Committee (3rd Day)
Relevant document: 9th Report from the Delegated Powers Committee
My Lords, if there happens to be a Division in the Chamber, we will adjourn for 10 minutes.
Schedule 3: Primary authority scheme: new Schedule 4A to RESA 2008
Schedule 3 agreed.
Clause 18: Public sector apprenticeship targets
49DA: Clause 18, page 33, leave out lines 41 and 42
My Lords, as we move on to this session on apprenticeships, I want to reassure the noble Baroness the Minister that we are very supportive of what is being planned here generally. We will make a few points and ask some questions of a probing nature, but we do not intend to do anything that would in any sense be too aggressive, and I hope that our comments will be taken in the spirit in which they are intended.
I am slightly short-handed today because, unfortunately, my noble friend Lord Mendelsohn is unable to be here—although I hope he will join us later—so I am largely on my own. I shall be slightly scrabbling to make some of the points that I had thought that others might be making, so your Lordships may find that today has a slightly surreal feel to it, as I gloss over some of the more difficult and trenchant issues. However, I shall be heavily reliant on others who put their names down against the amendments and who, I am sure, will be equally testing and trying for the Minister.
On the group of amendments starting with Amendment 49DA, in which we have a number of amendments and which is on the generality of the new approach to apprenticeships that the Government say that they wish to take—which, as I said, we are broadly in favour of—I wish to make three main points.
First, Amendment 49DA, which is a probing amendment, picks up on an issue that has been raised with us by a number of local government bodies and other agencies. They feel that the powers being taken to set targets for public bodies on the number of apprentices that the Government would wish them to have appointed by the end of the Parliament, in pursuit of this very ambitious target of 3 million new apprentices within that period, will cause real problems. Could the Minister therefore explain what negotiations and discussions she has had with local government and other agencies on these points?
For example, one issue that has been raised with us is that there is quite a range of development in the sector in terms of who is ready to take on an increased number of apprentices and who is not—and we are talking about a very significant increase if we do the calculations. What figure do the Government have in mind overall for the sectors concerned, and would they be receptive to having further negotiations and discussions with those bodies in order to try to arrive at an equitable basis on which this could operate? We are not against the proposal—it is a good thing that everybody should be set stretching targets—but we slightly regret that there is not more in the Bill tying the increase to contracts, procurement issues and other activities in which, in previous Bills, we have discussed how one could lever up the numbers of apprenticeships. Specifically on the target for public bodies, we would like to have a bit more information about how it will work in practice.
Secondly, it is glaringly obvious that the Government feel strongly that apprenticeships will flow only if targets are applied to the public sector—we did not know that targets had come back into fashion, but that is obviously a nice thing to see in a Bill of this nature—but it has been pointed out that there is no target for the private sector. Why is this? Is there some other force here that we are not aware of that is preventing the Government taking what seems to be the logical step? If we are to get to the 3 million target, there surely has to be an obligation—we would perhaps put it no stronger than that—on the private sector, which will carry a large proportion of this. Of course, money will flow in support of those, so there should be no net cost to them in relation to how the targets will be reached. I am sure that it would be to the benefit of the country as a whole if both the public sector and the private sector were jointly engaged in this process.
Thirdly, on Amendment 49EB, there has been a lot of concern, expressed very often by my noble friend Lord Young, about the quality of apprenticeships. Indeed, he mentioned it in the debate in this Room only a few days ago in relation to a statutory instrument that had been put forward. The numbers are one thing but the quality is very much another. Obviously, the quality will be tackled, through the Bill and the Act, by creating the term “statutory apprenticeship”, and that is a good thing. However, the amendment suggests that there may be more return if the restriction on statutory apprenticeships could focus on the higher-quality and the higher-skilled elements. In other words, they should be at levels 4 and 5 in the training schemes and not at levels 1 and 2.
I am sure there are other points that others will wish to make on that, but that gives the flavour of the way in which we want these amendments to be considered. I beg to move.
My Lords, I rise to speak to our Amendment 50 and to the other amendments in the group. Before doing so, I should declare my interests. This is not at present in the list in the register because it is very new, but I am very recently president of the AoC Charitable Trust. I am also an honorary fellow of the City & Guilds Institute and a patron of the 157 Group.
I think we have similar probing questions about this clause and, in particular, about the definition of precisely what is and what is not a public body. That is really what Amendment 50 is about. It raises questions about the slightly odd wording at the end of new Section A9, which says that,
“‘public body’ means … a public authority, or … a body or other person that is not a public authority but has functions of a public nature and is funded wholly or partly from public funds”.
There are difficulties with such a definition. For example, Kids Company is largely funded by public funds. Is that a public body? A lot of charities are largely funded by public funds for one reason or another. Are they public bodies? I certainly would not have thought of them as being public bodies. Or are you going to take the ONS definition? The ONS, for example, is now classing housing associations as public bodies, although a lot of the money they receive does not come from the public sector. However, equally, the ONS does not class the Student Loans Company as a public body in spite of the fact that the Student Loans Company receives all of its funding from a public body. Therefore, as I say, that definition strikes us as being extremely loose, and I think it is necessary to know precisely what the Government have in mind when giving such a definition in the Bill.
In general, I share very much the view of the noble Lord, Lord Stevenson, in asking questions about how far the Government should go in setting targets here, there and everywhere for public bodies—so much for localism, if I might say so. To provide that “The Secretary of State shall set such targets” leaves very little discretion to the locality. One would hope that, actually, the whole thing was done very much in conjunction and consultation with localities. A great many local authorities, such as in Birmingham, work very closely with local enterprise partnerships and do set targets for themselves. Indeed, as I shall go on to explain later, they also set targets for vulnerable young people who should be taken into apprenticeships. This clause raises lots of questions on which we need some clarification.
My Lords, I have added my name to Amendment 50, and will pursue the point made by the noble Baroness, Lady Sharp. It will not surprise the Committee, given my interest in the charitable and voluntary sector and the reports that I have written for the Government, that my line of questioning follows that which the noble Baroness has just raised.
It is absolutely clear that many charities and voluntary groups carry out functions which the Government find difficult to fulfil. The Government can provide the vanilla flavour, but the more difficult and challenging aspects of our society may often be better addressed through smaller, local voluntary groups. They will therefore have, in the words of the Bill,
“functions of a public nature”,
“funded wholly or partly from public funds”.
Rather than wait until today’s debate, I asked the Minister’s officials to throw a little light on the matter, and they very kindly wrote back. My question was whether the definition of a public body under Section A9(7) would cover bodies such as the Charity Commission and some charities. The answer was:
“The Charity Commission would fall within the definition of public body (it’s a non-ministerial department and therefore part of the civil service). No targets can be set for charities unless they are also public bodies prescribed in the regulations. We will set out the full list of public bodies for whom a target may be set in regulations. There will be an opportunity for those affected to respond to a consultation on this during the passage of the Bill through Parliament”.
We are discussing it in Parliament today, but I have not yet seen the regulations, although I may have missed them. This is a trifle too opaque. The sector is entitled to greater clarity now so that we can provide the appropriate level of scrutiny.
We are all very much aware of the deficiencies in the process for scrutinising regulations or statutory instruments—we had a clear example of that last week. I very much hope that, if my noble friend cannot give a direct answer this afternoon and tell us where the list is, she will be able to promise us clarity before we reach Report, at which time we could have a further, better and more focused debate on this issue, which means a lot to individual charities and voluntary groups. They need to know exactly what lies in store for them.
My Lords, I support the amendments. I slightly disagree with my friend in this matter, the noble Baroness, Lady Sharp. I do not see anything wrong with setting targets; obviously, there ought to be consultation. The question I wanted to ask is: apart from these public bodies, is each ministerial department to be set targets? Do they currently have targets? In my brief ministerial career, we used to gather departments together and get them to report at least once a month on whether they were meeting apprenticeship targets. I would welcome a comment on that.
The Government have set themselves a big task in reaching a 3 million target over the course of this Parliament. I have on many occasions raised the problem of having a large public target, such as 3 million. The latest figures I have for apprenticeship starts show that there were 444,000 during 2013-14, which is good until you realise that a significant number—some 161,000—were aged 25-plus. I have nothing against adult apprenticeships as such, except that, if we disaggregate the figures again, a significant number would not be new-start apprenticeships but people being reskilled in existing jobs. I still think that the challenge we face is getting more young people into apprenticeships—those numbers are much lower and, in some cases, we have even had a decline. It is not as though the demand for apprenticeships is not there. For example, Semta’s estimation for the number of engineering apprenticeships required over the next period of time is huge—something like 830,000—so we have a huge task on our hands in relation to apprenticeships.
I am not sure whether this is exactly the right place in the agenda to raise these issues, but while I am on my feet I might as well raise my concerns. In a previous debate on a statutory instrument, I referred the noble Earl, Lord Courtown, to a disturbing article that appeared in the Times just over a week previously that was somewhat sensationally headlined but still worrying. The headline stated, “Apprenticeships are ‘a waste of money’” and the article referred to a recent Ofsted report. In its targeted criticism, it stated that if you looked at the total number of apprenticeships and at the areas of the major starts,
“About 140,000 people started apprenticeships in business administration last year and 130,000 began healthcare apprenticeships”—
and there were significant numbers in the retail sector as well. The article continued:
“Standards were much higher in the motor vehicle, construction and engineering industries, where numbers were much smaller”.
It is good that standards were higher there, but it is worrying that, in areas where we have such large numbers coming through, the report states that we are not meeting quality. I asked the noble Earl, Lord Courtown, what process there is for ensuring that, as numbers expand, quality will be sustained. I do not say this to make a political point, because we have all made mistakes in this area—we had problems with individual learning accounts and with train to gain. The previous Government poured a lot of money into those initiatives, only to find that when the noble Baroness, Lady Wolf, did her analysis, she regarded a lot of those qualifications as substandard.
I do not think that I am raising an alarm unnecessarily. We should be concerned about this. Recently, I had a conversation with someone who had significant experience of apprenticeships. She said that the amount of time that training providers have to oversee apprenticeships is about one hour a month. Therefore, the Government should be concerned. The target to raise the number of apprenticeships is laudable, and I am sure we would all support it, but we face other problems as well.
I will also raise here, although I could raise it in other places, the problem of career guidance. We still have a significant lack of impartial career guidance. Despite the legal requirement on secondary schools to cover vocational and academic career paths, my experience of meeting young people aged 15 to 17 is that, if they are asked what they are going to do, most say that they are going to university. If they are asked whether they are aware of any other career paths, you are lucky if one hand goes up and mentions apprenticeships. If you talk to employers in some areas, you will find that they have difficulties getting into schools. We have not even achieved a situation where every school has links with businesses.
I noticed in a recent document published by the Government that they intend to send staff from jobcentres into schools. Again, I do not want to criticise the enthusiasm, but I query whether that is the right way to deal with the problem. Surely the challenge is to ensure that schools live up to their legal obligations on career guidance and that every school has links with business. In that way, we will build this up—and there are some good examples of it—and be able to ensure that more and more young people actually have some work experience. That is another problem that employers raise. They say it is not necessarily that the young people do not have qualifications; what they lack is any understanding of the world of work.
I have raised a number of problems. I do not want to go on much longer but, given the importance of this issue and the size of the targets that the Government have set themselves, it was worth it. My final point is to reiterate something that my noble friend Lord Stevenson drew to the Committee’s attention. The Government are still resisting making it a requirement for apprenticeships to be part of public contracts. I am still waiting for a satisfactory response from the Government as to why they will not do that. I know that they say that they are in favour of the voluntary approach, but why should we be parting with significant sums of public money—we are not talking about very small contracts but contracts worth millions of pounds—without the stipulation that, as part of tendering for those contracts, companies should include their commitment to training and to a specific number of apprenticeships? If the Government are serious about trying to meet this target, and a target for high-quality apprenticeships, they seem to be missing an important part of that process.
My Lords, I am currently chairing the Select Committee on Social Mobility and the transition from school to work. Last week, the committee met a number of young people who are either trying to get apprenticeships or going through apprenticeships. I would recommend that to anyone who wants to know what is going on.
When I left school—admittedly, in what some would now think of as the dark ages—apprenticeships were in mechanical engineering, electrical engineering, plastering, joinery and carpentry, and normally they were a few years in duration. I accept that the world of work has changed, but I was deeply shocked to hear young people say that they had had apprenticeships in putting flowers in bunches for a supermarket for six weeks, sweeping a stable floor for six weeks, wrapping vegetables for the same length of time, and working in a fish and chip shop—I accept that there is some encounter with the public there and you could say it is a branch of retail—also for six weeks. I was told of a company where the managing director is the only person who could be called an employee and everyone else is an apprentice who is there for a few weeks.
This practice is an abuse of the term “apprentice”. What it does is massage unemployment figures so that people are seen to be doing something, but those young people were deeply dispirited at what was being offered to them. I am also told that it is now possible to have something called an apprenticeship in plastering for six weeks. You cannot learn to be a plasterer in six weeks and those people are presumably now going out and offering themselves as competent plasters to unsuspecting householders. That is not in anyone’s interests.
I would be very grateful if the Minister would address the question of quality because these young people certainly did not think that they were recipients of anything approaching the term “quality”.
My Lords, I am grateful to the noble Lord, Lord Stevenson, for his clarity and succinctness, and for the other comments that have been made in this debate. If I do not answer all the points exactly, I hope to do so during the course of a series of amendments that we have; for example, I shall have some more to say on quality a little further on. I shall try to look at these amendments in the round.
Amendment 50 seeks to remove part of the definition of the term “public body” from the clause, which relates to bodies that are not public authorities but have functions of a public nature and are funded wholly or partly from public funds. The definition gives an overview of the types of bodies that might be covered by the duty. The Government think it right in principle—and I think that there is agreement—that public authorities and other bodies performing public functions should be capable of being subjected to targets. However, this is only a power to prescribe; it does not oblige all those that fall within the other public bodies category to be subject to a target. Therefore, a particular body will be subject to targets only when the Secretary of State makes secondary legislation—just to be clear. Our intention is that bodies with a workforce in England of more than 250 employees will be subject to the duty.
My noble friend Lord Hodgson is absolutely right that bodies are entitled to clarification as to which bodies are in and which are out, and we will set out the full list of public bodies affected in a consultation at that we intend to publish during the passage of the Bill. That will be an opportunity for those affected to respond to the consultation. I am sure that it is not yet available, but this Bill starts in this House, and there is an interplay between what we are doing here, which is perhaps relatively narrow, and the emerging policy on apprenticeships, which coincides with it. The list of bodies will be set out in regulations, and we will bring those forward for debate in both Houses, following the passage of the Bill.
I shall try to answer on the specifics, to give a feel for bodies that will be in and those that will be out. A key concern was that, for example, bodies as small as Kids Company could be caught, but the receipt of the grant that it used to have, should it still exist, would not suffice to bring the body into scope. That is my understanding.
To respond to a point made by the noble Baroness, Lady Sharp, we are going to use the ONS definitions as a starting point for considering which bodies should be in scope. However, as I have said, we will be consulting. We appreciate that a body may feel that it has good reasons for not being in scope. For example, I know that the noble Baroness, Lady Warwick, is concerned about smaller housing associations. Following the ONS’s announcement on Friday, the Government have confirmed that they will,
“bring forward measures that seek to allow housing associations to become private sector bodies again as soon as possible”.
That would take them out of the scope of this duty, and we will take account of that when preparing our consultation. It is a fast-moving area, so I appreciate the complications, but I am happy to engage with people to give them as much clarity as we can. The scope will be set out for consultation, and the limit of 250 employees will help to some extent to make people less concerned about bodies that might be brought in.
One area causing particular concern is that of the larger charities providing overseas aid, and distributing it for DfID, which come above the 250-person ceiling or floor and are operating not in the United Kingdom but overseas. It would help if officials or the Minister could let us know whether they as a category will be included in the need for apprenticeships.
As I said, the list will be available for consultation. It will be available during the passage of the Bill. I can give that undertaking. We will also consider any requests for removal as part of that consultation. However, it is important, for the careers of employees and the effectiveness of public institutions, that the public sector delivers its fair share of apprenticeship growth. We will give some further thought to my noble friend Lord Hodgson’s point, to see whether we can give any greater clarity, but I can give an assurance that we will be consulting.
To respond to the point made by the noble Lord, Lord Stevenson, which was picked up by the noble Lord, Lord Young, about local authorities, officials in the BIS/DfE apprenticeships unit are in active discussion with the DCLG about the public sector target and its application to local authorities. We will consult on the level of the target and who should be in scope. We cannot speculate on the figure, but to do so just as an indication, we are currently working towards 2% to 3% for consultation, but that will be subject to confirmation.
To respond to the noble Lord, Lord Young, central government departments will be in scope. We agree strongly that the Civil Service should play its part. Indeed, I have an apprentice in the Bill team. I think that that is leading the way.
I turn to Amendment 49DA, which would remove the power of the Secretary of State to make regulations to set targets for public bodies. I do not think that that is the intention of these probing amendments, but I will say that investing in apprenticeships makes economic sense. In June 2015, research on further education in England indicated that adult apprenticeships at level 2 and level 3 deliver £26 and £28 of economic benefits respectively for each pound of government investment, measured on an NPV basis— the difference between gross benefits and costs. As for the apprentices, to pick up another point, individuals with a level 2 apprenticeship earn on average between £48,000 and £74,000 more over their lifetime than similar individuals with level 1 or 2 qualifications only. Higher apprenticeships could earn £150,000 or more on average over their lifetime, compared with those with equivalent vocational qualifications.
Amendments 49EA, 49EB and 50AB come together. They would extend the scope of Clause 18 to place apprenticeship targets on private sector companies in the UK. They state that the target should be achieved via higher-level apprenticeships. As I have always agreed with the noble Lord, Lord Young, apprenticeships are jobs and depend on employers offering opportunities to young people. Finding the right opportunity is vital for any young person starting out on their chosen career. There will always be competition for the best places, as there is for the best universities. Employers will naturally take the best candidate for the job that they offer. Figures show that, of the 851,000 people participating in apprenticeships in 2013-14, 185,000 were aged under 19.
The positive effects of apprenticeships are clear. They have an economic and social benefit for individuals and society as a whole. The public sector employs fewer apprentices as a proportion of its workforce than the private sector. The Government are therefore keen to place targets on the public sector.
However, we are against red tape and feel we should be careful about imposing new burdens, especially when the desired objective can be achieved in another way. Therefore, 1.3 million private sector organisations that employ people should not suddenly be required overnight to take on apprentices. Instead, via apprenticeship reforms, we are putting employers at the heart of the apprenticeship programme so that they are encouraged and incentivised to employ apprentices. We also judge that it would be administratively impractical for government to monitor whether employers were having “due regard” to the targets and take action where this was not the case. Firms would have to set up a whole compliance system for this, and we believe that their efforts are better used elsewhere.
I shall come to quality on another amendment, but I shall say something about career guidance because I agree with the noble Lord, Lord Young, that it is very important. That is why we have set up the employer-led Careers & Enterprise Company. This area is rightly being actively pursued by DfE, with Ofsted taking a great deal of interest in careers in its inspections. We have discussed before the problem of getting into schools and I will feed back the noble Lord’s observations to my noble friends in the DfE. Like him, I go to schools and, like him, I always mention apprenticeships. As government, we can do a lot, but we can also do a lot individually to help encourage careers in schools.
Noble Lords made a number of observations. We will come on to quality elsewhere. I hope that the readiness to consult and my indications of where we are heading have been helpful and will enable the noble Lord to withdraw his amendment.
The Minister did not respond on public sector contracts, and I would welcome a response. I do not think I am going to be surprised by it, but I would like one.
I do not disagree with the Minister’s point about the difficulty of setting targets for every company, but we should surely be concerned that we never seem to have got a lot further than something like one in four or one in five companies taking on apprenticeships. We never seem to be able to push the needle on the dial much further than that. If we believe, as I know the Government do, that the vast majority of these apprenticeships should be coming from SMEs, it is vital that we make some impact on them. What plans do the Government have? I heard the Minister say that employers are at the heart of this and will determine the skills required. I do not quarrel with that. The Government have introduced new funding arrangements which not every employer is happy with. That is a bit of a worry because they feel that they will have to claim back. I have heard from employer organisations that there are real concerns about that. That is the problem we face if we want to get significant numbers of young people. Although I heard the figures the Minister quoted, I still think that that will be the challenge and that getting them into these small and medium-sized enterprises will be vital.
We will come on to discuss contracting out, which is the subject of the next amendment. I hope it will enable me to reassure the noble Lord on that point. SMEs also come up later. His points are extremely well made. This is a very important area. There is a lot of cross-government consensus that we need to have a step change in apprenticeships. Germany and Switzerland have classically done a better job. With the levy, the change and the move to proper frameworks and at least a full year for every apprenticeship, we are trying to move into a different place.
The provisions in this Bill do not answer all the questions, but they do some useful things. With the noble Lord’s agreement, I hope we can move on to the next amendment and talk about what we are going to try to do for contracting out.
Before the Minister sits down, perhaps I could interject briefly. I wondered whether the noble Lord, Lord Young, had actually looked through the list of amendments and noticed that we had the following one, as was rightly said, on public procurement, and the subsequent one, which is on small and medium-sized enterprises. However, I put it to the noble Baroness that she says there is a lot going on with apprenticeships at the moment. I think a very real problem has arisen, which is that the Government are constantly changing the goal posts in relation to apprenticeships and this poses a real problem for a lot of companies.
As is very clear indeed from the Ofsted report that came out last week, what has been happening is not satisfactory and needs to be changed. One of the problems facing the whole sector is constant instability. We have a situation in which the employer ownership pilots were going on, and we have the trailblazer pilots going on, and then suddenly the Government intervene with the apprenticeship levy, which changes the whole game once again. The whole thing is thrown up in the air and a lot of companies are very uncertain as to quite where they are going to be going. Take the construction industry: there is already a construction industry levy—is the other levy to be on top of that? I know there have been consultations about it, but we do not know yet what is going to happen. Therefore, I put a plea to the Government and the Minister: please try to establish a broad framework for setting apprenticeships and then do not fiddle with it for about three years to give it a chance to bed down.
I have to say I agree that having a good vision and a good framework for this important area of policy is essential. Obviously we came back in May—to the surprise of some of us—and we are trying to move forward with a new approach to apprenticeships, which does include a levy because we think that that is a good way of getting funding into this absolutely vital area. Of course I, like everybody who used to be a huge employer in their former lives, recognise the importance of certainty for employers. However, I do not think that we should apologise for trying to improve the framework. We should do that. We should then give the new arrangements a clear run. However, we are at that point in the process where policy is being formed. We are bringing in a levy, which is still the subject of consultation. We are rightly in the Bill trying to move forward on a couple of small and important issues, including this business of the definition of apprenticeships, where I feel that having sanctions, as there are for degrees, will actually help to improve the recognition of this vital employment category.
I thank all noble Lords for contributing to the debate. It has done what we wanted, which was to begin to open up this whole area and to get a sense of where the Government are going, and to try to see through to the vision and the framework, which the noble Baroness mentioned.
I think the slight problem we all have around the Room is that we are not quite sure what the vision actually is because we have not seen some of the detail of it. We have some doubts about whether the framework is going to be sufficient to get the country to the point where we can say that we have a competitive environment similar to Germany and others who have been at this for some time. The noble Lord, Lord Hodgson, is quite right to bang on about whether or not large charities doing work for local authorities are going to be included. It will make a huge difference to them. We need to know a bit more about who will be on the list. If the Government are, as we know, changing around the definitions to housing associations so that they are in but they could be petitioned to come out by some other piece of legislation, this is not going to provide the basis of what we are talking about.
I suppose we were being a bit cheeky in trying to delete the first subsection of the first new Section in the clause, but we wanted to draw out from the Minister the rationale behind what we are doing. She says that it makes economic and social sense for bodies to recruit something like 2% to 3% of their workforce, even if they are charities, and that the burden should be on the larger—presumably, the 250 employees threshold will become the standard, as that is the target for small and medium. So it is largely going to be on those that are not SMEs, which is interesting but nevertheless understandable in the circumstances. Where we disagree is that, although it seems to the Government to make economic sense for those bodies to be involved, that does not read across to the productive sectors of the economy, for which there will be challenges and obviously lots of things are still to happen but for which the case is still very strong that there should be some engagement. After all, if the Government are going to levy them for payment of the apprentices that they are going to take on, presumably they are already in contact with them—presumably, they have to write to and communicate with them—so it would not be very difficult to put a target in place in return for the money.
However, a lot of this will come up later. We have had a good start to today’s debates. I am grateful to all concerned. I beg leave to withdraw the amendment.
Amendment 49DA withdrawn.
49E: Clause 18, page 33, line 42, at end insert—
“( ) The apprenticeship targets set for prescribed public bodies under subsection (1) may include apprenticeship agreements entered into by sub-contractors working for the prescribed public body.
( ) The prescribed public body may in turn set apprenticeship targets for their sub-contractors.”
My Lords, in moving Amendment 49E I will speak also to Amendment 50A, which is purely consequential. The purpose of the amendment is explicitly to try to pull in the clout of public purchasing to encourage companies that are contracted to public sector organisations to take on apprenticeships, and to encourage private sector organisations to pick up the baton.
I have two very good examples of where this has been done pretty systematically. One is the Olympic Park in 2012. The noble Lord, Lord Gardiner, knows this example quite well. It is quite an inspiring example. The original target for apprenticeships in the park was 350, but it ended up with well over 450; 12% of them were black, Asian or ethnic minority, compared to 5% generally within the country; 64% came from London and 30% from the boroughs involved with the Olympics, the eastern London boroughs, so apprenticeships were being provided for local people. In addition, 6% were women, whereas in the construction industry only 3% of apprentices are generally women, so they managed to double that even though 6% is pretty abysmally low. They had only a 6% dropout rate from the apprenticeships, whereas nationally the dropout rate at that time was about 25%.
An evaluation was done and it is interesting to look at the success factors. The report says:
“Many activities were undertaken to deliver the Apprenticeship Programme”,
“The tangible ownership and driving influence of senior project leads”.
That is very important. Senior management was involved and absolutely behind it. The report also says:
“Robust and effective working relationships were fostered with a number of colleges and training providers”.
This is what we are all saying these days: partnership between industry and the training providers—colleges, independent training providers and, for that matter, schools—is vital. The report also points to:
“Full stakeholder engagement that included relevant industry bodies”—
it was not just the firms themselves but the sector skills agencies, the funding agencies, national and local government, and the trade unions were all involved in helping to design the programme and get it moving. There was also:
“The implementation of a contractual requirement that three per cent of a new contractor’s workforce be apprentices”—
picking up the 3% that the Minister was talking about and deliberately putting a target on the subcontractors. The report also points to:
“Implementing a follow-up monitoring process, in partnership with the National Apprentice Service”.
It was followed up, it was well monitored and the figures are there. Finally, the report points to:
“The active promotion of construction as a positive career choice”.
The noble Lord, Lord Young, was quoting figures earlier. As he was saying, sadly we have not seen a very considerable increase in the number of apprenticeships in traditional areas such as construction and mechanical engineering. The big growth has been very much in the service sectors, particularly care, retail and hotel and catering.
I also quote this from the evaluation, because it makes an important point:
“Something very positive and supportive was in place in the environment that the ODA”—
the Olympic Delivery Authority—
“created on the build programme and the markedly low drop-out helped to promote apprenticeships among those employers who were reluctant to take on young people, some of whom feared a high turnover and a wasted investment”.
That was a very positive experience.
I also quote another example, which the noble Baroness, Lady Corston, who is sat behind me, will know. Last week we had in evidence to the Select Committee on social mobility and skills a presentation from Crossrail’s director of talent and resources, Valerie Todd. I found her testimony extremely impressive. Crossrail needed some 3,500 skilled workpeople. It realised that it had not nearly enough people, so it set about training them with three main aims: to ensure that those who came on site recognised what safety precautions were necessary; to inspire future talent; and to provide local jobs.
Crossrail has taken on more than 300 apprentices and linked them with local schools. It has gone to the local schools and recruited apprentices from areas where it has been working. Some 39% of them are from black, Asian and ethnic minority groups and 20% are women, quite a number of whom have come in through both the construction and civil engineering areas, but also to some of the secretarial and administrative areas. This also applied to subcontractors. Crossrail worked very closely with its subcontractors. As Ms Todd has said:
“They all knew that if they were going to bid for our work they were going to have to support us in achieving these goals”.
Both these examples of what has been achieved by a deliberate attempt to use public procurement to raise the numbers of apprentices in private companies are very inspiring. They have clearly achieved well. Both are planned examples. As drafted, the amendment purely says that:
“The apprenticeship targets set for prescribed public bodies under subsection (1) may include apprenticeship agreements entered into by sub-contractors working for the prescribed public body”.
It is not a “must”; it is a “may”. We are not saying that they have to, but it is a useful way of doing it and I suggest that it is one we should back. Using public procurement to promote apprenticeships is something that has been widely discussed and approved of. It would be nice to see the Government doing something about it. I beg to move.
I rise to support the noble Baroness, Lady Sharp. She has quoted two contracts. I had a personal involvement with both, ensuring that there were targets and that we met them. They were both very good, but one of the last points that the noble Baroness made was that Crossrail ensured that not only the main company but its supply chain, which was distributed throughout the country, had an apprenticeship target. I would like to see a “must” rather than a “may”, but if the Government said that they accept the amendment, that would be a step forward and an important signal. I look forward to hearing the Minister’s comments.
My Lords, we have three amendments in this group. The first follows up what the Minister said in response to the earlier debate. Apprentices are in jobs, and if they are in jobs, they should be paid as if they are in jobs, and if they are making a contribution, that would be a good thing to do, so our suggestion is that that should be paid the living wage. I would be interested to hear the argument against that. It has to be not only a training but a way of living. Anybody who does an apprenticeship will get the training, we hope, that will get them into remunerative employment. We heard the figures about how much it will benefit them over their lifetime, but they have to start somewhere. Starting below the current living wage will not be a great advertisement for these areas.
My only excuse is that, as I explained, I am a bit underbriefed, having been thrown into the spotlight. I am also working from an earlier version. Since the Minister was in a not dissimilar situation in the previous group, perhaps she will bank my comments and reply to them at the appropriate point, if that would be convenient for her. Amendment 49H will come up later.
I want to endorse the points made by the noble Baroness, Lady Sharp, and, in a previous group of amendments, by my noble friend Lady Corston in relation to quality. There will be a transition to the new scenario sketched out in the Bill and put into force by the Act, but at the moment we are starting from a very low background. There are good areas of activity. We have all heard about Crossrail’s good record on this, and there are other employers who do a lot of good. The Olympics are a gold standard for the aspirations we have in his area. However, these groups make the point that it will be important to try to find a way of bridging between the current system and the new system so that only good-quality apprenticeships that extend learning and training opportunities for the young people taking them will be able to benefit from them.
I am very grateful to the noble Baroness, Lady Sharp, for explaining her amendment so clearly and for regaling us with the examples. I agree that the Olympic legacy was amazing in many respects, particularly in relation to apprenticeships and the partnerships in east London that she described. There is a debate on the Olympic legacy on Thursday, and I am sure I will be able to use the noble Baroness’s material to good effect.
My favourite example of good practice is Crossrail. I have been down the tunnel. I do not like racing cars, but I like Crossrail. What Valerie Todd said to the committee was extremely well put. Crossrail is good not only at apprenticeships but at giving contracts to firms outside London and to SMEs, so there are three good things coming together there.
I am also extremely grateful to the noble Lord, Lord Stevenson, for agreeing that I may answer on quality under a later grouping. Groupings moving around makes life difficult for those of us who are trying to shine a light into the proposals we are discussing in this Committee.
Amendments 49E and 50A relate to employment by subcontractors. They allow the employment of apprentices by subcontractors of a public body to be included in targets set for the public body. They also allow a public body to set apprenticeships targets for its subcontractors. There is a broad definition of subcontractor. Clause 18 will improve the capacity and capability of the public sector, ensuring that it benefits from the same positive impacts that apprentices bring to the rest of the economy.
The noble Baroness’s amendment would, we fear, put this ambition at risk. It would enable public sector bodies captured by the duty to meet their targets via persons who supply goods and services to them. These apprenticeships might have no interaction with the relevant public body, so the benefit that apprentices could bring to the public sector would be lost. That is a perverse effect, which I do not think is the intention of the noble Baroness. The Government believe that the public sector should deliver its fair share of apprenticeships. This does not mean that the duty should be shifted back to the private sector. I can reassure the noble Baroness that the clause makes provision for apprentices who work directly for a public body, but are employed by the apprenticeship training agencies, to count towards this target. This will help to minimise administrative burdens for bodies in employing apprentices.
We will work with departments and the wider public sector to encourage apprenticeship growth in their relevant sectors. However, we do not judge that it is appropriate for individual public sector bodies to set their own targets on the private sector. Nevertheless, we recognise that certain public procurement contracts can be a key means of upskilling workforces and reducing youth unemployment, and that including requirements to take on apprentices can be valuable. That is why the Government introduced changes to procurement policy to take a company’s apprenticeship and skills offer into account when awarding larger central government contracts. I am not sure that as much publicity has been given to this provision as perhaps it should. We are already doing something which will build on the good practice of the Olympics and Crossrail.
From 1 September, all bids for relevant central government contracts worth more than £10 million and lasting 12 months or more must demonstrate a clear commitment to apprenticeships. Bidders propose the number of apprenticeships they will create under each contract—perhaps between 3% and 5% of the contract’s workforce. They will then be bound to this figure in the ensuing contract, with action taken should they fail to deliver on the promised number.
Officials in my department and the Crown Commercial Service will work together with officials in the Department for Communities and Local Government, the Local Government Authority and local authorities to identify existing best practice and experience and bring forward proposals in early 2016 for extending the policy to local government contracts as well. Information on the number of apprenticeships delivered as a result of these proposals will be reported through single departmental plans issued by individual departments.
Therefore, we are not doing it in exactly the way proposed in the amendment but we have taken the point that it is important for us to use the opportunity of government contracts to encourage apprenticeships. With that explanation, I hope that the noble Baroness feels able to withdraw her amendment.
Obviously, I welcome that step in the right direction. When we looked at this issue, we had a figure of something like £2 million. I am not sure whether the Minister’s team will have this information but, if the figure is set as the Minister suggests at £10 million, what will be the percentage of public procurement contracts? There are two criteria—the £10 million and the 12-months criteria.
I think the answer is that we do not have the information with us. Perhaps we could take that away in the usual way and see what we can do in terms of an estimate and come back.
While I have the Floor, I will respond to the point about charities that was raised under the previous amendment but is also relevant to this because in the public sector work is often contracted out to charities. To be clear, if charities are not on the ONS list for the public sector, current thinking and emerging policy is that they will not be in scope. In practice, it is very unlikely that many charities would qualify in this process.
I thank the Minister for her response, and all those who have participated in this debate.
It is a little disappointing that she is not more forthcoming on this. I recognise that she has made provision for major public contracts but, first, as I understand it, that is to be negotiated with the contractors —it is not mandatory for large public contracts. Secondly, a large number of smaller contracts go through public bodies on which it would be useful for there to be some nudging. The “may” that I would have put in would very much be nudging those subcontractors to think about apprenticeships and think whether they could not carry them through. We are concerned about the lack of apprenticeships in small and medium-sized companies, and this is one way in which to encourage those companies to come up with proposals for apprenticeships. It would be an opportunity for the Government to nudge things in that direction. As the Minister made clear, big contracts began only in September this year, so we have a long way to go. What can be achieved, as is shown by the Olympic Park and Crossrail, is very considerable. I hope that we see something a little more positive from the Government some time. I beg leave to withdraw the amendment.
Amendment 49E withdrawn.
Amendments 49EA and 49EB not moved.
49F: Clause 18, page 34, line 3, at end insert—
“( ) An apprenticeship target shall specify what proportion of the number referred to in subsection (2) is to be reserved for apprenticeships for young people—
(a) who were looked after children; and(b) who need help with physical or learning disabilities.”
My Lords, this amendment is concerned with care leavers and those with special educational needs and disabilities; its purpose is to open up apprenticeships to those two groups of young people. Some of them are perfectly able to undertake such an apprenticeship—I recognise that not all young people with special educational needs and disabilities are in a position to take up apprenticeships, but some of them are. The feeling is that it is important that they should have the opportunity to do so. Something like 8% of those with special educational needs and disabilities currently have apprenticeships of some sort, compared to 16% nationally.
Looked-after children, it is well known, achieve less highly at GCSE than their counterparts; they often miss out on parts of education, partly because they have a chaotic family background, or there may be a history of abuse in their background, and so forth. Barnardo’s has been very concerned about the issue of these young people leaving care. I refer to evidence that it gave to our Select Committee on Social Mobility, picking up a remark that one such young person made, that school really did not help them at all. We were told:
“These young people often leave school with few or no qualifications and need alternative options outside of the school environment if they are to achieve their potential. Some need provision that allows them to catch up on what they have missed and Barnardo’s services offer a variety of Level 1 courses … These young people also often want the option of practical-based learning, that clearly links to a real job. Barnardo’s services offer a range of qualifications that focus on occupational skills. These include foundation awards … NVG levels 1-3 and pre-apprenticeship programmes. The young people we work with can undertake these qualifications in a range of work areas including floristry; painting and decorating; business; horticulture; hair and beauty; construction; and catering”.
It is important to recognise that some of these young people, because of the chaotic backgrounds that they come from, need time to catch up and move forward. For example, Birmingham sets aside for care leavers a proportion of the apprenticeships that it takes on as a local authority. I think that a number of other local authorities do that.
In relation to those with disabilities, it is a similar story. Some of them need longer to catch up and get themselves ready for an apprenticeship than others, yet they benefit from them. Ofsted’s report states:
“Too few disabled people or those with learning difficulties become apprentices. In all further education and skills providers in 2013/14, over 16% of learners disclosed a learning difficulty or disability compared with only 8% of apprentices. Only one of the providers in our survey demonstrated that they had supported an apprentice with dyslexia to pass their functional skills test”.
We do not have my noble friend Lord Addington here.
I am sure my noble friend will talk about dyslexia. Ofsted said:
“Only one of the providers in our survey demonstrated that they had supported an apprentice with dyslexia to pass their functional skills test while one other had made adjustments for a disabled apprentice. However, such examples of providers and employers encouraging disabled people or those with learning difficulties to succeed on an apprenticeship were rare”.
It is important that such people are considered. Figures indicate that the proportion of apprentices who have learning difficulties or disability has decreased. It was 11% in 2010-11, and it decreased to only 8% in 2012-13. The success rate of all apprentices completing their framework rose considerably from 55% in 2005-06 to 73% in 2011-12. In the same period, the success rate for those with disabilities rose from 49.5% to 69.9%. That is a very high rate of success on the part of those with disabilities. The success rate is now 75%. The differential between the two is not very great.
Back in 2012, there was a comprehensive review—the Little and Holland review—Creating an Inclusive Apprenticeship Offer. It made 20 recommendations, including: clarifying funding to support apprentices with learning difficulty or disability; raising the awareness of providers and employers of funding sources, such as access to work and learning; the promotion of on-the-job support in terms of job coaching and mentoring; review and better monitoring of the self-declaration process so that underrepresentation by specific groups can be addressed; and the removal of barriers to access and completion in the form of qualification requirements. The Government seem to have been very slow in acting on those recommendations. Will the Minister update us on what is happening?
On barriers, English and maths remain a major issue. I do not know whether my noble friend Lord Addington will add anything on that. He has been very concerned about the shift to GCSE English and maths and the difficulty that some of these young people face. They used to be able to qualify with more examinee-friendly functional skills. I beg to move.
My Lords, when I look at the apprenticeship system and the newly created apprenticeships, it is quite clear that there is a degree of fear within the system that the exam will not be taken seriously. This means that various standards have been clung to, particularly in English and maths, so that the apprenticeship will be as good as something else. This is quite clearly inappropriate if you do not take other steps for groups which have struggled in the traditional sector. Dyslexia was a classic example. As I dug into it, it became almost farcical. People were saying, “Employers like it”. Then you had employers saying that yes, they wanted functional skills so that people could do the job, not a qualification. That was said to me more than once. A degree of paranoia was building up because people were not saying, “This is a test that allows you to do a job”.
The groups mentioned here are always going to struggle. If you do not want them in the apprenticeship system, it is about time somebody turned round and said, “It’s not for you”, and provided something else for them. I do so hope that that will not be the case, because it means creating an entire new examination and qualification system. I hope that the Minister will be able to tell us that the Government are taking practical steps to allow people in.
The example I mentioned initially turned out to be simply allowing in principle to make the software technology that was used elsewhere in education available for the examination. It was then discovered that that was impossible because the format online was wrong and had not been adapted. It was that ridiculous, but the resistance was real. Unless you have someone who is prepared to bring people into the system, you will always exclude. If apprenticeships are to be the gold standard for further education, you will exclude larger and larger groups.
We thus have a dichotomy with the aims and objectives of large parts of the further education sector. It is less than a year since we passed a major piece of legislation that said that you should allow people to continue training until the age of 25 because they have disabilities, but we exclude them from the main qualification they are going for. There is a real problem here. It should not be beyond the wit of man to start to square that circle, but unless action is taken and a path for further action is identified, I fear that we will go around this course again and again.
My Lords, I concur with all that the noble Baroness, Lady Sharp, and the noble Lord, Lord Addington, said. This problem has been raised again and again. I think that the noble Baroness said that there should be some examples of best practice employers. We need to look at why they can take on young people in these circumstances to become good-quality employees capable of completing apprenticeships. Let us look at those employers who are putting this into practice; there may not be many, but there will be some.
My Lords, this amendment would require that, when setting public sector apprenticeship targets, the Secretary of State must also impose targets on public bodies in relation to the number of young people who were in care and those with special educational needs or disabilities. I am very grateful to the noble Baroness, Lady Sharp, for bringing the issue alive, for bringing up the findings of the Social Mobility Committee and for talking about Birmingham as an exemplar of good practice—because we must capture and celebrate good practice in all these areas. I was encouraged to hear of the improving completion rate that she mentioned.
The Government do not feel that it is appropriate to specify a proportion of the public sector target for young people leaving care or with physical or learning disabilities. We are trying to keep our targets simple. Apprenticeships are real jobs with training. As with all other jobs, employers have to make the final decision about who they hire for any apprenticeship that they have advertised. I know this having run apprenticeships myself when I was in business. Apprenticeships are employer led, so we are not able to ring-fence apprenticeships for particular groups as to do so would mean requiring employers to hire particular people for their vacancies. I am not sure that that would work.
However, although we would not want to interfere in employers’ decisions about who to recruit, we believe that more can be done to ensure that people from a diverse range of backgrounds are in the best possible place to apply for and secure an apprenticeship. The Government are committed to ensuring that care leavers are aware of the support and opportunities that are available to them. The Government provide full funding for apprenticeship training under the existing frameworks for entitled 19 to 23 year-old care leavers, and a number of local authorities already offer apprenticeships to care leavers, as has been said.
I have quite a long list of what we are doing to help care leavers, but in the interests of time I will set all that out in a letter, alongside information on what is being done in various different ways so that care leavers can access programmes such as traineeships to get the support they need to get ready for an apprenticeship. The noble Baroness also mentioned a review. In turn, I will mention Peter Little OBE, who undertook a detailed review for the Government of the inclusiveness of apprenticeships for people with learning difficulties or disabilities. Perhaps it would be helpful to set out the information I have in a rather extensive note. I have tried to explain why accepting this amendment would be a problem, but I will set all that out.
It is good to see the noble Lord, Lord Addington, here because of all that he has done on support and accessibility. Apprenticeships are accessible. In 2013-14, almost 40,000 people with disabilities or learning difficulties started an apprenticeship. We can do more. We can continue, as he said, to look at English and maths requirements within apprenticeships to ensure that they do not create a barrier, and the use of reasonable adjustments for disabled learners has been promoted through the skills funding rules. The SFA—the Skills Funding Agency—has published an evaluation of a series of diversity and apprenticeship pilots which looked at innovative ways to increase accessibility for underrepresented groups.
We judge that the measures we are undertaking can give confidence that the Government are ensuring in the right way that apprenticeships are accessible for people of all backgrounds, including care leavers and people with special educational needs and disabilities. I hope that noble Lords have found my explanation helpful and will look forward to my letter, and that on this basis the noble Baroness will withdraw her amendment.
When the Minister does provide that letter, might it include some guidance about compliance with the Equality Act? People tend to say, “Oh no, that is different, that is not for us”. It needs to be stated quite clearly that the colleges and employers that are going through this process know that they are part of the legal framework and are not in some way exceptional. It is my experience that people are hiding behind the fact that we are different.
My Lords, I am grateful to the Minister for her response and I look forward to the letter that she is going to send me. I hope that she will update us on precisely what is happening in relation to the Little report. My information is that not enough has been done already and it would be very nice to see a spur applied to some of the implementation.
Again, I am a little disappointed by the Government’s response. They do not hesitate to set targets not only for local government but for all kinds of public bodies, yet they are not prepared to write into those targets a much lesser target in terms of taking on young people who we all know need to be offered these opportunities. Access is a recurring theme whenever we talk about apprenticeships and, for that matter, education and training provision for younger people. There is no doubt that access is difficult for them. Opening the doors by means of something relatively gentle in terms of a target for these bodies to aim for need not be as prescriptive as the Minister suggests; it could just nudge them in the right direction.
I look forward to the Minister’s letter and may return to this issue once I have read it. I beg leave to withdraw the amendment.
Amendment 49F withdrawn.
49G: Clause 18, page 34, line 11, at end insert—
“( ) The Secretary of State may by regulations require a public body or private body to pay the living wage to those who have an apprenticeship.”
My Lords, I have already spoken to the amendment but, to sum up, the point of the question is that we are asking the Minister to give us a reason why those who join apprenticeships should not be paid the living wage.
Amendment 49H in this group is about the need to ensure that managers supervising apprenticeship programmes have appropriate training. There is a well-established discourse on the question of whether management, particularly in private sector companies, is up to the job of increasing productivity, growing the economy and providing the jobs of the future. That receives its main focus around training and there is plenty of evidence on this issue, which I am sure others will wish to speak to. It would be a sensible Government who thought through all the issues relating to this new duty on the public sector, in particular, if it were also applied to the private sector, to ensure that management was up to the task concerned.
We have other amendments on the details needed to create a better policy on apprenticeships more generally and the role that they play in the development of the economy, but Amendment 50AC sets out—I hope for public bodies and for private companies, but if companies are not included then just public bodies—the sort of information that will be needed if we are to make a good job of this. We hear too much in anecdote and we do not get enough publication. The Minister said that she will write with such a lot of information already. Maybe she has access to the sort of information listed in this amendment, but we are interested in whether we can get a bit more of a sense of the progression, success and value that people are placing on these apprenticeships. This would be a good place to start. I beg to move.
My Lords, I have an amendment, Amendment 50AA, in this group. It is a probing amendment but it ranges slightly more widely than the focused questions that the noble Lord, Lord Stevenson, put to the Minister.
The overall purpose of my amendment is to ensure that all apprenticeships have the appropriate level of quality—an issue that came up in various comments earlier. It does so by adding a subsection to the end of new Section A9 in Clause 18 on public sector apprenticeship targets, requiring the Secretary of State to set out minimum standards for apprenticeships. It also requires the Secretary of State to consult on what is required. In tabling this, I have been helped, advised and encouraged by the Engineering Employers’ Federation, which is somewhat concerned about the lack of clarity on the position as a whole.
That having been said, we had a debate on Tuesday last week on the draft English Apprenticeships (Consequential Amendments to Primary Legislation) Order, which the noble Lords, Lord Stevenson and Lord Young of Norwood Green, have spoken to, and which was replied to by my noble friend Lord Courtown. A number of questions were asked in that meeting, some of which cross over with what we are discussing this afternoon. I received the answer from the department as I came into the meeting this afternoon, so if I am not absolutely up to date with what the responses are to the questions raised, it is because I have only had it for about half an hour.
I very much support the Government’s policy of creating 3 million apprenticeship starts in this Parliament mentioned in paragraph 18 at page 6 of the Explanatory Notes. There is a real need for vocational training. It could equip people better for practical work and give them a more satisfying, satisfactory and long-lasting permanent job than, dare I say it, a 2.2 in media studies, which may not equip them for an enormous amount. This relates to the point made by the noble Baroness, Lady Corston, on the quality of courses available.
The Government’s ambition is very great. It is worth while pointing out that last year there were 696,000 live births in England and Wales and 56,000 live births in Scotland, so a total of around 750,000 live births. Therefore, in a five-year period you have 3,750,000 live births, if those numbers are maintained, and we are talking about creating 3 million new apprenticeships over the next five years. That is 80% of the people who will have been born. I know they are not going to be apprentices in their first few years, but it is the scale of what we are thinking about. Of those currently being born in a five-year period, 80% will be expected to take up an apprenticeship.
It may be that my slight worry about how we will maintain the quality is because I do not fully understand how the apprenticeship scheme works—I certainly have not studied as long as the noble Lord, Lord Young of Norwood Green—and I therefore hope that my noble friend will be able to reassure me. The noble Lord, Lord Young, and I have discussed this before and I think there are a couple of issues. One is the image of apprenticeships. There has been a problem with apprenticeships being slightly old-fashioned, being seen as old-fashioned and perhaps too often being portrayed as old-fashioned in schools. The second issue is that the apprenticeship brand has been weakened by programmes of training that have been termed apprenticeships but offered little more than on-the-job basic training. That is not what an apprenticeship is about. While we are seeing the beginning of a shift in opinion about this matter, we need to make sure that there are not set-backs or bad publicity around quality control and standards.
I find it quite difficult to establish what defines an apprenticeship, so my amendment is an attempt to require that some form of minimum standards are set down somewhere in regulation. Obviously, those should be consulted upon before being set in place. If my noble friend is able to say in her reply that this is all covered and I need not worry about this, no one will be more delighted than me. She may refer me to the Skills Funding Agency, which I see referred to in the letter from my noble friend Lord Courtown. If she is able to give that chapter and verse, that is terrific, and I shall be even more pleased to pass it on to the Engineering Employers’ Federation and other bodies which appear to be pretty much as confused as I am.
The sorts of things that I have in mind as the basic building blocks of an apprenticeship scheme would be some combination of vocational and academic qualifications with on-the-job learning, so at the end apprentices have the skills they need to occupy the jobs which have been created by the employer. Apprentices should have some basic-level qualifications, probably level 2, in English and maths before they start; otherwise, you are asking the employer to carry out basic education, and if that is to be the case, it should be a traineeship, not an apprenticeship—an apprenticeship should be seen as a smarter thing to do. The quality of an apprenticeship should be determined on outcomes—not on what is said in a book, but on what actually happens in relation to the length of the apprenticeship, the level of training, the qualification attained and the career prospects. Finally, as the noble Baroness, Lady Sharp, said, there needs to be a long-term commitment by all parties to stick to their knitting and not alter the model along the way.
Against those inquiries, I shall ask my noble friend a couple of specific questions. First, who can offer an apprenticeship? For example, a very able young man has come to spend a year working for me doing research. He has helped me with the remarks that I am now making. He is at university, so he is not particularly suitable. If he were to come without being at university and were to say that he would like to be a permanent researcher, could I offer him an apprenticeship? Could he be an apprentice? Would he qualify?
Secondly, having started on that, if he thinks I am not offering him quite what was anticipated, to whom does he complain? You can complain to your employer, but you will probably make a relatively short-lived complaint. It may also be that the Skills Funding Agency can consider this. If it does, how does the apprentice know of its existence and how do they find out that there is an organisation which can check and guarantee quality and that what they have been promised is being fulfilled? Would that be done on a confidential basis? Will the person therefore be certain that their position will be protected? Is the SFA only reactive? Does it just respond to complaints, or does it do mystery shopping to see if the levels of apprenticeships promised are being fulfilled?
If we are to achieve the Government’s very worthwhile and very important but ambitious target of 3 million apprenticeships, and at the same time provide real, fulfilling training that leads to long-term, satisfying permanent posts, some legislative framework around all this would be helpful. Fifteen years ago, when I served on the regional development agency in the West Midlands, the system became “used” by people. There were people who knew how to go and get a grant—they knew how to play the system. They could tell you how you had to show this amount of increase in output, this amount of increase in employment and this additionality that had to be fulfilled in order to get a grant. Unless there is a very clear framework, what slightly worries me about the scale of what we are setting out here is that there will be people whose role will be to set themselves up and to fulfil the letter of what the Government envisage but not the spirit of it. It is the spirit that we need in order to make apprenticeships worth while and to encourage our young men and women to undertake this very important vocational training.
It would be helpful to me and perhaps to the Committee if the Minister would indicate whether she intends to refer to the matter arising from the amendment so ably moved by the noble Lord, Lord Hodgson, on which I congratulate him. It is not often that I find myself agreeing with much of what the noble Lord says. Perhaps I may say that I consider him to be on the more progressive side in these matters. After all, we sparred on a Bill earlier this year when he defended resolutely and ably the brewers and their incentives. To find him now speaking in such a progressive manner, albeit on behalf of the Engineering Employers’ Federation, is a pleasant occurrence. Arising from the noble Lord’s amendment, it would be helpful if the Minister could indicate whether she will speak about the quality of apprenticeships on this amendment or, as I suspect, on the next group. My response depends on her further response to the noble Lord on this group.
Perish the thought: my humble apologies to my noble friend. I welcome this, perhaps because I had anticipated this debate. The Minister indicated that she would be dealing with quality, so I presume that this is the occasion on which she will deal with it. In the debate on the statutory instrument, I raised the issue of the Ofsted report quoted in the Times, which states:
“Some apprentices were not aware that they were classed as such, while others did not receive broader training or support to improve their English and maths. In the retail, catering and care industries, inspectors found apprentices cleaning floors, making coffee or serving sandwiches. Other employers used apprenticeships—which are wholly government-funded for those aged 16 to 18 and part-funded for older apprentices—to accredit the existing skills of their staff, Ofsted said. Sir Michael will tell business leaders in the West Midlands”,
where this survey took place,
“that employers, teachers and training providers are among the ‘guilty parties’ who must improve. ‘The fact that only 5 per cent of our youngsters go into an apprenticeship at 16 is little short of a disaster,’ he will say”.
That is a really serious and worrying criticism given the number of apprenticeships in the areas that he described.
The noble Earl, Lord Courtown, gave us a letter today. I have had a chance only to skim through it and think about whether it really does give an assurance that quality will be capable of being achieved in the drive to increase by a significant amount the number of apprenticeships. In the letter he says:
“An ‘approved English apprenticeship agreement’ carries the status of a contract of service. That means that employment and health and safety laws apply. The apprenticeship agreement confirms that the apprentice is undertaking an apprenticeship and specifies the standard they are working towards completing”.
That is good. I will not quote everything in the letter, but he then says:
“In addition to this, we have also introduced a new ‘Statement of Commitment’ which is signed by the employer, training provider and apprentice and sets out the key expectations, roles and responsibilities of each party involved in the apprenticeship and complements the approved English apprenticeship agreement”.
That is okay. However, what I really wanted to know was how we are going to check that, though they may have signed these agreements, they are actually delivering what they say they will. He said:
“In addition, the Skills Funding Agency … runs the apprenticeships helpline which was given an expanded remit in the summer, enabling anyone involved in an apprenticeship—not just the apprentice—to raise concerns about any element of how the apprenticeship is being delivered”.
The next sentence I found really interesting and I would welcome a comment from the Minister:
“The SFA have rigorous checks in place and have embarked on a programme of staff training to ensure that these issues are dealt with effectively”.
What exactly does that mean? There are an awful lot of apprenticeships going on. The noble Lord, Lord Hodgson, talked about mystery shoppers. I do not know whether the SFA will be the mystery shoppers, but a serious point is being raised. How are we going to ensure a number of things: that the quality of an apprenticeship is actually being delivered as per the contract, and that the training provider, in allocating a young person to an employer, is confident that that employer has a track record of delivering apprenticeships? How will we ensure that it is a safe working environment? I raised this issue previously. We had the appalling situation, I think just over a year or so ago, where a young apprentice went to work in the morning and never returned home—they died in an appalling workplace environment. Are we serious about enhancing the status of apprenticeships and ensuring that parents feel confident about the quality of apprenticeships?
The comment in the letter:
“The SFA have rigorous checks in place and have embarked on a programme of staff training to ensure that these issues are dealt with effectively”,
refers back to a point raised by my noble friend Lady Corston, who is not currently in the Room. She talked about young people employed for very short periods of time in what purported to be an apprenticeship but clearly was not. I have not heard of any periods as short as that, but certainly the Government declared that they would not support apprenticeships being described as such if they were for less than a year, which most people would say is about as short as one could get for an apprenticeship. Some might express concern that the period of time ought to be longer. However, my concern is whether the Skills Funding Agency will be able to deliver for the Government in terms of ensuring that there is real quality in apprenticeships.
My Lords, we on these Benches broadly agree with what the noble Lord, Lord Hodgson, said. There is no doubt that the push for numbers has meant quantity at the expense of quality. Only 6% of 16 to 18 year-olds go into an apprenticeship and about 80% of the apprenticeships that have been created have been taken up by people who are already in jobs. They have been doing a relatively low-level apprenticeship—what is known as the level 2 apprenticeship—which does no more than rubber stamp, giving them a qualification for the work that they have already been doing.
All that is detailed in the Ofsted report. I point out to the noble Lord, Lord Young, that Ofsted does inspect apprenticeship providers, and a report such as this, which is very damning indeed of the current system of apprenticeships, should wake the Government up to what has been proceeding. My noble friend Lord Stoneham and I have a subsequent amendment about higher-level apprenticeships. It is very sad that the number of apprenticeships at the moment undertaken at higher levels—even at level 3, which is the equivalent of A-level, let alone the proper technician, the old HND level, level 4, or level 5—is minimal. We are talking about 1% or 2% of apprenticeships. Those are the intermediate-level qualifications and skills that we desperately need in this country, but we are just not training people to that level at the moment.
To some extent, the whole business of creating 3 million apprenticeships is pulling the wool over people’s eyes as to precisely what we are doing about skills. I think that the Government are well aware of that and many of the reforms in hand at the moment are an attempt to raise the quality and answer the sorts of questions asked by the noble Lord, Lord Hodgson.
In Clause 19, the Bill defines what is a statutory apprenticeship. That is an important beginning, but we need to keep a wary eye out as to precisely how all this is carried through: what a statutory apprenticeship means and the quality of provision.
My Lords, I apologise to the Committee that I could not be here at the start of the sitting. I shall speak in particular to my noble friend Lord Hodgson’s amendment, because other amendments in this group state “may”, while that of my noble friend states “must”. That may make it more difficult for the Minister, who will probably say that she does not like that wording, but I hope that she will take on board the thrust behind it.
Having listened to the discussion around the Committee this afternoon, we are clearly all concerned about having minimum standards. There is nothing worse than people going into training or apprenticeships and coming out feeling that it was not worth while, there is no job prospect at the end and they have totally wasted their time. That is very bad for the individual, but neither is it good for the employer or the college helping them.
I would like to add two things to what my noble friend said so ably. First, two years ago, the Lord Mayor of London at the time, Fiona Woolf, put a lot of force behind apprenticeships within City livery companies. As people around the Committee will know, the City livery companies were guilds in the olden days and set standards, and many still do today. Secondly, the Minister knows of my interest in agricultural colleges. I was visiting an agricultural college local to me recently, opening new facilities to enable young people to have a better start. I was talking to one or two of the apprentices. It is interesting that one or two who came in, particularly on the engineering side, had not really thought of going on to take further degrees or any further educational training, but had become so inspired by what they were learning at that college that one or two, although not all of them, reconsidered doing a further level of training, which I thought was hugely encouraging.
What I want to add my voice to is the point about the quality of the apprenticeships being offered—and assessing it is absolutely crucial—and the job prospects for those young people afterwards, whether it is going in for further training or whether there is a job at the end. Some I talked to were very clear that, after the training that they were getting, they were very hopeful that a job would follow because they had gained skills that a couple of days earlier they certainly had not got. From listening to the various contributions from around the Committee this afternoon, I am well aware that this is not a common factor among everybody; there are some good training schemes, but some are poor.
In my noble friend’s Amendment 50AA, he calls for,
“minimum standards for an apprenticeship agreement”,
which should be looked at after the first 12 months, and then the Secretary of State should consult those that the Secretary of State,
“considers appropriate on the details of such regulations, prior to publication”.
My noble friend’s amendment has given us a good steer, and I hope that the Minister will be able to give us something positive. Clearly, with my noble friend’s amendment, it is a question not of “may” but of “must”, providing a great direction to this Government on how we need to improve the quality while at the same time encouraging more people to take up apprenticeships as a further step to wherever they go in life. I support my noble friend’s amendment.
My Lords, in listening to the debate so far, I think that one thing that unites all of us in the Committee is the desire to see proper apprenticeships in future years. Young people are understandably cynical about what they see as the exploitation that has often taken place in many of the so-called apprenticeship schemes that were introduced. As the noble Lord, Lord Hodgson, said, they are not proper apprenticeships as we would understand them. I do not blame the present Government for that situation, or even their predecessor; these things have been going on for many years. I recollect more than 40 years ago, as a very junior member of Harold Wilson’s Government, which dates me somewhat, learning with some degree of concern about what was happening with the youth training schemes. They were introduced in all good faith by a Labour Government but abused by employers, who took on youngsters and promised them jobs in future that never materialised or for which they were not properly trained. In one case that stuck in my mind, they were offered a permanent job, but only at YTS rate, which was, of course, less than the traditional rate for the job. So there is a widespread concern and cynicism among young people about these schemes.
A few weeks ago, we had a debate about apprenticeships on the Floor of the House, and I drew your Lordships’ attention to one or two of the abuses taking place at that time. I do not wish to repeat them chapter and verse, but it is instructive that one scheme in particular—an apprenticeship advertised by Subway, the sandwich maker—reverberated through the technical press around the world. The job had been advertised as an apprenticeship; the description was “a sandwich architect”. I asked whether somebody taking that particular qualification would move from white to brown bread or cut the crusts off or move to gluten-free bread before six months was up. But one thing that that job certainly did not do was qualify any young person in any meaningful way towards a better future.
There was another so-called apprenticeship advertised by a firm of estate agents; the young person concerned was supposed to go around and look at various properties, to check advertisements in the trade press to see where the properties were advertised for sale and see whether it was possible to lure the owners of those properties from the books of one company to another. To do that job one would inevitably need a car. There was no mention. Indeed, the young person who came to talk to me about this said he followed this up and there was no fuel allowance or any other allowance for the time involved in the role. He was supposed to drive around, presumably at his own expense. He was 21 years old and possessed a car, but, as he said, at £2.37 an hour—which was the advertised apprenticeship rate—he did not see that it was possible for him to do it and how it would qualify him for the future.
I hope the Minister can give the Committee some reassurance about the future. I welcome the Government’s intention—I am not quite sure how they will implement it—to outlaw some of the practices. The noble Lord, Lord Hodgson, referred to people looking for grants in the way that they do. Human nature being what it is, that is how certain people react. It does not give young people any great hope for the future. Indeed, I have used this word twice before, but I shall use it again: it gives them a great degree of cynicism about the way their talents are exploited.
As my noble friend Lady Corston said, for those of a certain generation, apprenticeships usually, if not inevitably, meant in engineering, heavy industry and that sort of area. It was accepted that although you might be paid a little bit less than some of your contemporaries, after a five or six-year apprenticeship you were well qualified and could see a way forward in the world of work for the rest of your life. It is not possible to say that under schemes like the one I have just mentioned. I will be interested to hear from the Minister what plans she has to stop that sort of exploitation of young people and to give them some genuine hope that the work they do as apprentices will properly qualify them for the world of work in future.
I place on record my thanks to the noble Lord, Lord Snape, for his very welcome but quite unexpectedly effusive support for what I have been saying. I hope he will forgive me, but when we get to Amendments 53ZC and 53ZD, about the pubs code, at about 7.30 pm, normal service will be resumed.
I hope that we are not going to do any such thing at 7.30 pm. I understand that we are dealing with pubs on Wednesday, not today. I look forward to the noble Lord adopting his customary reactionary—if I may say so—position as far as pubs and publicans are concerned. Of course, I will adopt my usual progressive position, to use phraseology that would make Jeremy proud of me, I am sure.
How is this section of the Bill related to late payments, especially for small and medium-sized firms? With the best will in the world, you can have an apprentice for a year and suddenly late payment means that that firm is struggling to maintain the apprenticeship. Is there anything in this section which relates to the first part about late payments?
My Lords, I welcome all noble Lords’ comments. It was good to have the contributions of the noble Baronesses, Lady Byford and Lady Golding, and the noble Lord, Lord Snape. I think there is a large element of agreement in the Room that quality is important. I will come on to how we are going to achieve that.
I will start by addressing Amendment 49G, on the living wage. As I have made clear previously, we believe that apprenticeships provide the chance to gain new skills and knowledge, which employers really value. The Government are committed to improving living standards, particularly for the low paid, and from 1 October 2015 the national minimum wage rate for apprentices was increased to £3.30 per hour, which was significantly higher than the £2.80 per hour recommended by the Low Pay Commission and represented a rise of 57p per hour for the apprentice. It is estimated that 75,000 apprentices will be covered by this new rate.
However, that is not a guide to what employers should pay, and employers are encouraged to pay higher where they are able to do so, with many employers choosing to pay more than the minimum rate. But we must recognise that apprentices are, at least initially, less productive than other workers. We do not want to stop apprenticeships—especially in sectors such as crafts, which are close to the heart of noble Lord, Lord Young—by making them unaffordable to employers. As an economist by background and a businesswoman, I assure noble Lords that that can be a risk.
Everyone who is entitled to the national minimum wage should receive it. We recently announced measures that will strengthen its enforcement. The new national living wage is an essential part of moving to a higher-wage, lower-tax, lower-welfare society. Work must pay for hard-working people in the UK. The national living wage will be introduced from April 2016 and will be set initially at £7.20 per hour. Apprentices aged 25 and over who have completed their first year will be entitled to this rate of pay. It will of course be properly enforced.
Amendment 49H is intended to enable the Government to make regulations to put in place apprenticeship training for supervisors of apprenticeship programmes. As my noble friend Lord Courtown said in his famous letter, complaints can also be made to the Skills Funding Agency, which is responsible for running the National Apprenticeship Service, which helps employers deliver apprenticeship programmes within their organisations. This includes a website and a helpline designed to support both employers and potential apprentices. Through the website, both small and large businesses can find a detailed breakdown of how they can best work with training providers to deliver an apprenticeship programme, including what the terms for offering an apprenticeship are. For businesses with fewer than 250 employees, the National Apprenticeship Service has a dedicated small business team, which specialises in meeting and supporting the needs of smaller employers.
Of course, we must remember that the majority of apprentices are, first and foremost, employees, as was emphasised by the noble Lord, Lord Snape. Employment and health and safety law apply to these apprentices just as they do to other employees—I am glad to have the opportunity to say that today—but we want to ensure that apprenticeships are as simple for businesses to offer as possible, as we know that this will lead to more opportunities for young people.
Amendment 50AA would require the Government to make regulations setting out further minimum standards for apprentices within 12 months of the Act being passed. I thank my noble friend Lord Hodgson for his support in this area, and I look back with approbation at the points made by my noble friend Lord Baker of Dorking at Second Reading in this important area about how we change things for the better and how we get quality right.
Turning to quality, it is worth saying that the Government have already taken steps to improve the quality of apprenticeships. Short-duration apprenticeships have been removed from the system; apprenticeships must provide substantial and sustained on- and off-the-job training and last a minimum of 12 months; apprenticeships must be real jobs, leading to competency in an occupation; and they need to deliver transferable skills, including English and maths, so that people can progress their careers.
I do not agree that apprenticeships have to be old-fashioned. I have been struck by the way employers are developing new standards to ensure that apprenticeships meet the skill needs of their sectors and provide quality. The published trailblazer quality statement sets out a range of measures to retain and improve quality, including the requirement for all apprenticeships to last at least 12 months. The new standards will replace existing complex frameworks with short, simple, accessible standards written by employers in language they understand.
The noble Lord, Lord Young, and my noble friend Lord Hodgson rightly referred to the Ofsted report. It criticises the quality of provision as it has been, not that which is being designed and put in place through our reforms. As I was explaining earlier, we are in transition. Putting an end to poor-quality training lies at the heart of our reforms. Ofsted’s report backs up the findings of our 2012 review and provides further evidence in support of our decision to put employers, rather than trading providers, in the driving seat.
My noble friend Lord Hodgson asked if he could offer a bright researcher an apprenticeship. An employer can offer an apprenticeship, providing that the employer satisfies the Skills Funding Agency’s rules and requirements to the approved English apprenticeship standard. People can always complain to the SFA if they are not happy. On the face of it, I think my noble friend should be encouraged, but clearly the apprenticeship must be of the right quality and duration; he must be a model employer.
We are also introducing more rigorous testing and grading at the end of the apprenticeship to ensure that apprentices are reaching full occupational competence—again, the detail was set out in the letter from my noble friend Lord Courtown. I can also confirm that, from 2018, we will use apprenticeship outcomes data to produce performance tables for 16 to 19 year-olds. This will sit alongside apprenticeship success rates, which are already published by BIS, and will help to inform choice for young people and employers and drive up the quality of provision.
The success of the minimum standards and the further provisions to improve quality is beginning to be borne out by apprenticeship evaluation reports. In 2014, they found that 89% of apprentices and 82% of employers were satisfied with the apprenticeship respectively. I mention that, but I do not think that we should rely on it; the quality points raised are important. We do not judge that the Government should be committed to placing further requirements within a set framework. It is important that employers, providers and apprentices have the time to engage with the apprenticeship reforms.
On Amendment 50AC, the information requirements as currently set out in the clause enable the Secretary of State to understand whether public sector organisations are meeting their targets and to ensure that the bodies are publishing that information to increase transparency. The Government intend to minimise the administrative burden associated with reporting under the clause. Any additional information prescribed by the Secretary of State will be related to the apprenticeship target.
We have been discussing the need for more quality here, but people out there are also concerned about potential bureaucracy in the new arrangements, and we must have a balance. We are unable to agree that it is appropriate to mandate public sector bodies to provide and publish the additional information.
Finally, the noble Baroness, Lady Golding, asked about the link with prompt payment. There is no link—except that they are in the same Bill, which is good for us to reflect on—between the apprenticeship clauses and the late payment provisions, but they are both designed to promote enterprise and growth.
I hope that in the light of those comments noble Lords will feel able not to press their amendments this evening.
I bring to the attention of the Minister and, indeed, the Committee that of those affected by the closures in the steel industry among the worst sufferers are hundreds of apprentices. They have not got the same facility or ability to change and move employment. In the periphery of this debate, I ask the Minister to take a very good look and have some consultation on how apprentices can be placed, or give some measure of support for continuity of, if not the practical dimension of their learning, at least the academic dimension.
I am extremely grateful to the noble Lord, Lord Morris, for intervening. I can certainly say that this is a very important point. I know that the task forces set up to look at what can be done for employees who, sadly, lose their jobs are on to this point on apprenticeships. I know that in Redcar some new jobs have already been found, but I am certainly happy to talk to the noble Lord further. I am happy to put that on the record.
I do not know whether the noble Baroness has a copy of the letter that the noble Earl, Lord Courtown, sent to us, but in it he says:
“In addition, the Skills Funding Agency … runs the apprenticeships helpline which was given an expanded remit in the summer, enabling anyone involved in an apprenticeship—not just the apprentice—to raise concerns about any element of how the apprenticeship is being delivered”.
I did not get a response on the concerns expressed in the Ofsted report and in anecdotal accounts. The letter goes on to say:
“The SFA have rigorous checks in place and have embarked on a programme of staff training to ensure that these issues are dealt with effectively”.
I like the promise. I would put against it “CAD”—“check against delivery”. How will it do it, given the vast number of apprenticeships? That is not to dismiss the fact that Ofsted will also do some work on this, but there is a commitment in that letter.
Setting the standards is one thing. Having a defined framework in understandable language is great. The problem we have is those employers that might do that, but fail to deliver. It says in the legislation that they will be punished and fined. I am interested in that because it might help, but I am far more interested in seeing whether the Skills Funding Agency has the ability to monitor apprenticeships to ensure that they are delivering on quality as well as quantity and how it will do it. If the Minister does not have an answer that is okay; I am quite happy to accept it in writing. However, it is a part of the Government’s commitment to raising quality as well as quantity.
My Lords, I stand by what my noble friend Lord Courtown put in his letter. I will not delay the Committee by repeating it, although people are very welcome to a copy. Obviously, we understand that ensuring quality is an absolutely key part of our reforms. That is what we are saying. The SFA has an important part to play here. As I have said, Ofsted also has a part to play. We will be bringing in the quality control system that was described.
Although some people were concerned about the changes to apprenticeships, we are changing the system and we will have to make sure that the surrounding infrastructure is appropriate and appropriately resourced —we can certainly discuss that further—but that is why I did not repeat the points my noble friend made about the introduction of registers and quality control over training providers.
I thank noble Lords for contributing to this debate. It has certainly raised a number of issues, which we will probably have to come back to on Report. In the interim, of course, we will look forward to seeing what is now becoming a voluminous correspondence from the Minister. In the previous Parliament, she had to take on the very difficult task of matching the noble Viscount, Lord Younger, who set standards beyond any we had seen before. We look forward to her matching that.
We have given this area a good look. Although we may come back on one or two issues, I beg leave to withdraw the amendment.
Amendment 49G withdrawn.
Amendment 49H not moved.
49J: Clause 18, page 34, line 20, at end insert—
“( ) One year after this section comes into force, the Secretary of State shall publish a report on the impact of any apprenticeships levy associated with the new target in subsection (1) on the—
(a) quantity and quality of the apprenticeship scheme offered by public bodies and companies, and(b) the impact on existing funding for training designed for non-apprenticeship trainees.”
My Lords, our Amendment 49J and Amendment 52 in the names of the noble Lord, Lord Stoneham, and the noble Baroness, Lady Sharp, are really two sides of the same coin. The worry we share, I think, is that the apprenticeship levy system, which we have already discussed and which is raising some concerns among those who will be involved in it, may have an impact on existing training and expenditure. Obviously, if the result of bringing in the levy is to reduce the overall quantum of money that is going into training, that would almost certainly be a bad thing. We want to grow the training budget, not reduce it. I look forward to hearing what the Minister has to say about that, as well as about the issues that are raised in Amendment 52. I beg to move.
Amendment 52 is in my name and that of my noble friend Lord Stoneham. As the noble Lord, Lord Stevenson, said, both these amendments are asking for a review. We have been talking about the quality of apprenticeships. I say in passing that although many of us have been rather negative, there are quite a number of extraordinarily good apprenticeships in operation.
I spoke earlier about what happened at the Olympic Park, and that is an example of how apprenticeships can be created, but one only has to look at companies such as BAE Systems and Rolls-Royce, which offer an absolute gold standard in terms of apprenticeships. Other companies are aspiring to do the same, and those sorts of apprenticeships are extraordinarily good. They offer not only higher-level apprenticeships but a route to progression. Sadly, there have been some bad examples—picked up by, among others, Ofsted—and it is important that in pushing forward the number of apprenticeships, they aspire to best practice rather than picking up worst practice. The idea of producing an annual review and asking the Secretary of State to report on such an annual review is to pick up this whole notion of the quality of apprenticeships and make sure that they are the sorts of apprenticeships that one would like to see.
The other aspect of this is that this part of the Bill is expressly about creating apprenticeships in public sector bodies. Our Amendment 52 asks for a review of how far this is working within the framework of the public sector and what impact it is having in both public and private sectors. However, I think we have had enough discussion of the general issue of equality and the need to promote equality that I do not need to go any further.
My Lords, I am grateful for these amendments and for the noble Baroness, Lady Sharp, saying that there is much that is good. Actually, it is not only at the top end—the engineering apprenticeships that she described—but some of the retailers and the hospitality companies produce superb apprenticeships, which take some of the poorest and least well educated people in society and allow them to get on and progress in an awesome way.
We have discussed many of the issues underlying Amendment 49J because it talks about quality as well as quantity and, of course, Amendment 52 mentions funding. The Chancellor announced the Government’s intention to introduce the apprenticeship levy in this summer’s Budget—a surprise announcement, I think. It will be used to fund and improve the quality of apprenticeships. We need a reversal, as we have all been saying, in the trend of employer underinvestment in training, which has seen a decline in the amount and quality of training undertaken by employers over 20 years. This was highlighted in the report by the noble Baroness, Lady Wolf, published in July this year, which recommended the introduction of a levy to fund the apprenticeship programme.
Past approaches to tackle this decline have relied on voluntarism and a significant government subsidy aimed at encouraging private funding. However time spent by employees in training has continued to decline. The levy is a model that is working successfully in more than 50 countries around the world, which is why we have decided to adopt it here. We will be putting employers directly in control of their apprenticeship training. Employers are currently leading in the development of apprenticeship standards. With the levy, they will be able to decide to which apprenticeship training providers they wish to direct funding.
The Government consulted on the key levy proposals during the summer and we received more than 700 responses. We are currently analysing them and will use what employers and others have told us to try to address concerns and meet employer aspirations for growth and quality. The Chancellor will be announcing further details on the levy as part of the spending review announcement later this month. I believe it is premature to seek to impose a reporting schedule on the impact of the levy. The levy will not be introduced before 2017 and there is further work to be done on the detailed implementation of the policy. At this stage, seeking to impose new reports within a 12-month period would be unlikely to provide robust evidence.
However, I can say today that we will continue to publish comprehensive quarterly data on apprenticeships through the Government’s published statistical first releases, published by the SFA, which include data on learner numbers by age, as well as by region, gender, ethnicity, disability, level and sector. We also publish research into the impact of apprenticeships on employers, including the employers’ survey, which monitors the extent to which apprenticeships are meeting the needs of employers and identifies aspects that are under- performing, with the next survey due in 2016.
When we introduce the apprenticeship levy, we are proposing to put in place a full and structured evaluation programme and publish the results. We expect this to address the points raised by noble Lords in relation to the impact on employer investment, the mix of programmes being delivered and their quality. I ask for patience, as we intend to publish more details on the levy shortly. Amendment 49J also referred to funding for non-apprenticeship schemes; funding for those will also be a matter for the spending review. The noble Lord’s Amendment 52 relates to apprenticeship schemes in England and Wales. While apprenticeships in England are the responsibility of the Secretary of State, apprenticeships in Wales fall within a devolved area of policy.
I hesitate to interrupt, but I want to make sure that I have got my point across correctly. In relation to the non-apprenticeship spending, I was not asking what the Government are spending on that. It was a question of the quantum of spending across the country, which obviously largely is sui generis to every company. The worry is that the impact of the Government taking what is effectively a tax on apprenticeship training may impact badly on that. Although it may be very hard to get since responsibilities are split between BIS and DfE, in the figures that the Minister is talking about, it would be very helpful if there could also be some reporting of the exact quantum at the moment and how that will change over the next few years. I am sure it would be a good thing to do anyway.
We always like to do post-implementation reviews. We like good evidence and good figures. The point is well made. Where responsibilities are shared between departments, that can sometimes be difficult. I cannot emphasise more strongly that we are trying to create a successful policy, which will require us to see what is happening. Clearly, the past is the past. We have been spending something like £1.5 billion a year on apprenticeships. In the future the system will be different. There will be a levy. I will certainly try to ensure that in our evaluations we find out how things are changing and how effective that has been. We should be learning on the job.
Amendment 49J withdrawn.
Amendments 50 to 50AC not moved.
50B: Clause 18, page 35, line 42, at end insert—
“A10A Public sector support to help establish apprenticeships in small businesses
(1) The Secretary of State, acting in conjunction with the Small Business Commissioner, may by regulations require a prescribed public body to provide arrangements which facilitate small businesses (as defined in section 2 of the Enterprise Act 2015) entering into apprenticeship agreements.
(2) The arrangements specified in subsection (1) may require the prescribed public body to provide resources on an interim basis to help the small businesses establish a joint body to oversee and manage the negotiation of apprenticeship agreements which meet the conditions set out in section A1(3)(a) and (b), and to ensure that the terms of the agreements are adhered to.
(3) Any resources provided under the terms of subsection (2) shall be for a specified period.”
My Lords, Amendment 50B relates to an issue on which we touched earlier; namely, the question of small and medium-sized businesses and the availability of apprenticeships. The difficulty is that many small and medium-sized businesses find it quite difficult to organise apprenticeships. The Government have done their best to cut back the amount of bureaucracy involved; nevertheless there still is quite a lot. One only has to read Clause 19 and see precisely what is and is not a statutory apprenticeship to recognise that there is a lot of paperwork, including, initially, the setting up of an agreement, the contract with an apprentice and getting the terms of the contract correct and so forth, and subsequently making sure that the various points in the agreement are fulfilled. If you are a small or medium-sized business employing a dozen people or less, the extra bureaucracy seems formidable.
Until recently, training providers—further education colleges and the independent training providers—often handled the paperwork for a small and medium-sized business in return for them providing the work-based training. But with the development of employer ownership, training providers are no longer encouraged to do this. Another solution lies in group training agencies. This model has been around for 40 years, primarily in the engineering industries, but it has now spread out on a more general basis as a model of industry provider/partnership. As Ofsted put it, they have,
“responded very effectively to the training demands of industry. Training companies”—
that is, independent training providers—
“that are members of GTA England generally provide high-quality training. Of the 23 GTAs that were inspected between January 2010 and April 2015, 21 (91%) have been judged good or outstanding for overall effectiveness. This compares with 79% of the 386 other independent learning providers inspected that were judged good or better over the same period”.
The amendment proposes that a specified public body—probably a local enterprise partnership, or its equivalent; but it could be a local authority or a further education college—should be tasked with the setting up of a GTA in their local area to build up the appropriate partnerships with industry, and especially to bring in the SMEs and their local partners. I note that in some cases where SMEs are part of supply chains, they are organised by the larger companies and may operate on quotas set by them for taking on apprentices, but in any locality, many small and medium-sized businesses could be good trainers. In Germany, on the whole, it is the smaller companies that are doing the training. They could be involved in apprenticeships, but many of them are not at present because they find the barriers to entering apprenticeship agreements too great. I beg to move.
My Lords, I support the amendment. To pick up the last point made by the noble Baroness, Lady Sharp, about group training associations, I went round a number of them while I was a junior Minister. The Government ought to encourage them. The noble Baroness is right: although the bigger employers use their supply chains, the benefit of the group training associations is that they bring in a much wider group of small and medium-sized employers. I would welcome hearing what steps the Government are taking to encourage the development of more group training associations.
Small businesses are of course the cornerstone of our economy, and high-quality training opportunities such as apprenticeships can be key to supporting their growth and success. It is essential that the apprenticeship system works for those employers as well. The majority of existing apprenticeships are in fact with smaller businesses. Significant progress has been made in ensuring that apprenticeships are accessible to them.
Small businesses are directly involved in all phases of the process to develop apprenticeship standards. When new standards are submitted, evidence is required that small businesses have been involved and that they support the development of that standard. I know that from the work that I have done in the electronics sector. A variety of mechanisms is used to engage small business throughout that development—face-to-face consultation events for automotive standards and online consultation for electrotechnical standards. Small firms have been actively involved in the craft trailblazer. We engage with representative organisations that represent smaller businesses. We have even made a small travel fund available, which smaller employers can use to attend meetings to develop standards.
Most important of all, the apprenticeship grant for employers also provides employers with fewer than 50 employees with a £1,500 incentive payment for up to five new apprentices aged 16 to 24. This will continue to be available until 2015 at least.
There is also a wide range of apprenticeship training agencies—ATAs—and GTAs, as the noble Baroness, Lady Sharp, made clear. They employ apprentices and place them with host employers who may be unable to commit to employing an apprentice directly. For employers, this makes it easier to take on an apprentice. Good-quality ATAs will be able to continue to operate once the apprenticeship funding reforms have been introduced. The SFA also runs an apprenticeship helpline.
There are also lots of good examples, including case studies of apprentices and employers, on the SFA’s “Find an apprenticeship” website. I have various publications here which I am happy to share.
We believe that this is the right approach to SME support. We think it would be complex and confusing to require public sector organisations to duplicate the effort and provide additional resource to facilitate small businesses entering into apprenticeship agreements. We are putting small business at the heart of the way we are going forward. For the same reason, we are unconvinced of the merits of involving the Small Business Commissioner, whose main role is to address payment issues, particularly late payments, and to focus on that until we bring about a serious culture change. I hope noble Lords will have found my answer helpful and that the noble Baroness will feel able to withdraw her amendment.
I think there is a problem that is missed by the current arrangements; that is, within any locality there are quite often small and medium-sized businesses that are put off by the bureaucracy involved and do not get picked up by any of the current arrangements. Yes, there is masses of information and you have to be proactive in seeking it out. The amendment is very much a “may” amendment rather than a “must” amendment but in some rural areas and areas that fall between the core cities—in which the push is going forward because they are taking over skills—this is often not the case. I see it where I am, in Guildford, because we fall betwixt and between the Coast to Capital LEP and the Enterprise M3 LEP. However, many small and medium-sized businesses might well benefit if they were pushed a little bit in this direction. Neither the independent training providers nor the colleges are really being encouraged at the moment to pick up the tab of going to seek out people to provide apprenticeships for, in the switch to the employment ownership pilots. This is an area where a particular public body—local enterprise partnerships are an obvious example—could be useful in providing the initiative.
I will withdraw the amendment for the moment but we might return to this issue on Report because I am not really convinced that this is an appropriate answer.
Amendment 50B withdrawn.
Clause 18 agreed.
Clause 19: Only statutory apprenticeships to be described as apprenticeships
51: Clause 19, page 36, line 10, at end insert—
“( ) In describing an apprenticeship that is a statutory apprenticeship scheme, P must also stipulate whether the apprenticeship is a higher level apprenticeship or not.”
We have already talked about the Ofsted report and the rather negative picture it paints of problems with the present level of apprenticeships, but one thing we have not talked about very much is the importance of trying to fill the skills gaps by the training of those at the higher levels.
The big skills gaps are particularly in engineering and construction and at technician level with STEM subjects. These gaps used to be filled by the concept of the HND, or the equivalent of the foundation degrees, but we have seen an enormous drop in the number of HNDs and foundation degrees being undertaken in the past few years. The number of young people going through to these higher-level apprenticeships—above level 3—is absolutely minute, yet it is vital that many more young people should progress through. Having done a satisfactory apprenticeship, perhaps coming in with their A-levels, they could go directly into a level 4 or level 5 apprenticeship; or those who have started by doing a level 2 apprenticeship, enjoyed it and gained a lot from it, could be given the opportunity to move up to level 4 or level 5, the degree-equivalent levels. We are extremely anxious that the vocational route should be seen as equivalent to the typical academic route. It is very important that it acquires this status. Only if we see a fairly substantial number of young people being able to move through the progression routes in apprenticeships to these higher-level apprenticeships will we see this.
The amendment, which calls for a report on the number of higher-level apprenticeships that shall be stipulated, requires us to concentrate on this issue. I beg to move.
I support the noble Baroness’s amendment. She is right about the need to increase the number of higher-level apprenticeships. As I understand it, from a briefing I had from SEMTA, part of the problem is getting young people to see that this is not an either/or choice between a vocational and an academic route. People with the highest level of qualification feel that, if they are to progress to a degree, they have to go down the academic route. There are lots of opportunities for them to go down the higher-level apprenticeship route. The apprenticeships are there; we are not getting the take-up. This is another point on which to emphasise the importance of career guidance if we are to solve this problem.
The noble Baroness is right to draw attention to this part of the regulation. It is a useful and necessary emphasis. I referred earlier to the number of engineering and STEM apprenticeships that will be needed over the next five to 10 years. It is estimated to be 830,000. Not all of those will be higher level, but a significant number will.
My Lords, this amendment seeks to require that a person, when offering a statutory apprenticeship scheme, must stipulate whether it is a higher-level apprenticeship. This is already a non-statutory requirement for the “Find an apprenticeship” service and is covered through an apprenticeship agreement. The amendment would insert a new subsection into new Section A11 of the Apprenticeships, Skills, Children and Learning Act 2009 to provide that a person commits an offence if, in the course of business, they offer a course of training and describe it as an “apprenticeship”, unless the course or training is a “statutory apprenticeship”. I do not believe that that is the right thing to do.
Improving quality is central to our reforms, as we have agreed. Employers are developing new standards to ensure that apprenticeships meet the skills needs of their sectors, in exactly the areas that the noble Baroness, Lady Sharp, spoke about: engineering, STEM and construction. In STEM, for example, apprenticeships have increased by 42% between 2009-10 and 2013-14. The starts at age 19-plus are up 83%. This is a long-term change programme. We all know how long and difficult those are.
The published trailblazer quality statement sets out a range of measures to improve quality, including the requirement for all apprenticeships to demonstrate progression and to involve sustained and substantial training of at least 12 months. The Government are committed to the expansion of higher apprenticeships, with a fivefold increase in higher apprenticeships since 2009-10. To date, there are more than 50 higher apprenticeships available up to degree and master’s level in areas such as life sciences, law and accounting. We need to get the message out that there are these possibilities and that they can create just as good a career as going to university if someone has the appropriate bent for apprenticeships.
In the circumstances—it is getting late—I ask the noble Baroness to withdraw the amendment.
I thank the Minister for her reply. I think that we are very much in agreement here that this is an area where we wish to see expansion. I also agree that it is a slightly strange place in which we have managed to put this amendment. With that, I beg leave to withdraw the amendment.
Amendment 51 withdrawn.
51ZA: Clause 19, page 37, leave out lines 1 to 8
My Lords, we have heard a lot today about the new world of apprenticeships and the many good things that will happen as a result of this Bill, and, as I said at the beginning, we are not opposed to what is being proposed. There are questions about how it will happen—and we have talked a lot about that—but the key element that we have all agreed on is that these new statutory apprenticeships must be of high quality. However, the question is: who is going to police that and report on it, so that we maintain quality? Obviously, we are aware that the Skills Funding Agency will play a part, but it is not clear to me what its role is. I hope that, when the Minister responds, she can sketch out a little bit what the SFA’s role will be in this area.
We have also heard that trading standards bodies, probably in the form of the Trading Standards Institute, will have some part to play, and that is what this amendment seeks to probe a little bit further. As I understand it, trading standards bodies have accepted a responsibility in relation to universities, but it is important that we also get the issue right here. However, I gather that the TSI’s role there, which is exercised through the individual trading standards bodies at local authority level, is to check whether a particular organisation—mainly, one that exists in bricks and mortar close to the locality of the trading standards officers who are investigating the case—is a registered university in the sense that it has a royal charter and performs all the functions required under the Act. In other words, trading standards provides an institutional check; it is not a question of looking at the individual courses that any university might provide, and it is certainly not looking at the classroom accommodation or laboratories or—heaven forfend—the social facilities that every university must have these days. It provides a one-off, tick-box exercise: does this organisation or building fulfil the requirements of a statutory university?
As I understand it, the requirement on checking whether statutory apprenticeships are working well will be to look at the particular apprenticeship in terms of the training provided both on and off the job. That will involve looking at the individual companies and the colleges that the apprentices attend, so we have a rather different job here, and it is not at all clear to me why the TSI is the right body for this. That may be why the noble Lord, Lord Stoneham, and the noble Baroness, Lady Sharp, put down their amendment suggesting that a more appropriate body might be the enterprise partnership, which will at least have a knowledge of what is happening more generally in the area and will have a concern about the employers who are operating apprenticeships and what sort of services and provision they provide.
There are a lot of questions around this. I am not sure what role the TSI will have, but if it will have a role, can the Minister explain what exactly she has in mind here? Will this duty be placed on all the weights and measures operations in every local authority across the country or will it be taken up by the new Trading Standards Institute? If it is either the former or the latter, what funding will be provided? Will the funding be on a targeted basis, will it be a lump sum, or will it be for a certain number of posts? We need more detail here. We need to be quite clear that, if there is going to be just some sort of notional adjustment to the revenue support grant that goes to local authorities, it will certainly not trickle out in sufficiently large amounts to the actual trading standards officers who will again be expected to pick up an additional duty without the resourcing required for it.
There are a lot of questions there, but the point is made in both my amendment and that in the names of the noble Baroness, Lady Sharp, and the noble Lord, Lord Stoneham, that we need a bit more detail here. I beg to move.
My Lords, the noble Lord, Lord Stevenson, has already made the case for Amendment 51A. When I read this part of the Bill, I was jolted and thought, “Good heavens, why trading standards?”. In the briefing that it provided for us, the LGA was very unhappy about it being trading standards. It said:
“We are concerned about the proposal (clause 19 (7)) in the Bill to make local trading standards teams responsible for enforcing the protection of the term ‘apprenticeships’. The LGA has consistently highlighted the expanding number of statutory duties that trading standards teams are responsible for, at a time when budgets and staff in the service have reduced by an average of 40 per cent over the last four years. Government has recognised the issue and is currently undertaking a review of trading standards with a view to identifying key service priorities, yet in the past month alone it has introduced two new statutory duties for the service”.
It seems very odd for the Government to be introducing a statutory duty in an area where trading standards has no expertise whatever. Local enterprise partnerships have much more knowledge of what is going on with apprenticeships than trading standards. It is really rather absurd that we are looking to a body with no background or expertise in the area. We should be looking for a body that has some expertise and can do the job without too much difficulty.
It should be acknowledged that local enterprise partnerships are at the moment very sparingly funded; they do not have a vast amount of money at their disposal and, whether one likes it or not, this responsibility will require some resources, particularly if the body is required to make regular reports to the Secretary of State about what is going on. If we place that duty on local enterprise partnerships, we should know that they have sufficient resources to fulfil it.
My Lords, this is an important area; enforcement is always important. The amendments relate to the enforcement of the measure to protect the term “apprenticeship” from misuse. They would require local enterprise partnerships to fulfil that function rather than trading standards. Noble Lords will know the high opinion that I have of trading standards, and I am glad to be able to put it on the record again.
As the apprenticeship brand grows, so does the risk that the term “apprenticeship” could be misused to refer to lower-quality courses. Therefore, as the noble Lord, Lord Stevenson, explained, we intend to follow the precedent for enforcement that applies to unrecognised degrees, which is in the Education Reform Act 1998. Trading standards has a duty to enforce that legislation using its powers in the Consumer Rights Act 2015. That has ensured that UK-based operations with a physical presence are closed down, and there have been a number of prosecutions over the years. Since 2003, there have been successful enforcement cases against more than 18 offending bodies, with the closure of 10 and prosecution of a further three. In practice, although the duty extends to all trading standards teams, to answer the question asked, cases have tended to be concentrated in a couple of areas.
We are exploring whether it would be sensible to assign one trading standards team to act as the lead authority, with the ability to build the enforcement capability and expertise to deal with the challenge. This would be in line with the approach taken for other functions, such as the Illegal Money Lending Team, which is based in Birmingham City Council—another namecheck for that council—and tackles cases across England.
To respond to the noble Baroness, Lady Sharp, we judge that trading standards bodies would be more appropriate to enforce the measure than local enterprise partnerships because of trading standards’ specialist enforcement powers, history and experience. Trading standards will be there to carry out enforcement as a backstop, but with the SFA there—to respond to the question from the noble Lord, Lord Stevenson—to encourage compliance. As set out in the impact assessment, we anticipate that the number of prosecutions will be very few, because we know from experience of degrees that this can have a totemic effect. We are in active discussions with the Department for Communities and Local Government, the Local Government Association and the Better Regulation Development Office to ensure that the requirements of trading standards in this area are achievable, effective and proportionate. I hope with that explanation of how we plan to take these provisions forward, the noble Lord will feel able to withdraw his amendment.
I thank the Minister for her very comprehensive response. Given that the Government are consulting and in discussions, would it be possible to get a bit more information before Report, and for the Minister to tell us wherever they have got to on that level? This is a recurring theme: one of the great advantages of starting a Bill in the Lords is that one gets to have first go at it but the bad news is that you do not get all the detail that would make our jobs much easier. With that slight aperçu, I would be grateful to have any more information.
Amendment 51ZA withdrawn.
Amendment 51A not moved.
Clause 19 agreed.
Amendment 52 not moved.
52ZA: After Clause 19, insert the following new Clause—
Where a company enters pre-pack proceedings the following conditions must be met in order to protect the company’s creditors—(a) the owners of the company must approach the company’s investors for approval prior to entering any pre-pack proceedings;(b) any personnel advising on pre-pack proceedings shall not become the administrator in subsequent pre-pack sales;(c) any administrator undertaking a proposed pre-pack sale to connected parties must justify that the prospective sale price represents the best value for creditors; and(d) the administrator must make provision for at least three days’ notice to be given to creditors of the terms of any such proposed sale if there has been no open marketing of the assets.”
We now leave apprenticeships for the time being and turn to a familiar topic from previous engagements with enterprise and related matters: the sad side of things when matters go wrong. I am afraid that the areas covered in this amendment are familiar territory for those who were on that journey, but I make no real apology for that, although I was hoping that my noble friend Lord Mendelsohn would be here to introduce the amendment and that I would not have to do it myself. However, I shall struggle on, and hope that I shall cover the ground, even if not as well as he does.
The first amendment is on pre-packs, which comes at a rather interesting point, because there is a press release dated today that sets out arrangements for how pre-packs will be looked at by the Government on a voluntary basis, following the review carried out by Teresa Graham in 2014. Why would we want to interfere with that? We are talking about a relatively small number; the figures that I saw in the press release suggested that about 20,000 businesses went through insolvency in a year, with less than 5% involved in pre-packs. Doing maths in my head, I think that is about 1,000 instances of pre-pack in a year, so it is not a lot.
The issue with pre-packs, which is worth repeating, is that uniquely in the British insolvency system—the British insolvency system is largely admired around the world, so we do not want to attack it in generality—is that creditors have a pretty bad deal. We have argued in Committee and on the Floor of the House that more protection should be given to creditors when a pre-pack is considered. The argument made by my noble friend Lord Mitchell last time was that you can have a situation whereby, on a Friday afternoon, a company known as Smith and Jones is operating, but by Monday morning it has become Jones and Smith, with the same people running it and many of the same directors and perhaps even the same bank. But the creditors—and probably one of those creditors will be HMRC, along with a few other people—have been dumped.
The argument in favour is that businesses that have a future will continue; the bad news is that those who are involved in supporting the previous business, which is going to disappear—particularly trade suppliers and others who might be on credit terms with Smith and Jones—will not be able to pursue Jones and Smith, because it is a different company. Does that matter? I think it probably does because the creditors will probably be small companies employing people. If they are suffering, the economy is suffering as well, so there is an issue there.
The question before us is whether the proposals announced today will be sufficient. Duncan Grubb, a director of Pre-Pack Pool Ltd, the body that will be responsible for what will be a voluntary system, said:
“Pre-pack administrations are an important part of the economy, helping rescue businesses and jobs. Business owners and creditors, however, need to trust and have confidence in the process”.
You can say that again. He argues:
“The reforms strike a balance between transparency and the discretion needed for business and job rescue. While the Pool is voluntary and its opinions are not binding, it will reassure creditors about the reasonableness of the pre-pack transaction and its justification in the circumstances. And with enhanced guidance for directors on marketing and valuations, creditors can have more confidence that a pre-pack sale achieves the best deal for them too. As a whole, today’s reforms will further boost confidence the UK’s internationally-admired insolvency regime”.
I do not know about that. I think it is a bit vainglorious. I do not think it gets to the bottom of the point that I have been trying to make.
Our amendment goes through in some detail the things that we think ought to be in place in order to establish a proper pre-pack system. It is not unreasonable that people involved in pre-pack proceedings advising this new organisation should not subsequently have a role in any sale. We think that the administrator or any administration involved in this must make provision for at least three working days’ notice to be given to creditors of the terms of any proposed sale, if there has been no open marketing of the assets, which there rarely is. We have a proposal that we think would be useful to consider. Given that the Minister is just announcing a different system, I do not expect she is going to accept it with open arms, but we think it is important that it be considered.
The other amendments in this group involve insolvency protection for small business contracts. Amendment 52ZBA is a manuscript amendment because there were difficulties in getting the wording correct. It involves a situation on a relatively small scale, but it has resonance with a recent company which went into administration. It was rather celebrated because a lot of employees were involved and it went down very quickly. It turned out, I think I am right in saying, that part of the reason for the speed with which the employees were dismissed was that if the company were clever in its timing, the cost of the statutory redundancy fell to the Government, not the shareholders. There is a gap, a loop hole, here which it would be helpful if the Minister could take away and consider because a measure may need to be introduced, whether in this Bill or another, which nails it. It would be quite wrong for the owners of a company to benefit simply because of bad drafting in previous legislation. I think that we agree that if you are in market capitalism, you expect to invest and make a return in the good times, but if there are bad times, you have to take the hit. I sure that everyone would agree that if you can avoid the hit by offloading it to someone else, that is not quite the same thing as taking a hit because of bad practice. There may be other issues that are raised by this, but if it can be taken back and looked at, that would be very good.
The third amendment in this group is Amendment 52ZD, which arose from discussions we had on the Small Business, Enterprise and Employment Bill about whether it would be possible to take elements of the Chapter 11 system in the United States into British insolvency law. This is not attempting to take in the entire American version of insolvency arrangements, because we do not think that they are appropriate for the way we do things in Britain, so let us not get involved in that, but there are issues, particularly in high-tech small businesses, where it is sometimes quite difficult to see why businesses collapse as quickly as they do—or can do—in Britain.
The great advantage of Chapter 11 in America is its ability to assume that a business should continue under the protection of the courts—in the case of America, but we would suggest under the protection of insolvency practitioners—for a limited period while those who have the best interests of the company at heart attempt to get it back on to a more workable basis. Our knowledge of this is not extensive but the experience I have been able to pick up on is that the problems mainly emerge where you have a single creditor, usually a bank, which sees physical assets and does not wish to prolong the possibility that the company might get itself sorted out over time. In an environment, particularly in this economy, where there is not that much additional support for small businesses and growing businesses, where there is not a lot of mezzanine finance, that is obviously a very difficult situation for them.
Our proposal here is a new idea called “debtor in possession”, which suggests that where you have certain limited and restricted issues, elements of the Chapter 11 administration in America could be brought in here so that businesses which have the chance to do so, particularly where they have assets that would otherwise be seized by an aggressive creditor, are able to use that to try to lever out additional resourcing and get themselves going. These are interesting ideas, which we hope will grow the economy and be effective in terms of enterprise. We recommend them and I beg to move.
My Lords, I am very concerned about the pre-pack administration idea. I understand that it has a superficial appeal in terms of saving jobs but the reality is that jobs can also be lost among the creditors. The appearance is that jobs may have been saved but very often the creditors—the small businesses that are the suppliers of the company in pre-pack administration—can be out of work. They are below the water—the part of the iceberg that you do not see. The noble Lord said that creditors have a bad deal in a pre-pack. They do not have a bad deal; they have no deal at all. Not only do they have no deal at all but the pension obligations pass to the pension regulator, which in turn is passed on to other firms.
In my experience of pre-pack administration, the arrangements are, frankly, utterly superficial and exceptionally difficult to police in terms of whether or not a fair value is being achieved for the assets that are being sold. I am not clear yet that we have got to the bottom of what I call repetitive pre-packs, in that directors and managers who are not very good businessmen go through the pre-pack arrangements at reasonably frequent intervals. I hope that this is something that the Small Business Commissioner might be able to think about because I think he will have some role to play here and we did not pick up on this point when we were discussing that part of the Bill.
I have not seen the new proposals that have been produced today but I think that the issue that the noble Lord has raised in Amendment 52ZA is something that we need to consider very carefully. I have a couple of questions for him about his amendments. Amendment 52ZA(a) states that,
“the owners of the company must approach the company’s investors for approval prior to entering any pre-pack proceedings”.
What is the difference between an owner and an investor? The investors own the company. I am not quite clear what the distinction is. I may be missing the point about what the distinction is between those two categories in terms of what the noble Lord is seeking to achieve, but I understand the force of some of the other points he is making in Amendment 52ZA(b), (c) and (d), and I think they are of interest.
Under Amendment 52ZD, which concerns the “debtor in possession”, one issue is how the company continues to trade in the circumstances, because it has to take on new obligations. One of the things most feared by company directors, and quite rightly, is trading while insolvent. Therefore, will Amendment 52ZD give directors protection because as you approach the edge of the company’s solvency, your lawyers, advisers and accountants will say, “If you cannot prove that you had thought that you could make good and pay the creditors as they fall due, you are committing a criminal offence and the law takes a very serious view of that”? Perhaps the noble Lord could explain a bit more in a minute as to how that protection is going to be provided under Amendment 52ZD and, in particular, where the company is expected to continue, how security is going to be given to suppliers working for the company and providing further services or goods for which they may or may not get paid at some date in future.
However, there is a central point in Amendment 52ZA. Notwithstanding what may have been proposed today under the new regulations, we have been slightly seduced by the attraction of pre-packs. I think that the hidden damage that they do to a lot of suppliers and smaller companies is something that we have tended to overlook. The noble Lord made an interesting point in the amendment, but there are some issues to be clarified.
I rise to talk about this clause, which comes at a strange place in the Bill. We did actually discuss much of this in the Small Business, Enterprise and Employment Bill, and I made the probably too political point then that we have not seen much of insolvencies recently, but that does not mean that we will not—we will, because the cycle will turn round and there will be more insolvencies. So now is a good time to think about how to avoid some of the mistakes that were made last time round.
I had not realised that this report had been published today. I think it might be the Teresa Graham report. Teresa Graham has come up with some extremely helpful ideas, which we discussed during the Small Business, Enterprise and Employment Bill. The best ideas included having a panel appointed to approve any pre-pack and that panel comprising people either of the R3 Group or the Turnaround Management Association or some such other organisation. I think there is a need for a panel. The other suggestion was that a review needs to be undertaken by an independent third party to assess the viability of any business going through a pre-pack.
I think there are not that many pre-packs in number, but they can be extremely helpful. I declare an interest as I am on the board of a retailer—not that my business has done this. For many retailers, they are particularly helpful because of the peculiar nature of UK property law, which is that people get stuck in these long-term contracts under different conditions and the only way they can get out of these contracts is to use a pre-pack. Therefore, they have a purpose and they have a role.
If I can help, because I shared the confusion of my noble friend Lord Hodgson, I think what is meant in Amendment 52ZA by “the owners” is the majority owners, the shareholders, who must approach the minority investors. In the absence of the noble Lord, Lord Mendelsohn—if I can read his mind—that clearly makes sense but, of course, it is going to be extremely difficult where public companies go through a pre-pack, which does happen, for them to contact all the investors. In paragraph (b), where it says,
“any personnel advising on pre-pack proceedings”,
I am not sure whether that is meant to include accountancy firms, and whether personnel means internal or external. I have argued for many years that there should be much greater investigation into the role of accountancy firms in insolvency situations. They are often called in by the banks to investigate a company, but they have an incentive for their report to recommend an insolvency procedure because they are immediately subsequently appointed as the administrator, receiver or liquidator. I can see the economic argument for and benefit of that, but I have also seen instances where, frankly, the accountancy firm concerned has just pushed a perfectly good company into administration and extracted millions of pounds of fees—I do not exaggerate—through that insolvency procedure.
These amendments are welcome to the extent that they raise these questions. There is a particular problem with the interaction between current insolvency legislation and the current employment legislation, which leads to the sort of situation discussed earlier. There needs to be a much more holistic approach to both employment and insolvency law because people in such circumstances are often under extreme pressure of all sorts. It is difficult for them to clarify their legal position at extreme speed. We must try to find a way to assist people.
I particularly welcome and am interested in Amendment 52ZD, which seems to have its roots in Chapter 11. That is a proposal that merits further discussion and reflection, perhaps on another Bill at another time, but it is good to see it raised in a Bill that has the title “Enterprise”.
My Lords, I welcome the spirit of these amendments, which intend to improve the functioning of insolvency. I am delighted to be able to confirm that today a number of industry reforms to pre-packs, recommended by Teresa Graham and her review, have been introduced. I am glad to hear support for those changes from my noble friend Lord Leigh of Hurley. Creditors will inevitably lose some money when a company fails, and this is unavoidable. However, in delivering these voluntary pre-pack reforms, creditor bodies and the insolvency industry have come together in a good way to support the reforms. I agree with my noble friend Lord Hodgson that creditors need confidence that the best deal is obtainable.
Another cause for celebration is that from today a further reform introduces new guidance on marketing to ensure that creditors can be confident that they are receiving the best price for the sale of the insolvent business, but these changes need to be given time to take effect before yet further changes are considered. The Government will undertake a review once these have bedded in.
On small businesses, the redundancy payments scheme provides valuable assistance to employees when their employer enters insolvency. All employees can access the scheme. There has recently been consultation on collective redundancies and the outcomes for employees in an insolvency. The findings will be published in due course.
The existing law on the priority of payments to creditors in an insolvency seeks to ensure that there is a fair distribution of a company’s assets. Any change to give preference to the types of small business set out in the amendment would, of course, have to be at the expense of other creditors. Giving priority to such creditors would have wider consequences, such as increasing the cost of suppliers from other creditors, or higher costs of borrowing for businesses in general. The Government do not consider that an evidence-based and sufficient case has been made for changing the long-established order of priority in that respect.
On Amendment 52ZD, it is obviously important that, if a viable company is unable to pay its debts, it is given an opportunity to continue as a going concern. That is why the insolvency regime already provides for a moratorium. It is important that any extension of the existing moratoria offers appropriate safeguards and protections to creditors. Otherwise, there is a risk that businesses will find financing more difficult.
I am so sorry that the noble Lord, Lord Mendelsohn, is not here, because he has made a valuable point with his work on “debtor in possession”, elaborated in a helpful note that he sent me over the summer. I agree that viable businesses should allow sufficient time to develop a rescue plan, and I am therefore very pleased to be able to say today that, while we cannot accept an amendment to this Bill, the Government are already reviewing this area and we will announce our proposals in due course.
I hope that the noble Lord has found my explanations reassuring in this area, and on that basis feels able not to press his amendment.
I cannot really call these probing amendments, because they were not really probing anything—they were really there to stick pins into people to get them to take a bit more interest in this area. But I think that my pins can now be removed. As has been said, the amendments are of interest and, where appropriate, they can be looked at again. I am delighted, and I am sure that my noble friend Lord Mendelsohn will be particularly pleased, that the ideas behind the proposal of a business debtor in possession can be given a bit more thought—and they certainly need it, since they were not meant to be finished in any form.
I was slightly trembling when the noble Lord, Lord Hodgson, said that he had a few questions that he wanted me to answer, because I am not the sort of person who can answer them, but I was lucky to have friends in the Room and did not get too far behind.
I thank noble Lords for the debate, which was meant genuinely to add something in the medium term. With that, I beg leave to withdraw the amendment.
Amendment 52ZA withdrawn.
Amendment 52ZBA, in substitution for Amendment 52ZB, not moved.
Amendment 52ZCA, in substitution for Amendment 52ZC, not moved.
Amendment 52ZD not moved.
Clause 20: Insurance contracts: implied term about payment of claims
52A: Clause 20, page 37, line 40, after “insurance” insert “except an excluded contract”
In moving the amendment, I shall speak also to Amendment 52C. I declare my interests as in the register. I am seeking to carve out business that is placed today in London’s international insurance and reinsurance markets from the insurance-related clauses of the Bill—Clauses 20 and 21. In tabling the amendments, I have had a lot of help from the Lloyd’s Market Association, or LMA, and the International Underwriting Association of London, or IUA, which are the two market associations representing all the insurers involved in those markets in London. We have the LMA’s CEO and his legal director here today, watching. I also very much appreciate the help that I have had from the noble Lord, Lord Flight, who has been full of enthusiasm and interesting points. Finally, I thank the Minister, who saw us all in her room, armed as she was with a formidable team, which included people from the Treasury and the Law Commission. It was a very helpful discussion on a tricky area, where the businesses involved mean the Government and the country well. We promised to supply the Minister with some further evidence, which has started to appear at the LMA, and we hope to communicate that evidence to the Minister later in the week.
Late payment of valid claims by participants in the insurance markets is something that the vast majority of those markets strongly dislike. It is very irritating as an insurer trying to do a good job to see someone doing a bad job and making a business out of not paying their valid claims on time. The ombudsman and regulators have done quite a good job here in reducing the size of the problem over the years, and have certainly helped a lot in making the annualised impact benefit be assessed at £1 million, as it was in the impact assessment for the Bill. I am sure that it would have been a lot bigger in older years.
The London market is peculiarly big. In November 2014, the Boston Consulting Group did an assessment of the market and thought that it had annualised gross written premiums of £60 billion; 48,000 people worked in it; and it represented 20% of the City’s GDP, about 8% of London’s GDP and approaching 2% of the UK’s GDP. I should say that of the £60 billion, about £8 billion is affected by the Bill.
International insurance is a highly competitive world. The London market is much the largest in the world, but we should be aware that other markets are constantly nipping at its heels. Business comes to London not just because of London’s 300-year record of paying claims on time and its infrastructure but because the capital is here. I want to concentrate on the reason that the capital is here. Most players active in the London market are active in at least one other market around the world, if not all of them. They can meet from time to time to decide where to deploy their capital. Obviously, they will try to deploy it in whichever market they think it will have the easiest ride and present them with the opportunity to make the best profits.
Insurance is just like any business, in that a percentage of claims give rise to disputes. Unamended, the Bill could, the LMA, the IUA and I feel, lead to an “unreasonable delay” cause of action being introduced as an extra part of many disputed claims, leading in turn to extra claims costs and a lot of aggravation for the insurers concerned—in other words, grit in the machinery. That would naturally be less attractive to capital. Many factors decide where you want to deploy your capital as an insurance group, but I put it to the Minister that one wants to try to ensure that we do not have grit in the London machine, because any redirection of capital elsewhere would be damaging to the London markets.
The amendments carve out two things. The first is reinsurance, where the only parties involved in the transactions are insurers. I very much hope that that is uncontroversial. The second thing is large risks. Large risks is a concept that we have tied to a European Union definition which is pretty well understood by the professional insurance market—certainly everyone in the London international markets would understand it. We thought that that was a reasonable starting point to discuss how to arrange a carve-out so that there was none of that grit in the London machinery.
The impact assessment for the unamended clause is for a gross benefit of £1 million per annum. In this intensely competitive international market, international insurers find that they are being consistently marked by brokers and other insurers, so someone who does not pay his valid claims on time is very unlikely to be shown a lot of business in future. It is self-policing. It is for that reason that I submit that, of the £1 million gross benefit, not much would come from the international insurance markets. One would have nearly the same gross benefit even with the carve-outs.
I end by saying that my career has been in risk. I look at the upside and downside of things, try to assess probabilities and act accordingly. The upside here of the unamended Bill is some portion of the £1 million per annum annual benefit—I have tried to say that it is a small portion. The downside is needless damage to a £60 billion market that is of great benefit to the United Kingdom.
My Lords, I support the amendments of the noble Earl, Lord Kinnoull. I do not have any direct interest in Lloyd’s, but I endeavour to keep my eyes and ears open to things that come through Parliament which may be acutely damaging to our financial services industry and the City of London. As many noble Lords will know, I raised precisely the same point at Second Reading.
It is important also to note, as the noble Earl, Lord Kinnoull, pointed out, that the whole of the Lloyd’s industry is behind him on these points. The various trade bodies and organisational bodies, several of whom are here today, are as concerned as he and I—he more particularly—about the risks here. My understanding is that the Minister has taken on board pretty much the Lloyd’s reinsurance situation, which is covered by paragraph (b) of Amendment 52C, but certainly wants more evidence relating to Amendment 52C, which is the potential risk of damaging the large risks market. Amendment 52C spells out what the large risks market is and its definition under the 2009 EU directive.
Although the definition of large markets goes down to £6 million or £7 million, which is not that large, it needs to be made clear that the business that occurs in the large markets is a small number of very large amounts of premium income. As the noble Earl has pointed out, this has increased substantially to £60 billion per annum, with at least £8 billion of that potentially directly affected by the Government’s proposals in the Bill. I was amazed to learn that this large premium income has grown to 21% of the City’s GDP and is up from 8% in 2013. This has been a really good business area for the UK.
The main point, which the noble Earl, Lord Kinnoull, made extremely politely, is that the Government would be mad to put at risk such a valuable area of business. It might not be affected by the provisions of this Bill but if it is I would not want to be the Minister who had pushed through the legislation that wrecked London’s large premium insurance business. What is the risk? The risk is that settlement gets bogged down with legal processes, that people can go to law if they want merely potentially to delay what they are going to have to pay and, instead of it being a well-oiled, smoothly operating market, it will get affected by legal hiccups. If that were to occur, the temptation is simply for the business to move elsewhere, a move potentially even to New York, where there are not such problems.
It is crucial that the industry produces the evidence for which the Government have asked but that the Government pay heed to what the whole of the Lloyd’s industry is saying. In essence, it is the same point raised at the time of the Insurance Bill in 2014. It is the point that the Law Commission warned on at the time and got a similar proposal taken out of the 2014 Bill. I was really rather surprised that we see it back here in this legislation and that the Government have not taken heed of what the Law Commission said, to which I referred at Second Reading.
However, anyone who has any involvement in risk simply would not deem it appropriate to put at risk the loss of such an extremely good market for London over a point that is not causing trouble. There is no evidence of late-payment problems in the large insurance market. It is FCA-regulated and, unlike other areas, particularly large organisations late-paying small supplier organisations, that sort of point is completely irrelevant to this market. I hope that the Government will take heed of the arguments behind these amendments and potentially produce their own amendments on Report.
My Lords, I have not spoken before on this Bill and, indeed, I would not have spoken had I not seen the amendments tabled by the noble Earl, Lord Kinnoull. I was very happy to see Clause 20 in the Bill and I would not have spoken had it not been threatened in some way. I should explain that I was a member of the Special Public Bill Committee which considered the Insurance Bill which became the Insurance Act 2015. As noble Lords may be aware, that was a Law Commission Bill, which is handled under the special procedure in your Lordships’ House, which means that the Law Commission produces technical amendments to the law and they go through on the basis that they are uncontentious.
Clause 20 that we have before us appeared in the draft legislation which the Law Commission put forward, but when the Government tabled their Bill for consideration by the Special Public Bill Committee it did not include that clause. We examined that very carefully as part of the Insurance Bill Committee. I believe the Government deemed the clause was contentious because of lobbying by the Lloyd’s Market Association and the International Underwriting Association. At the final stage of the Special Public Bill Committee, I introduced an amendment in precisely the terms in Clause 20, which is not my cleverness in drafting but the drafting of the Law Commission in the original Bill. I should say that the Law Commission contacted me last week, and it remains of the view that this is an important change to the law which it fully stands behind.
Needless to say, in the Special Public Bill Committee—which is a version of Grand Committee, in effect—that was not pressed. I was then leaned on—noble Lords may be shocked at this—by the powers that be in my party organisation not to move the amendment again on Report. The Government then managed to schedule the business on a day when I was not able to be in the House, so that was an end to it, so the Insurance Bill went through without properly considering the issue. While the Lloyd’s Market Association and the IUA remain against the clause, others in the insurance industry are quite content for it to go through, and we were quite clear in the Special Public Bill Committee that the weight of opinion in the insurance industry, setting aside the two organisations that the noble Earl mentioned, was in favour of this amendment, even though the Association of British Insurers thought that there might be a possibility that it would lead to claims management company activity, which is one of the scourges of the financial services industry at the moment. While that might have an undesirable consequence, it was not a good reason not to legislate for something that was right.
I find it difficult to understand why there could be an objection to a clause which just states,
“the insurer must pay any sums due … within a reasonable time”,
with reasonable time being well defined to cover what one would think would be a reasonable prospect of excuse for non-payment and therefore not imposing any particular amendment. The noble Earl’s amendment seeks to knock out reinsurance contracts—I rather take the view that they are between consenting adults and need not form part of this—and large risks. Large risks might sound as if they are huge things that are of no concern to small companies, but they are well within the ambit of many medium-sized companies in this country. One piece of the evidence that the Mactavish Group produced in the context of the Special Public Bill Committee and for the Treasury when it was considering what to do with this showed that in the previous four years 40% businesses with a turnover of more than £50 million had suffered strategically significant losses, that 45% of their claims were disputed and that the average time for resolution was three years. If you are a medium-sized company with a strategically significant claim which is being held up and takes a long time, it could be the difference between survival and business failure. It seems only right and proper that we should have within insurance law, fully in line with the Law Commission’s recommendations, an implied term of reasonableness of payment. I hope very much that the Minister will resist these amendments.
My Lords, like the noble Baroness, Lady Noakes, we were rather sorry to see these amendments tabled by the noble Earl, Lord Kinnoull, as we support Clauses 20 and 21, which help consumers and businesses facing delayed payment of insurance claims to get damages for resulting losses. We certainly do not want to see these provisions watered down. Indeed, as the noble Baroness, Lady Noakes, recalled, it was the Law Commission and the Scottish Law Commission which recommended that insurers should be under a legal obligation to pay valid claims within a reasonable time. I thought it was the Law Commission which drafted these clauses and I am delighted to be in the Room with the true author.
The Bill puts the current FOS practice, which is to award compensation for unfairly refusing or delaying insurance claims, on to a statutory footing. Importantly, it will provide small businesses with recourse to the courts to claim such damages. As we have heard, Amendments 52A and 52C would remove the insurance of large risks from the provisions of Clause 20. That would effectively exclude many SMEs and their risks from the very protections that the Government—in our view, quite rightly—are seeking to introduce.
As we have heard, it is not just the Opposition who resist these and indeed the later amendments, which bring insurance contracts into line with any other normal contract. Some 80% of those responding to the Law Commission’s consultation agreed that insurers should be under a legal obligation to pay valid claims within a reasonable time. Our understanding is that not a single member of the ABI was against the clause. Indeed, some were strongly supportive, pointing out that for their SME customers, a claim being paid in a few months can be the difference between survival and failure.
It is almost a legal fiction which means that the normal contract law—that is, if one party breaks a contract, the other can claim damages—does not apply to insurance law in England. It is time to change this. The Law Commission is clear that this is appropriate for the London market and it opposes the attempt in these amendments to exclude it. Any carve-out for “large risks”, as defined in Solvency II, would exclude many consumer and SME risks. I leave the Minister to take the Committee through the finer details of the Law Commission’s argument, should she feel it necessary. I would just add that, in regard to excluding some forms of large risk, the Law Commission found that stakeholders were keen to see a single regime for all non-consumer contracts and did not support defining somewhat arbitrary boundaries, which add to transaction costs.
My Lords, I thank the noble Earl, Lord Kinnoull, for his amendments and for taking the trouble to meet me and representatives from the London insurance market, and welcome my noble friend Lord Flight, who is an expert in this area. I am also very glad that my noble friend Lady Noakes is with us and thank her for her support for the late payment of insurance provisions; that nicely complements the discussions we have had on other days on late payment for small firms by big firms and retentions. The provisions are, as she says, intended to address a legal anomaly in the current law; that is, that insurers currently have no legal obligation to pay sums due within a reasonable time.
Where late payment does occur, however frequent or infrequent that may be in different parts of the market, it is appropriate that the policyholder should be able to recover any losses suffered as a result. That is why the Bill builds into every contract of insurance an obligation on insurers to pay sums due within a reasonable time. Breach of that obligation may give rise to damages for breach of contract on normal contractual principles.
With his Amendments 52A and 52C, the noble Earl seeks to restrict the types of contracts to which this obligation would apply, excluding reinsurance and certain “large risks”. The clauses in the Bill are the product of a long Law Commission project involving years of engagement with the insurance industry. Stakeholders argued strongly in favour of a single regime for all non-consumer insurance contracts, avoiding boundaries which, by their nature, are complex and arbitrary, and add to legal expense. If different rules applied to different types or sizes of business, insurers would have to identify which side of the boundary each prospective policyholder fell before entering into the policy. This would severely slow down and add expense to the placement process.
The particular definition that the noble Earl tabled for “large risks”, based on the Solvency II definition, demonstrates the difficulty of defining boundaries. The definition is complex and has several different elements, but it would exclude all insurance contracts involving a policyholder with a net turnover of €12.8 million and more than 250 employees. This would exclude many medium-sized businesses, which, frankly, are precisely the target of the Bill.
As the late payment provisions currently appear in the Bill, they rectify a gap in the legal regime and encourage responsible payment, for the benefit of policyholders and the perception of the market. These arguments apply for all insurance contracts, including reinsurance, which are treated by the law in the same way as all other non-consumer insurance contracts.
As noble Lords would expect, I am very alert to any argument that there is a threat to the competitiveness of the UK and of London as a world-leading insurance hub. However, the provisions in the Bill are specifically designed to work for the London market, including reinsurance contracts, as well as for SME insurance contracts. We are not planning anything further.
The provisions are flexible so that parties can agree, under Clause 21, on an exclusion or limitation of liability for consequential losses. Such contractual limitations are common in many forms of commercial contract. Whether contracting out is appropriate in individual cases will be a matter for commercial negotiation between insurers and their customers and/or brokers. However, it is in the UK’s interest that the London market is seen to be a good place to contract and a place where customers are paid on time. The time has come to make these much-delayed provisions, as the noble Baroness, Lady Hayter, said.
I hope that noble Lords will recognise, on reflection, that the proposed carve-outs are neither necessary nor appropriate. The provisions have been carefully prepared. On this basis, I ask that the amendments be withdrawn.
I thank all noble Lords who have taken part in the debate and I thank the Minister in particular. As ever, she has put forward very beguiling logic. With her notable business career she must understand that industry associations with the reputation of those at the centre of the London insurance markets do not lightly make suggestions like this.
There was no intention in anything that we did to get at the basis of the Bill, which is to ensure that SMEs and consumers in Britain get a fair deal from valid insurers. We genuinely have a concern. I put to the Minister that the trouble with logic in a business context is that sometimes beguiling logic does not quite fit in the business world. I know that she will have many examples of that. We will put further proposals to her on the basis of the reinsurance carve-out, but we will need to regroup. I hope that she will read that and consider it again. On that basis, I am happy to withdraw the amendment.
Amendment 52A withdrawn.
Amendments 52B and 52C not moved.
Clause 20 agreed.
Clause 21: Contracting out of the implied term about payment of claims
Amendments 52D and 52E not moved.
Clause 21 agreed.
Clause 22: Disclosure of HMRC information in connection with non-domestic rating
52F: Clause 22, page 39, leave out lines 20 to 22 and insert—
“(1) An officer of the Valuation Office of Her Majesty’s Revenue and Customs may disclose Revenue and Customs information to—
(a) a qualifying person for a qualifying purpose;(b) a ratepayer for a hereditament.(1A) Information disclosed under subsection (1)(b) may—
(a) be disclosed for the purpose of providing the ratepayer with all information used to assist determination of the valuation of any hereditament for which the ratepayer is responsible for the non-domestic rating liability, and may be retained and used for that purpose, and(b) include information relating to hereditaments not owned by that ratepayer.”
My Lords, I have been beguiling the Committee with the fact that I have had to act for several other proposers of amendments because sicknesses have left us a bit bereft. On this occasion, I can switch track slightly because here we are doing a decent thing in allowing some amendments on valuation to be debated on behalf of someone who cannot be present which I think he would certainly have tabled if he were here. We agree with them, so we have tabled them in our own right.
The noble Earl, Lord Lytton, has provided us with a brief which I will be drawing heavily on. However, as with the other amendments, I do not have the expertise to do justice to some of their individual elements. I suggest to the Committee that we take all the amendments that relate to valuation and the Valuation Office Agency together, which, if we do it cleverly and efficiently, will take us neatly to the witching hour of 7.30 pm, when we will be able to feel that we have done a good job. I will be imposing heavily on the good will of the civil servants briefing the Minister, but I hope that that will be sufficient. I am joined by the noble Lord, Lord Stoneham, who has put his name to one of the amendments.
The issue that unites all the amendments is that everybody involved in valuation agrees that the current arrangements for the business rates system, particularly the appeal system, are simply unsustainable. What is missing from the Bill is a balance between the need to remove ill-founded and speculative appeals with the need to preserve fair access to justice for those who feel that they have a case to argue.
At the heart of this, unifying all the amendments, is information, although I will speak specifically to the question of festivals, which arises in Amendment 52R. Therefore, most of my remarks will be about the generality of the VOA and how we may deal with it in future, but I will spend a few minutes on festivals.
We have drawn on work done by the Federation of Small Businesses, which also feels strongly about this. I think there is an alliance out there on this issue, and I look forward to hearing the Minister’s response.
Amendment 52F and those which are grouped with it, Amendments 52H to 52K and 52N, relate to whether information currently withheld by the VOA should be made available to those who have a genuine interest. I will not say much more than that, because that seems to be a point of fairness rather than a point of law: those who are being rated and having rates applied to them should be able to know the basis of that and to make judgments with their professional advisers fully informed.
Amendment 52G moves us to the billing authority and makes provision for disclosure of information about issues relating to a business improvement district scheme, which is a slightly different point but involves the same issue, which is that there is unlikely to be any way to judge what the non-domestic rates yield would be in a BID if you do not have access to that information. Again, limited disclosure would be in the best interests of all concerned.
There is no provision for an ADR ombudsman or other suitable arrangement in the VOA system, and Amendments 52L and 52P suggest that that gap needs to be filled. We would be grateful if the Minister would take that into account. Because of the way in which the UK has implemented the ADR legislation, a range of options is open, and we are not producing one solution against another, but it is fairly clear that there should be an outlet to an external agency such as an ombudsman.
The question of appeals more generally is raised in Amendment 52Q, in which we are also joined by the noble Lord, Lord Stoneham. The proposal in the Bill is that there should be an upfront fee for any appeal. That seems an odd thing to require. The people who will likely be most affected are small businesses, particularly those who are struggling to get started. It does not seem in the best interests of enterprise to require fees to be paid upfront which will not necessarily be returned if an obvious injustice is being done and redress for justice denied is not being provided.
On the question of festivals, we have become aware of the fact that the VOA has begun to raise invoices and seek money from people who have used agricultural land and buildings for cultural events and festivals. One can understand that, when previously rarely used assets are being used for a different purpose, there is obviously a question of whether fair taxation is being applied. It would be hard to argue that using land that was not being used for anything else for a business activity would raise a rateable question.
I hope that the amendment will set off in the Minister’s mind the suggestion that there is something a bit bizarre about constantly asking farmers and others to develop new ways of raising income and then, when they find one in the readymade form of a festival ready to come in on the site, not only to require them to pay rates for it but also to have a retrospective element. That seems rather unfair. I hope that, if only on the question of equity, the Minister might consider favourably the suggestion made by the festivals group that there should be no backdating. The situation may have changed, but that does not necessarily mean that those one-off festivals that have happened should suddenly be faced with very substantial Bills—we are talking about £50,000 or £60,000—when people have budgeted on the basis that there would be no such cost. In future, consideration should be given to some form of derogation for short-lived festivals of this type, when clearly there are economic benefits to the whole of the country and to the locality, and a good cultural effect that would be completely lost if the cost exceeded the income. We might be cutting off our noses to spite our faces. I would be grateful if the Minister could consider the amendment. I beg to move.
The noble Lord, Lord Stevenson, has masterfully summarised the amendments. I put my name to Amendments 52F and 52P in the interests of trying to improve the processes. In the interest of brevity and trying to improve the timescale, I am happy to give my support formally.
I thank my noble friends for proposing these amendments with such swiftness and efficiency, and I shall try to do them justice. The noble Lord, Lord Stevenson, has done fantastic work today in covering so many areas that are usually addressed by others on the Front Bench. As always, I thank the noble Lord, Lord Stoneham, for his involvement.
I appreciate that there are concerns, which I share, that an effective business rates system should be based on businesses having a good understanding of their tax bill, underpinned by shared and transparent information. The amendments are about sharing information with the payer. Business rates are determined by taking account of a comparison with other properties. However, it follows from this that the Valuation Office Agency collects and holds commercially sensitive data. For example, it may hold information on the precise terms of rental agreements reached for a group of properties. The VOA has a legitimate duty to protect that information and the interests of the ratepayers who have provided it. That is in everybody’s interests, so we make no apology for having a rigorous system for handling and protecting sensitive information, an important general principle in life.
We have taken the comments which have been made during the process of consultation and believe we have found a pragmatic solution. A consultation paper was published on Friday which sets out a system in which there are requirements and incentives for ratepayers and the Valuation Office Agency to engage early. Factual information will be established during the so-called check stage, with arguments and evidence being exchanged at the beginning of the second challenge stage, which is far earlier than happens now. This exchange of arguments and evidence is the point at which the Valuation Office Agency is able to provide information to address the ratepayer’s case. These reforms will make a significant difference to how soon ratepayers have access to the relevant information, and they will be able to take it into account when deciding whether to proceed to appeal stage. We look forward to receiving responses to the consultation.
On providing information to business information districts, the subject of the next amendment, I am not aware that a shortfall in information has been raised directly with government by individual business improvement districts or by any of the BID representative bodies—there are about 200 BIDs and they include places such as the Plaza in Victoria Street—nor was it raised during a broad consultation earlier this year in which the Government sought views on strengthening the role of BIDs in local areas.
Amendment 52L would allow the Secretary of State to regulate to introduce a scheme for alternative dispute resolution for appeals. However, existing powers in the Act already provide for matters to be referred for arbitration. The new appeals system will provide full and structured opportunities for the parties to check and exchange information and arguments. It provides the opportunity for further discussion, where this is necessary to resolve the case, and a right of appeal where matters are still not agreed. These are the essential prerequisites for determining a dispute. The addition of more processes would complicate and slow down the system and could unhelpfully divert the resources of businesses and the Valuation Office Agency. This could potentially result in higher costs, including for business, when we want resource to be focused on speeding up this unacceptably slow system.
Amendment 52P would allow the Secretary of State to regulate the operation of some aspects of the appeals system. These matters are not always appropriately addressed by regulations. The performance of the Valuation Office Agency should be dealt with by a service level agreement, and we have proposed this approach in the consultation paper. Ensuring that all these uses are treated equally in rating is an important principle which maintains fairness across all ratepayers. However, while the Government do not intervene in individual rating valuations, I can assure noble Lords that if there are no permanent physical adaptations to the land to facilitate, for example, festival use, and the duration of the festival is only a matter of a few days, it is unlikely to attract a rating assessment in its own right, and any festival operator or land owner who is unsure of when they may incur a rates bill should contact the Valuation Office Agency to discuss their case and it will be happy to help. I also know that the Valuation Office Agency recognises the need for clarity and consistency in this sector and is working with the industry to draw up guidance to help event organisers. It hopes to have guidance ready in time for the festival season next year. Furthermore, we have given local authorities wide discretionary powers to grant rate relief in circumstances such as these, and where they do so central government picks up, as noble Lords probably know, half of the cost in foregone receipts.
With respect to the exemptions proposed in Amendment 52R and 52M, we are currently conducting a review of business rates and as part of that we are examining the rating of plant and machinery and the role of reliefs and exemptions. The review will conclude by the end of the year, and I can assure noble Lords we will take account of points made in today’s debate. I am sorry that the debate has been cut short but I hope I have been able to persuade noble Lords that the Bill is in good shape, that the consultation document issued on Friday gives additional and vital detail, and that the noble Lord will agree to withdraw the amendment.
I am very grateful to the Minister who I think sent a message of cheer to the association that looks after festivals. I am sure that it is delighted. Landowners, some of whom may be present, may also be very pleased at the result. That is a very good response to that issue. I am sure that there are other things touched on in the Minister’s response that we will want to look at but, again, that is a measure of progress and I am sure we can make a way forward on that. I beg leave to withdraw the amendment.
Amendment 52F withdrawn.
Amendments 52G to 52K not moved.
Debate on whether Clause 22 should stand part of the Bill.
My Lords, in declaring my interests as set out in the register, I welcome the opportunity to discuss the circumstances in which HMRC may disclose information. Although Clause 22 is drafted specifically to deal with the disclosure of information in connection with non-domestic rating, there are other circumstances in which disclosure by HMRC to certain other bodies is not only necessary but desirable.
The Employers’ Liability Tracing Office is one such example. ELTO was established in 2010 to assist injured people in finding the employers’ liability insurer which covered their employer at the relevant time. Since April 2011, it has been a regulatory requirement for EL insurers to provide details of all EL policies issued, as well as some historic data. ELTO’s aim is to create a comprehensive database of insured employers and the compulsory cover provided to them. The drive behind the creation of ELTO was to build a historic record of past insurance, particularly for victims of diseases with a long latency period, such as those caused by asbestos exposure.
However, the main long-term purpose of ELTO is to create a comprehensive and easily searchable database of current policies, which can avoid problems many years into the future. In order to make the database accurate, so that in 30 years’ time a person injured by past exposure to substances at the hands of their employer can trace the right insurance cover which should meet that claim, the database needs to find what IT people know as the “unique identifier”, which confirms beyond doubt that the right company has been identified.
In the case of employers, that unique piece of information is provided by the employer registration number used by HMRC. The ERN is the number now used in the Pay As You Earn system to identify individual employers. Armed with the ERNs, the database would become truly fit for purpose. ELTO has been pressing HMRC for disclosure of ERN data, but HMRC claims that the law prevents it doing so. Assuming for the moment that HMRC may be right—it rarely pays to argue with the taxman—there is a simple solution, and Clause 22 shows us the way. Where the law is an obstacle to better working, it can be amended. That is, after all, the main purpose of this Bill.
I am therefore considering whether a short amendment to the Bill could resolve this problem. I would welcome a further discussion if the Minister and her hard-working team ever have time to do so to see how best we could proceed. The ELTO database has been introduced precisely because people suffering genuine injury in the future as a result of their employer’s negligence will need easy access to details of the insurance policy that will meet that claim.
Finally, speaking as president of the All-Party Parliamentary Group on Occupational Safety and Health, I would like noble Lords to know that the all-party group is very supportive of the need to make the database accessible, accurate and searchable.
My Lords, I am grateful to my noble friend for raising the issue of data sharing between HMRC and the Employers’ Liability Tracing Office. HMRC has already specifically amended its processes to provide employer reference numbers and employment histories when requested by individual applicants. Further, I believe any amendment to allow data sharing between HMRC and the Employers’ Liability Tracing Office would be outside the scope of this Bill.
I understand that, as well as the normal concerns about taxpayers’ confidentiality, HMRC is concerned that disclosing all employer reference numbers would raise issues regarding proportionality and, of course, in today’s circumstances, the potential for fraud. Therefore, I do not think the Bill is the best place to bring forward such a widespread change, but I would be happy to meet my noble friend to understand more about the issue. However, I believe that Clause 22 should stand part of the Bill.
Clause 22 agreed.
Amendments 52L to 52Q not moved.
Clause 23 agreed.
Committee adjourned at 7.42 pm.