am not familiar with this process. Before moving on to other things, perhaps I could ask about the draft Explanatory Memorandum. It explains that one of the effects of the order, declaring that the agreement is to be regarded as an EU treaty under the ECA 1972, is that certain rights and obligations under the agreement automatically become law in the United Kingdom and then subordinate legislation can be made to give effect to the provisions of the agreement. I am not clear which rights and obligations automatically become law. It may be that the noble Baroness can take me aside at some point and explain how all this works, and that will clear my confusion.
My more general point is to strongly welcome these association agreements. I agree with everything the noble Baroness has said about the prospect of not only greater prosperity for the citizens of these three countries, but also greater security for the European Union, and I agree that the prospect of better energy security is a factor in that discussion.
I take the point made by the noble Earl, Lord Dundee, about the role of the Council of Europe. It is important that the roles of the EU and the Council of Europe should be complementary. It is fair to say that the EU has much greater resources than the Council of Europe; we know that the Council is always stretched for money, partly because its member states do not give it enough. They should not trip over each other. At one point there was a tendency for the EU to sort of push aside the Council of Europe, which is not a clever idea. The EU needs to come in as a complementary body, and of course it has another role to play in terms of the economic and trade relationship. However, for the rule of law, fighting corruption and an independent judiciary, obviously we have the whole Strasbourg package—aquis, if you like—and that is essentially what the EU wants to implement. There should not be any institutional jealousy between the two organisations. Sometimes during my time as a Member of the European Parliament, there was evidence of a bit of that. After all, the EU pinched the flag of the Council of Europe. However, it is important that the two should work together so as to add value to each other.
I welcome what the Minister said about the provisions on the rule of law and the fight against corruption which have been in force since last November. I should like to stress the importance of that. If we look at the history of countries acceding to the EU, although I know that this is not about accession, it is arguable that not enough was done in these areas before they were admitted to the European Union and there have been continuing problems in the existing member states. More must be done. We really need to front-load this issue. You cannot have a flourishing economy or property rights without an independent judiciary. It is almost more important even than democracy, in a sense. Certainly, some drew that conclusion from the western Balkans. You cannot have economic reform, as I say, without a strong independent judicial system.
I agree with the Minister that, while we must not overstate it, these association agreements have the potential to have a beneficial effect on the prospect of dealing with the conflicts because the people in the breakaway regions would be able to see the benefits of participating in a deep relationship with the EU and would want a slice of the action. But the association agreements of themselves are not going to solve the conflicts.
I welcome what the Minister had to say in going slightly outside the scope of these orders to update us on the situation as regards Ukraine. In that context, I am extremely shocked to read today that the President of the Republic of Cyprus, Mr Anastasiades, on a visit to Moscow, has formalised an agreement for Russian warships to use Cypriot military bases and has also spoken against EU policy on Ukraine. We know that there is press commentary on the difficulty of keeping together a common EU policy on sanctions and the prospect of tightening sanctions on Russia. There were worries about Greece. There have been worries about Hungary, of course, which I mentioned in the House the other day. Mr Orban hosted President Putin the other day. I personally find this the most extraordinary disloyalty by EU member states towards a common EU policy on Russia. I hope that some very candid words are being shared around the European Council table with some of our member states.
I know we have just a short procedure here so I will not go on. These association agreements are extremely welcome. Perhaps from smaller acorns big things will grow. One day, perhaps, one or more of these countries will be eligible to join the European Union. This is not the time and there is no guarantee of that. Personally, I hope that it might be possible for at least some of them and this at least leaves the door open. But as the Minister said, it is their sovereign choice what relationship they want with the EU. All parties in the UK have always supported the process of enlargement and the European Neighbourhood Policy, because it is not just for benefit of those countries; it is for our security.
My Lords, I am grateful for this opportunity to say a few words. I was in Georgia last July, just after the association agreement was signed, and I cannot underestimate the euphoria that there was, but of course I was among Ministers and people negotiating the agreement. The Georgian Orthodox Church is not exactly of the same mind and I think it may lead them all downhill.
I note from the Explanatory Memorandum that the impact is very modest on the UK economy. The figure of £0.6 million is quoted. Perhaps the Minister could reassure me that this really is the bottom end of the range and that Georgia, if the situation remains stable, can expect a gradual improvement. I would also like to be reassured that there has been no further development on the Russian front in Abkhazia and South Ossetia. It is not a stable Government—there has already been a change of Minister since we were there—but I am very pleased to read in press reports of the solidarity there is between Moldova, Ukraine and Georgia. They were, for example, at the celebration of the centenary events of the Maidan in Kiev. The Georgian President was invited, and I know that there has been a lot of exchange. I do not think that these association agreements need disturb the Russians unduly. We have moved on from last year and must all expect greater prosperity to follow from them.
I was on the European Union Committee which produced the report on Ukraine and Russia recently. I very much hope the Government will respond to it swiftly, because it will give more of us an urgent opportunity to discuss the situation.
My Lords, I thank the Minister for the measured and moderate way in which she spoke about these agreements. She will recall that, in a previous life, she appointed me as one of our delegates to the Council of Europe. Since that time, I have managed to become the chairman of the sub-committee on the application of the judgment of the European Court of Human Rights, where I am privileged to have a Georgian as my vice-chair. I want to take up the point that has been made about not getting too much crossover between the legitimate job of the European Court of Human Rights and that of the European Commission and its annual report.
I speak from long experience of the European Parliament, as the noble Baroness, Lady Ludford, does. The Commission loves to stray well beyond its remit into giving its opinion on many things in the world and is likely to do so. Through the Committee of Ministers mechanism at the Council of Europe, we should be able to ensure that there is some sort of balance and that we do not get into a position where they are both looking at the same thing. There is quite a clear job to do, and I am sure that resources are scarce. I spent 10 years on the liaison committee between the European Parliament and the Council of Europe. There was constant jealousy in the Council of Europe at our budget-raising powers and the fact that the Parliament could raise its own budget, whereas the Council of Europe of course had to negotiate its. None the less, no one has doubted that the European Court of Human Rights has not only the competence but the skill to give the requisite opinions and judgments on human rights issues. We need to be careful that those two are not mixed up.
One common factor of course with all three agreements is that they relate to the scenes of frozen conflicts—Ukraine is, sadly, now in that category of frozen conflict. I think the noble Lord, Lord Bowness, made the point that areas of frozen conflict could leak into the association agreements. I have to tell your Lordships that they can. I was in Moldova, not recently but not that long ago, and it was quite clear that it is part of Moldovan policy to try and bring Transnistria back into the body and that anything that can be done to pursue that aim is done, including encouraging it to export through Moldova itself. So we have to be careful there. We also have to be careful of the integration between Moldova and Romania. There are certain people in Bucharest who see Moldova as being little different from Wales, in terms of it being a country on the fringe that has self-government but which is basically still part of us. We need to keep an eye on that.
We also have to be careful about how the agreement is implemented. The beginning of the recent crisis in Ukraine spun out of the botched way in which the European Union handled the association agreement. That is how it is to my mind, although I know that that is not a universal view. We did not handle it as cleverly as we could have. We have ended up with a president in exile, although I notice that within the past few days, former President Yanukovych has made statements to the effect that he is thinking about going back, so we need to be careful about how we implement this. I am not saying that we should not sign and implement the association agreement, but we should not use it to antagonise—that is the danger.
I do not know whether the Minister met the Georgians who were here a few days ago, but it was quite clear that part of Georgian foreign policy, not unnaturally, is to try and use favourable reflections from Britain and western Europe in its constant battle against Russia and the countries that surround it. Georgia is a rather special case because it neighbours Turkey. The others are very much more in the heart of Europe.
My final point is that if we are going to have peace on this frontier in the end, we need a comprehensive agreement and settlement with Russia. There are too many potential conflicts: look at Latvia and the Russian population there. My own priority, for what it is worth, is that the Baltic states are covered by Article 5, and we must make sure that they stay at the top of our list before we take on any other commitments that we cannot honour. That is crucial. We should not get ourselves into a position where we are giving guarantees or understandings that we know in our own heart we cannot honour. I think that, more or less, we have gone as far as we can. I agree with the President of the European Commission that the time is not right for the extension of Community membership. We have probably bitten off more than we can chew; we certainly do not have the capacity for any more.
Historically, Britain has always been in favour of extending Community membership. One group of people has said that as good members of the European movement—which I am, too—we want to extend the benefits of Europe across Europe. But there is another school of thought, among the anti-European group, which has said that the more we can get in, the nearer we can bring it to collapse. That group also has a point. We have now got to a tipping point where we need to concentrate on integrating the European Union and its near abroad, in a sensible manner, to the not-so near abroad beyond it, whose countries are certainly not candidates for membership in anyone’s cognisance at the moment. These orders are part of that process.
I welcome the orders and I hope that they will be implemented and monitored with the moderation that the Minister’s speech has indicated. I look forward to us giving them our support.
My Lords, I start by thanking the Minister for her clear explanation of the orders. I do not intend to say very much on behalf of Her Majesty’s Opposition. We support the orders and are happy to do so today. I thank all noble Lords who have spoken in the debate. There is a degree of expertise in the Committee that will make this debate look important when it is considered by others outside Parliament.
My first point is one that the Minister mentioned. The countries involved in these association agreements have to have free choice as to whether to reach such agreements, but the opposite is also true. No country should be forced to enter into such an association agreement, but on the other hand, nor should any free and sovereign state be pressured into not doing so, whether by force of arms or by other forms of intimidation. We are therefore content that the countries that we are talking about today are in the position that they find themselves in with regard to these association agreements.
Of course, as the Minister said, our debate takes place against the background of the unfolding situation in Ukraine, and I thank her for keeping us up to date with the position there. The House has debated the extremely critical situation in Ukraine many times in various forms, and will undoubtedly do so again. I hope it does so soon, not least so that the report that the noble Earl, Lord Sandwich, mentioned—The EU and Russia: Before and Beyond the Crisis in Ukraine, published by the European Union Committee, on which he sat and which received a lot of media publicity earlier this week—can be debated, too.
Today’s Motions are not a reason for holding another debate on Ukraine this afternoon, although the comments that have been made about Ukraine, Moldova and Georgia have been extremely helpful, for me at least, in setting the background to where we are. The other two countries, Moldova and Georgia, as has been made clear, have considerable difficulties of their own. They have parallels, but their situations are of course different from the critical one we all face in Ukraine at present.
On Ukraine, we all hope that the ceasefire agreed in Minsk a fortnight ago now on 12 February, which was due to begin on 15 February, 11 days ago, can be properly implemented. Can the Minister comment on today’s reports, which have not necessarily been confirmed, that both the pro-Russian rebels and the Ukrainian army may be starting to withdraw heavy weapons? Apparently, as of 1 pm, Ukrainian military forces had suffered no fatalities in the previous 48 hours, although several soldiers have apparently been wounded in that time span. A buffer zone of at least 50 kilometres has to be created and monitored by the OSCE, so I was particularly interested by what the noble Lord, Lord Balfe, had to say about his recent meeting at the OSCE. Can the Minister comment on those matters?
Some have claimed—the noble Lord, Lord Balfe, came close to it—that the association agreement between the EU and Ukraine has been something of a provocation, at least in part, in terms of the proxy war in eastern Ukraine. The argument goes—the noble Lord put it moderately and well—that the EU, in negotiating such an agreement, sort of poked the bear with a stick, which is one way of putting it, and that signing such an agreement was an act of recklessness by the EU. We do not agree with that analysis. When the House of Commons debated these matters last December, there was a general consensus that this was not the case. The EU association agreement with Ukraine was not rushed in any way. It was not a surprise or a provocation. As I understand it, it had been under discussion for seven years and, interestingly, had been supported by the previous pro-Russian leadership of Ukraine under the last president, to whom the noble Lord referred.
The whole point of such agreements is to give a country access to the European market in exchange for reforms that encourage a democratic, honest and legally robust framework for that country’s future. The point of these agreements is to give access to European markets in exchange for reforms. Given Ukraine’s economic and corruption problems, reforms in the direction of transparency, the rule of law and proper democratic accountability are of great importance. That is the path the present Ukrainian Government want to pursue, but they will of course need considerable help.
On Georgia and Moldova, a similar argument applies. It has been good to hear the expertise of noble Lords on those two countries as well. If they want to pursue these agreements, and if we are clear about the governance and economic reforms required, they must be free to do so. The reforms required as part of these agreements are not always easy for new democracies but they are very much in their interests and in ours, too, of course. I ask the Minister a question that I believe was asked in the other place a fortnight ago when these orders were taken through: what assistance are we and the rest of the European Union offering countries as part of these association agreements to help them reach the goals that are needed on governance, transparency, honest accounting and anti-corruption measures?
We cannot have a situation where Russia tries to exercise a veto over the actions of its neighbours, whoever they may be, or to threaten consequences similar to those that have been visited upon Ukraine. It is on that basis that we support these orders.
My Lords, I am grateful for the support that all noble Lords have given to this order and, I hope, by implication to the other two orders that have been debated with it. In particular, I echo the words of the noble Lord, Lord Bach, about the demonstration of experience and expertise by Peers, whether they be members of the Council of Europe or have served as Members of the European Parliament, or indeed have been long-term Members of this House and have participated in our Select Committee work. It is important that this House is able to demonstrate that sort of expertise.
It is important that we heard from the Opposition their strong support for this process whereby sovereign countries are able to make their own decisions about where their future may lie, and to do so in a constructive way. All those three countries need to pursue these objectives in a constructive manner. I agree with every single word uttered by the noble Lord, Lord Bach, today, and I will address the two questions that he posed.
The people of Georgia, Moldova and Ukraine have made a clear choice for a future closely aligned with the EU. I will tackle head-on the questions that were put about whether or not the EU botched, as my noble friend Lord Balfe put it—rather inelegantly, perhaps—the negotiations over the association agreement with Ukraine. It is not the EU that has caused this crisis. As the noble Lord, Lord Bach, pointed out, negotiations with Ukraine started as long ago as 2007 and Yanukovych was certainly part of them, with support from the Ukraine Government of which he was the head. It was really only when at the beginning of last year Russia woke up to the fact that the implications of this might be something that it did not like—as other noble Lords have pointed out, Russia appears to have the view that it still has the right to control countries that are in fact sovereign but which perhaps used to be within its remit—that Yanukovych seemed to take a different point of view and we entered into the period of Euromaidan and the demonstrations by the people of Ukraine, who said, “We want this association agreement. We want a closer association with the EU. That is where our future lies, and you as the leader of our Government should take notice of us”. It was his failure to take notice of the will of the people, of an elected Government, that meant that he fled the country and has not yet returned. Whether he seeks to return is a matter for him. I am not too sure quite what the Kiev Government would think of that but that is his decision.
Therefore, I am clear that Ukraine has taken a decision that is right for a sovereign Government to take and that the EU has taken a measured course. Indeed, in opening I made it clear that President Poroshenko has asked us to delay the implementation of the deep and comprehensive free trade areas specifically, so that negotiations can continue and so that Russia can become more accustomed to what the implications might be for it—to try to allay suspicions. Overall, with regard to Georgia and Moldova, I will say also that the ambition with their agreements is the same as that for Ukraine. They are aiming to deepen their political and economic relations with the EU and to integrate them gradually into the largest single market in the world.
Several noble Lords raised the question of integration with the EU: how, when, should they, or should they not? It is quite right, as my noble friend Lord Balfe said, that there was at one time a particularly large expansion in the number of accession countries to the EU. According to the EU treaties, any European state which respects the EU’s values and is committed to promoting them may apply to become a member of the Union—that is a matter of fact in the treaties. However, I say now, as I have said in the past, that the UK Government support the Eastern Partnership countries—at the moment, Armenia, Azerbaijan, Belarus, Georgia, Moldova, Ukraine; we just referred to the association agreements with the latter three—as possible EU countries in the future. The stress is on “the future”, because, as other noble Lords have pointed out, it is important that those three countries meet the necessary criteria. Other noble Lords here have painted a picture of life in those countries that shows that they have a long way to go before they have an independent judiciary, human rights, and a way of tackling corruption, which they need before they can come into the category of accession countries. I am aware that there is no current consensus on the potential candidacy of those countries among the member states. However, it is right that those countries should be able to look at the European treaties and consider that they can work towards that. It is up to them whether they reach the standards, and up to the current members as to whether they will then welcome them into the EU.
The association agreements we have considered today are of course not ends in themselves—that is something that my noble friend Lady Ludford referred to and which I will come to in a moment. Much work needs to be done on domestic reforms across all three countries, and the EU is providing assistance on strengthening the rule of law, advancing judicial reforms, fighting corruption, ensuring respect for fundamental rights and freedoms, and strengthening democratic institutions. I can assure the noble Lord, Lord Bach, that we play a prominent role in that and will continue to do so. In opening I gave some information about the amount of money—significant sums of euros—that will be going to those countries to assist them in the future. We will have a role, certainly, in giving advice on the humanitarian issues through DfID. I will certainly contribute my views on human rights to many; for example, at the meeting of the Human Rights Council in Geneva next week. We will all as Ministers and officials play an important part in ensuring that those three countries are aware of and can work towards the standards they need to achieve if they are properly to implement the association agreements and ultimately work towards membership of the European Union if that is what their Governments continue to wish to do.
Therefore, all that will take time and money—I refer to questions from noble Lords and my noble friends with regard to that. One of the main points was put very clearly: that we must be sure that we have complementarity between the work of the European Union and that of the Council of Europe. My noble friend, whom I reappointed to the Council of Europe, is sitting here. One of the things that must impress us all is that when the delegations go to the Council of Europe, it is the Members of this House who keep it going, do the work and the chairing and who are the rapporteurs. I am certainly very proud of that.
I assure my noble friends Lord Balfe, Lady Ludford and Lord Dundee that there is a complementarity and not a crossover. As my noble friend Lady Ludford said, it is not a competition. It is important that there is no double-handling, as my noble friend Lord Dundee said, and that we do not want to reinvent the wheel. The association agreements can proceed constructively and do something that the Council of Europe cannot, which is important. They give hope of a closer political and economic future for these countries, which only the European Union can provide. That complementarity must be key to the successful progress of these countries when they apply the benefits, as I hope they will be, of these association agreements.
Looking forward again, both my noble friends Lord Bowness and Lord Balfe raised the issue of frozen conflicts—Georgia and Moldova, and now of course the question about what happens with the eastern areas of Ukraine. The three association agreements extend to all sovereign lands, even if one does not have control over parts of one’s sovereign territory. The agreements extend to areas of Georgia, Moldova and Ukraine that are currently outwith the effective control of the sovereign Governments of those three countries, although the provisions of the agreements will not of course in practice apply to those territories until such time as the Governments of Georgia, Moldova and Ukraine can secure compliance with their requirements.
The provisions for the deep and comprehensive free trade areas require the Governments of Georgia, Moldova and Ukraine to transpose and enforce EU standards in a number of sectors, including phytosanitary standards. That is important, otherwise trade will simply not be trusted by other partners. However, effective enforcement is not currently possible in the breakaway regions. Moldovan companies currently export to the EU using a system of autonomous trade preferences, to which Transnistrian companies also have access. The EU has extended the system of autonomous trade preferences to Moldova as a whole until the end of 2015, ensuring that those Transnistrian businesses will not immediately lose their current access to the single market. In answer to the question asked by my noble friend, the EU will need to reflect on how to handle this issue after the end of 2015. He raised a crucial point. At the same time, it should give the Transnistrians food for thought, given that over half of Transnistrian exports now go to the EU.
My noble friend Lady Ludford asked specifically about the procedural aspect, referring in particular to the Explanatory Memorandum, and which obligations are implemented and how. The European Communities Act 1972 provides the mechanism for implementing in UK law our obligations under an EU treaty, which is what the agreements become under these orders. That is the way in which the provisions of the agreement are given direct effect in UK law. Not every provision in the agreement would need to be the subject of legislation, but where we need legislation, which some parts may do, the order gives provision to that effect in UK law. This is about providing that kind of consistency.
My noble friend Lady Ludford also raised the important point about our view of the position of other EU member states with regard to sanctions and to the issue of Russian influence. EU member states have various degrees of economic and political interaction with Russia. We have seen that because of the energy aspect, let alone because of anything else. Despite this, the EU has developed a package of robust sanctions. As far as I am aware from the discussions that have been happening as recently as yesterday, the unanimity on that still holds and there is a determination about that. However, my noble friend is right to say that we need to be watchful and to show that the EU remains united. Russia needs to understand that, particularly before we reach the European Council on 20 March, when one would expect the current sanctions to be rolled over. If there are any breaches of the ceasefire, that would of course be taken into consideration and we should be ready for further sanctions at that point. The impact on Russia should be clear.
My noble friend referred in particular to the matter of Cyprus. Perhaps it might be helpful at this stage if I say that I can see that on Tuesday 10 March, our noble friend Lord Sharkey has an Oral Question specifically on this subject. We will be looking at the implications of what Cyprus has decided to do.
The noble Earl, Lord Sandwich, referred to his expertise and knowledge of Georgia. I am delighted to hear that he went there last July and was able to witness the welcome given to the signing of the association agreement. He raised the question of whether the impact on the UK economy might be rather modest. I hope that the impact assessment brought out the fact that while one does not want to overestimate the benefits—one is erring on the conservative side, if I may be excused for using that word—as these association agreements are implemented and reforms to the political and business sectors are put in place, the flow of trade may be such that companies themselves, not the Government, will benefit considerably. That is the point. This country benefits not only from what we can see tangibly from the point of view of our own taxation system, it also benefits from the export capability of our companies and the part that that plays in our current jobs-led recovery.
The noble Earl went on to ask about developments in the relationship between Georgia and Russia. He is right to say that there have been worrying developments in both territories since Russia’s invasion of Crimea, and indeed we have referred to that on the Floor of the House. On 24 November 2014, Russia and Abkhazia agreed a treaty to set up a strategic partnership which aims to deepen the region’s integration into Russia’s military, social and economic areas. President Putin signed a law ratifying the treaty on 4 February this year. Russia has also drafted what it calls a treaty of alliance and integration with South Ossetia which will probably be signed in March. The Russian Prime Minister, Dmitry Medvedev, passed this so-called treaty to President Putin for signature on 24 February.
We expressed our concern to Russia about its signature to the so-called treaty with Abkhazia and the proposed similar one with South Ossetia. The UK continues to be concerned about reports of borderisation—the physical construction of barbed wire fences along the South Ossetian administrative boundary line—and we continue to support the work of the EU monitoring mission and welcome its new increased mandate for two years. We believe that the mission is a key component of the EU’s commitment to stability and conflict resolution in Georgia. It is the only international monitoring mission in Georgia and it plays an invaluable role in reducing the risk of further conflict.
I should refer briefly to the fact that other noble Lords have referred to the work of the OSCE. I consider it to be a most valuable organisation, and it is clear that its role in the monitoring of the ceasefire in Ukraine is going to be important ultimately in its observation of the boundaries. Earlier this week, I was very pleased to have the opportunity, as I believe my noble friend Lord Bowness also did along with other colleagues, to meet the Secretary General of the OSCE, and I was able to discuss these matters with him. I recognise and pay tribute to the work that is being done by that organisation.
Paying attention to all the contributions of noble Lords, I can also refer to the fact that the noble Lord, Lord Bach, raised the report that we received only at lunchtime today about the heavy weapons that are reported as being withdrawn at the moment. I have seen the same reports and I am aware that the Government in Kiev have said that they are withdrawing their own heavy weapons. Further, the separatists are saying that they will be withdrawing their heavy weapons. I have to say, with regard to the claim of the separatists, that I have no verification of that. Frankly, until the OSCE or other monitoring bodies are able to get in, we will not have it. But if those statements are not only words but deeds, then there is hope for Ukraine. That is the message I would like to leave with the Committee with regard to all three of these association agreements. They will all bring benefits to the three states—the benefits of democratic, judicial and governance reforms—which will make sure that these three countries should have a more prosperous and safer future than they do, without, as the noble Lord, Lord Bach, made clear, the malign interference by Russia, which should recognise that sovereign states have the right to make their own sovereign decisions.
All this will be judged over time. These association agreements do not take practical effect immediately; they do so in terms of legality, provided that the House as a whole signifies its agreement to these agreements. There is much work to be done. I know that here we have shown our support for the determination of these three countries to find a peaceful and constructive future, and I know that as parliamentarians we will continue to work towards that end. In that spirit, I commend the first order, which relates to Georgia.
European Union (Definition of Treaties) (Association Agreement) (Moldova) Order 2015
Motion to Consider
European Union (Definition of Treaties) (Association Agreement) (Ukraine) Order 2015
Motion to Consider
Shared Parental Leave and Leave Curtailment (Amendment) Regulations 2015
Motion to Consider
My Lords, shared parental leave is important because it modernises outdated assumptions that the mother is always a child’s primary carer, even though over a quarter of women now earn more than their partner and earnings levels for men and women under 30 are approximately equal, which is significantly different from the 1970s. It enables fathers to be more involved in caring for their child, which brings a basket of positive benefits to the child and the family; it gives families choice about how they care for their child in the year following birth or adoption; and it enables both the mother and the father to combine working and family life and maintain their attachment to the labour market, ensuring that the best talent pool is available to employers.
Noble Lords will be aware of the lengthy legislative processes to deliver shared parental leave, and of the thorough debates that we have had on the subject. The Children and Families Act 2014 provided the necessary powers to make regulations, and a suite of regulations was debated in both Houses in the autumn on curtailment of maternity and adoption leave, on shared parental leave and pay, and on changes to the maternity and adoption regulations—including adoptions from overseas—and to regulations extending adoption leave and pay to intended parents in surrogacy. Other regulations were also laid before Parliament but were not required to be debated.
I am pleased to be able to say that with these amending regulations we conclude the long legislative road. In summary, the effect of the regulations that we are debating today is to clarify the drafting in the regulations being amended, as well as correcting some drafting errors. I regret the need to take up more of the Committee’s time to debate amending regulations, but they will remove ambiguity and errors that have been identified in the legislative framework that implements shared parental leave. It is a regrettable fact that errors creep in, despite the extensive measures that we have in place to eliminate them.
The adoption provisions for shared parental leave do not come into force until April, so they will come into force in their amended form. The provisions for birth parents have come into force, and we intend to draw the attention of interested parties to the changes. However, we think it unlikely that any individual parent or employer will be disadvantaged by the fact that the legislation was not perfect from the outset.
Noble Lords will be aware that large-scale take-up of shared parental leave requires significant culture change, and that will take time. The Government have taken steps to communicate the new policy to parents and employers. ACAS guidance for employers and working parents on the new arrangements is available on its website. Government guidance is available on the government website, GOV.UK.
We have publicised shared parental leave extensively, using cost-effective, targeted marketing which delivers better value for money than an expensive big splash. Digital activity is at the heart of the Government’s communications strategy for shared parental leave, and targeted digital advertising has been running from the beginning of September and will continue until April 2015. We have been targeting mothers since the autumn and we are reaching out to fathers through digital media that appeal to fathers, and through positive role models for men, such as the recent campaign led by the England rugby player Ben Foden, who is shortly to become a father for the second time. We have also been running a public relations and press campaign through mother and baby magazines and consumer outlets, as well as targeting broadcast magazine shows. As the project to deliver shared parental leave in this Parliament draws to a conclusion, I hope that noble Lords will support these amending regulations.
My Lords, I do not intend to detain us long on this, because it is important that we get it right. It is lucky that we have a bit of leeway between now and April. I guess that, given the nature of these corrections, it will not make any real difference to the communications that we have had so far because, as the Minister said, this is the new environment. I applaud the Government for the various communications channels that they have tried. I was trying to think not only of the mother and baby magazines but of what other, more male-oriented magazines might alert fathers. I think that the approach is good. Using digital media is also good but it will not encompass everybody. If the Government could give some more thought to those who are not necessarily as plugged in to cyberspace as we would like, that might be useful. Other than making those comments, I am happy to support the amending regulations.
Companies Act 2006 (Amendment of Part 17) Regulations 2015
Motion to Consider
My Lords, the purpose of these regulations is to ensure the payment of stamp taxes on shares in relation to company takeovers by amending the Companies Act to prevent companies from using reduction of share capital provisions as part of a scheme of arrangement to facilitate a takeover. These reforms were announced in the Autumn Statement and are part of measures to protect the UK stamp duty base and ensure that businesses make a fair tax contribution.
The use of schemes of arrangement to facilitate company takeovers is not new but is becoming increasingly common. The increasing use of one form of scheme of arrangement for takeovers, often referred to as cancellation schemes of arrangement, has prompted the Government to take action now. In contrast to other forms of company takeover, cancellation schemes of arrangement do not incur a stamp tax liability. That is because stamp tax is chargeable on the transfer of shares from one party to another but not on fresh issues of shares. Cancellation schemes of arrangement involve the company that is the target of the takeover cancelling its shares, using the provisions in Part 17 of the Companies Act to reduce its share capital, and then issuing fresh shares to the acquiring company.
The Government believe that all takeovers should be treated equally in stamp tax terms. However, EU law—specifically the capital duties directive—prohibits the charging of tax on the issuing of new shares. Therefore these reforms amend Section 641 of the Companies Act to prevent a company from reducing its share capital through the use of a cancellation scheme of arrangement to facilitate its takeover. Of course, it will still be possible to effect a takeover using a transfer scheme of arrangement or contractual offer. Both these methods achieve the same overall outcome—the takeover of a company or merger of two companies— but stamp taxes are payable. It will also be possible to continue to use cancellation schemes of arrangement outside the takeover context, such as intragroup restructuring, de-mergers, rescheduling debt or returns of share capital.
We have acted quickly to bring forward these regulations after the announcement in the Autumn Statement, consulting informally with relevant experts and stakeholders in the legal and tax professions, as well as shareholder groups. We did so to reduce the risk of companies accelerating their takeover plans so as not to be impacted by the legislation. None the less, we appreciate that it would be unfair to apply the change to takeovers and mergers already in progress. As such, these reforms do not apply where the bidder has made a firm intention to make an offer—in accordance with the takeover code, or if the terms of the offer have been agreed, where not subject to the takeover code—before this instrument comes into force.
In terms of costs to business, apart from the requirement to pay stamp tax at 0.5% of the value of the consideration paid for the shares, there will be only relatively small one-off familiarisation costs for companies that are parties to a takeover or merger, and potentially their shareholders and creditors. These small costs will also apply to the intermediary community, such as legal firms and advisers specialising in takeovers and schemes of arrangement. Compared with the wider costs involved in a takeover, such as the costs associated with the actual integration of the businesses concerned, these costs are likely to be small.
These wider costs are detailed in our information and impact note, published alongside the draft SI. We believe that the small costs to business that may result from this measure are justifiable in the context of ensuring that businesses make a fair tax contribution and, in particular, that stamp tax on shares is payable whatever method is used to effect a takeover. Furthermore, we believe that these reforms will not impact significantly on the level of takeover activity in the UK. Those takeovers that make commercial sense will still take place. I commend these regulations to the Committee.
I thank the noble Lord for his explanation. It was a quite complex technical analysis and I will boil it down to the simple question that will exercise most people’s minds. Are we confident that these regulations, as drafted, will not give rise to some evasion or avoidance scheme that will ensure that companies do not pay the stamp duty they are obliged to pay? At the end of the day, I suspect that that will be the acid test, or one of them. I look forward to the Minister’s response on that question but, other than that, we support the proposal.
I thank the noble Lord, Lord Young, for his support on this important legislation. Although it sounds complicated, it is straightforward. All we are asking is that companies that take over and acquire the entire share capital of a target company should pay their fair share of stamp duty. There were, effectively, many ways of avoiding this in the past and very few transactions were taking place. Lately, however, we have seen the number of transactions increasing. It is therefore only right that companies that take over other companies pay their fair share of stamp duty on the sale of the shares. It is a very small sum: one half of 1%. I thank the noble Lord for his support and commend the regulations to the Committee.
The position is no different from what I have just said. The regulations mean that, for new takeovers of UK companies, stamp duty will be payable on takeover. In other words, the cancellation scheme is no longer applicable. It will have to be a straightforward purchase—a transaction to acquire those shares. Hence, those companies have to pay their fair share of stamp duty.
Industrial Training Levy (Construction Industry Training Board) Order 2015
Motion to Consider
My Lords, I beg to move that the Committee considers the draft Industrial Training Levy Orders 2015. There are two orders before us today, one for the Construction Industry Training Board and another for the Engineering Construction Industry Training Board. The purpose of these orders is to seek authority for the Construction Industry Training Board—referred to as the CITB—and the Engineering Construction Industry Training Board—referred to as the ECITB—to continue to impose a levy on employers in the industries they cover.
Established under the Industrial Training Act 1982, the core activity of the CITB and the ECITB is to invest levy money in skills training. This investment develops the skills of the existing workforce and helps attract new entrants into these industries through the provision of training grants and other services. I think we all agree that skills are central to creating a strong, sustainable and balanced economy. The Government are committed to ensuring that skills provision meets the needs of both employers and learners. Although government helps set the framework for success, it is employers who equip the workforce with the skills that they need.
The CITB and the ECITB are employer-led and have a central role in training the workforce in their respective industries. They provide a wide range of services, which include the setting of occupational standards, developing vocational qualifications, delivering apprenticeships and offering direct grants to employers who carry out training. In doing all this, the Government look to the CITB and the ECITB to minimise bureaucracy and to ensure that support to employers is relevant and accessible.
The majority of employers in the construction industry and the engineering construction industry continue to support a statutory framework for training. The orders that we are considering today will enable these statutory levy arrangements to continue. The Industrial Training Act 1982 permits an industry training board to raise a levy on employers so that the costs of training are shared more evenly across the industry. The orders will give effect to proposals submitted to the Secretary of State for levies to be collected by the CITB in 2015, 2016 and 2017 and by the ECITB in 2016, 2017 and 2018.
The affirmative resolution procedure is required under the Act because both proposals involve the imposition of a levy in excess of 1% of payroll on some classes of employer. In each case, the levies are based on employers’ payrolls and their use of subcontracted labour. For both boards, the proposals involve levy rates in excess of 0.2% with no exemption, other than for small firms. In such cases, the Act requires that a levy order can be made only if the proposals have the support of the majority of employers who together are likely to pay the majority of the levy. The Secretary of State is satisfied that this condition has been met.
The Act also requires that both boards include proposals for exempting small employers from the levy. These orders therefore provide that small firms are exempt if their total emoluments are below a certain threshold that the industry considers to be appropriate. Those firms that are exempt from paying the levy can still benefit from grants and other support from the boards.
For the CITB, the levy rate for PAYE employees will remain at 0.5% of payroll for 2015, 2016 and 2017. The levy rate on labour-only subcontractors will remain at 1.5% for the first two levy periods—2015 and 2016—only. For the third levy period, in 2017, the labour-only subcontractor rate will be replaced by a levy on payments employers make to net-paid subcontractors made through the HMRC construction industry scheme. The levy rate for net-paid subcontractors will be 1.25% for 2017. This change was agreed by the industry and greatly simplifies administration by using existing data that firms already supply to HMRC. Employers whose total wage costs are less than £80,000 will still not have to pay the levy. Employers whose total wage costs are between £80,000 and £100,000 will have a 50% reduction in their levy liability for 2015 and 2016. For 2017, as part of the changes being introduced, employers with total wage costs of between £80,000 and £400,000 will have a 50% reduction in their levy liability. Of all the employers which are considered leviable by the CITB, it is expected that more than 50% will be exempt from paying the levy.
For the ECITB, the levy rate for site employees will remain at 1.5% of total payroll, plus net expenditure on subcontract labour. Employers who spend less than £275,000 on site employees will not have to pay that part of the levy. The rate in respect of off-site employees, often referred to as head office employees, will remain at 0.18% of total payroll, plus net expenditure on subcontract labour. Employers who spend less than £1 million in respect of off-site employees will not have to pay that part of the levy. Of all the establishments that are considered to be leviable by the ECITB, it is expected that around 35% will be exempt from paying the levy. For the CITB, the proposals are expected to raise around £520 million in levy income over three years. For the ECITB, the proposals are expected to raise around £90 million in levy income over three years.
The Committee will know from previous 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 the levy there would be a serious deterioration in the quality and quantity of training in those industries, leading to a deficiency in skill levels. In consulting on their levy proposals, both boards obtained the support of the majority of employers in their respective industries. The CITB proposals have the support of 86% of employers, who together are likely to pay 79% of the value of the levy. The ECITB proposals have the support of 69% of employers, who together are likely to pay 77% of the value of the levy.
These orders will enable the CITB and the ECITB to continue to carry out their vital training responsibilities. I commend the orders to the Committee.
My Lords, as the author of a report on the construction industry, in particular fatalities in the construction industry, I spent some time on the area of training and skills uplifting, and met people from the CITB. It is important to place on record how very important the levies are to the particular industries and how very pleased I am that there is cross-party acceptance of the continuation of the levies.
I see that there has been some mild redistribution, or that it will at least take effect in 2017. That is good news. One thing I found in my report was that although the CITB work was very good—that is the area that I know best, rather than the ECITB—there was very little redistribution of the income. It is all very well to say that small companies that are exempt from the levy can still apply for grants, but it is the sheer logistics of sparing members of their workforce to go away and train that causes one of the most difficult problems for small companies. We need to consider ways in which we can persuade companies to take on apprentices, but in the confidence that apprentices will be able to find employment afterwards. With or without the levy, I still think that we are falling down on guaranteeing jobs in some of these companies, even if it means an element of government subsidy for a year or so. I am making a plea for more redistribution.
The Minister referred to deficiency in skill levels. I agree entirely that it would be even worse than it is now if we did not have these levies. I do not think that we can be particularly proud—I am not making a party-political point; this is a problem that has spanned Governments—given the skills shortage in this country, which has been a major problem. The fact that we are importing bricks and bricklayers says quite a lot about the nature of construction in this country. That short-termism is highly damaging to our economy. The fact that we allow so many underskilled and unskilled people on to sites explains, I think, some of the lower levels of productivity that we have. We need to look at the deficiency in skill levels. Some very good work is being done here, but it really is not solving the problem in major areas in our construction industry.
I ought to finish on a positive note. I thoroughly welcome any continuation of the levies, any changes that make life better for the smaller companies and, incidentally, any changes that mean HMRC will have a closer eye on some of the activities in some of the subcontracting areas.
My Lords, in principle I, too, welcome the changes in the levy for the CITB and the ECITB. I have a number of questions to put to the Minister, whom I thank for the introduction.
I believe that there is a triennial review taking place. One should know the fate of that, because it is important. We need to be sure that the way in which the levy is organised does not mean that it is at odds with the way in which the CITB is developing.
We have two main concerns about the change in the third year of the levy period. The impact assessment discusses this. I hope the Minister will elaborate a bit further on any mitigating steps to be put in place. The first concern is that the nature of the construction sector is very much that of a subcontracting model. In many respects, prime companies often squeeze the margins of their subcontractors. How will that be addressed? The impact assessment states that a potential effect is the passing on of the costs of the levy from main contractors to subcontractors. That is a common practice outside the existing system and it reduces the legitimacy for employers if they do not pay levies on payments to their own subcontractors. I would welcome the Minister addressing that.
We are particularly concerned about the potential with the change in the third year for the greater use of umbrella companies and labour agencies. That is a real problem for the construction sector. Trade unions such as the Union of Construction Allied Trades & Technicians and others have rightly highlighted the fact that it undermines the efficiency, operation and fairness of the construction sector. This measure could help to increase that usage. What will the Minister do to mitigate that?
My noble friend Lady Donaghy anticipated me—I, too, will refer to the fact that there is a savage irony that despite the levy we still have a shortage in basic but essential skills such as bricklaying. We ought to be looking at how well this scheme does in attracting young people into the industry—especially young women—pointing out that these are good skills and the pay can be good in the right circumstances. We have some concerns about what the industry is doing to improve on that.
In relation to the Engineering Construction Industry Training Board, we know that there is a large demand for new engineering jobs. We have a significant skills shortage in this sector. EngineeringUK states in its latest report:
“Filling the demand for new engineering jobs will generate an additional £27 billion per year for the UK economy from 2022 … To meet projected employer demand the number of engineering apprentices and graduates entering the industry will need to double … Engineering companies will need 182,000 people per year with engineering skills in the decade to 2022 but there is a current annual shortfall of 55,000 skilled workers”.
Do we believe that with the levy as it is currently structured the industry is going to meet that challenge? It is a big challenge and it is a very important one. Is the levy being used innovatively; for example, to go into schools to encourage young people, especially girls, to study things such as GCSE physics? The levy might often be used for people who are entering the industry at the age of 18, 19 or 20 but is it being used more innovatively to ensure that we encourage people to go into these sectors at an early enough age?
Those are the general questions that we have. We support the principle of the levy and the way it is being restructured but we have concerns about the construction industry and the engineering construction industry being able to meet the challenge of skills demand in these important sectors.
My Lords, I thank both noble Lords for their supportive comments—albeit not exclusively supportive, as they have a number of concerns that in many ways we all share. I agree with the noble Baroness that this is not necessarily a party-political point. Skills and training are very important in all industries, but particularly these industries, which are largely project-based and have subcontracted workforces, and it is very easy for firms not to have the strong incentive to train if their workforces are subcontracted. Skills are also essential to increasing the productivity of this country, which is a problem.
I will move to some of the specific points made by noble Lords; I now have them in the wrong order. The noble Baroness mentioned the deficiencies in skill levels. I agree that there are challenges in increasing the capacity of the workforce, particularly to meet the demand for homebuilding and infrastructure projects. However, as part of the Government’s industrial strategy, we are working in partnership with the construction sector to address the skills shortages and help people gain the skills required. We and the CITB recognise the challenges to increasing the capacity of the workforce. The important thing about doing it through the CITB is that it is industry-led. The Government have a role to play, but the CITB is run by the industry and has the pretty weighty and strong support of the industry to do those things; for example, health and safety is an important area that the CITB can look at and manage to increase.
The noble Lord, Lord Young, mentioned the triennial review, which is currently under consideration by the Government. I recognise that there is some frustration about the time it has taken—I think it is about 19 months since it was first announced in July 2013. It is important that we give consideration to that, and the review has consulted with employers and stakeholders. The findings of the review will be published in due course, but I will be quite honest with the noble Lord: I do not think that will be before the election.
The noble Lord made a point about the shortage of skills at less than the most advanced level; for example, bricks and bricklayers, which, as I mentioned, are important in the housebuilding industry. Of course, those skills fluctuate more sharply in construction than in other industries. It is a priority for the new board and the CITB Council to look at the skills demands and react accordingly. The new board of eight members, five of whom are women—which is substantially smaller than the previous board of, I think, 20 members—is designed to have a more focused approach to delivery than the previous one. However, it is accountable to the council, which has a larger number of employer representatives on board.
On the point about umbrella organisations and labour agencies in construction—and if this does not answer the noble Lord’s question, I will be happy to write to him—subcontracting is a feature of these industries, and a main reason for having a levy. The changes we are making to the Construction Industry Training Board levy in 2017 will mean that the levy covers labour agencies. If companies are wholly or mainly engaged in the activities of the industries, they are then liable to the levy, and this applies to all companies. We will be introducing them in 2017 to give companies time to prepare, and of course the CITB is providing guidance.
These changes have the support of the majority of the industry, and one of the main features of them is that they use data that companies are already providing for HMRC. There is no need to disentangle what is the labour part of subcontracted contracts and whether that includes materials as well as labour, so it is a much simpler arrangement and has the support of the industry. We have talked about companies taking on apprentices, and a redistribution of support. The levy does assist small companies and grants are targeted at apprenticeships. The CITB is reviewing services in order to better focus on small companies, and of course one of the reasons the 50% discount in the CITB went from £80,000 to £100,000 in the first two years and now stands at £80,000 to £400,000 is to help smaller companies.
Moving on to the ECITB, I agree that there is a skills shortage in the higher engineering construction industry. The ECITB projections of future skills needs in the industry indicate that there are not enough skilled workers to meet demand. In 2014, the ECITB prioritised support for new entrants and upskilling. More learners are being supported year on year as employers are encouraged to collaborate in order to aggregate learner numbers and thus reduce expenditure on training. The ECITB ran an event for service leavers and, importantly, continues to promote the industry and the STEM subjects in schools. Related to that is the issue of attracting new talent to the industry. Work is going on to support the STEM subjects and to encourage new entrants to take up career opportunities in these industries. The activities include school roadshows and participation in major career and skills events.
The issue of the changing image of gender is definitely on the radar of both the CITB and the ECITB. We agree that it is right to attract a diverse range of new entrants. Women have been underrepresented in the engineering industry and the boards are actively trying to do something about that via their schools programmes. As I have mentioned, the new board of the CITB is more than 50% women. It is trying to change the leadership and image of these industries, which we agree is important.
I welcome some of the points that the noble Lord has made. However, my experience from participating in the Lords outreach programme and talking to 15, 16 and 17 year-olds is that schools are still focused on pushing everyone into the academic stream. That is the route. When you ask young people what they know about apprenticeships, you are lucky if even one of them puts their hand up. Schools that I have been to have admitted that they have been deficient. Under the legislation, schools are supposed to give comprehensive careers guidance, which embraces vocational aspects as well as academic ones. In many cases, they are not meeting that requirement. Again, I welcome what the CITB is doing but it needs to up its game on that. There really should not be a school in the country that does not experience the CITB’s roadshow. It ought to have a comprehensive programme.
My final point is one that I have made on many occasions but which I think is still relevant. We should reflect on what we managed to do in two key projects, the Olympic Games and Crossrail. For those contracts, we insisted that employers had to show what they were doing on training and the number of apprentices they would be prepared to take on. In a way, I think that Crossrail is the best example. Although the Olympics were quite good in that they generated around 300 apprenticeships, Crossrail has made sure that nearly all of the subcontractors in the supply chain also employ apprentices over a wide range of different skills, whether in administration, accountancy or the more normal engineering skills. It would be very welcome if the Minister would respond to those points.
I completely agree that apprenticeships are key. They are, in fact, at the heart of the CITB’s business. It acts as a managing agency for the delivery of a large proportion of apprenticeships in construction. Currently, there are about 18,000 young people on CITB-supported apprenticeship programmes. As noble Lords will know, it has been a feature of the Government’s programme to concentrate on apprenticeships, and not just in construction. The CITB also develops specialist apprenticeship programmes through the National Construction College.
As far as engineering construction is concerned, the apprenticeship programme recruits young people to the industry and supports employers and accredited training providers to provide training to young people. It supports about 3,000 apprentices every year. There are 60 engineering apprentices on site in the construction industry per thousand employees, compared to the average in England of 20 per thousand. Basically, I agree with the noble Lord. The CITB is focusing on that and will continue to do so.
The proposals before the Committee relate to the construction and the engineering construction industries. It continues to be the collective view of employers in each of these industries that training should be funded through a statutory levy system in order to secure a sufficient pool of skilled labour. In summary, these levies are particularly appropriate for an industry that involves a lot of project work with subcontracted labour. They have the support of the industry and do not cost the taxpayer a penny. I commend these orders to the Committee.
Industrial Training Levy (Engineering Construction Industry Training Board) Order 2015
Motion to Consider
Committee adjourned at 3.52 pm.