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House of Lords Hansard
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Immigration Skills Charge Regulations 2017
21 March 2017
Volume 782

Motion to Consider

Moved by

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That the Grand Committee do consider the Immigration Skills Charge Regulations 2017.

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My Lords, this Government are committed to a strong skills system that can drive increases in productivity and improvements in social mobility and help make a success of Brexit. We need to do more to support people into high-quality jobs and help them gain world-class skills that meet employers’ needs. Lack of investment in skills is damaging our productivity and our economy. Employer investment in training has been declining for 20 years. On average, UK workers undertake 20% less continuing vocational training than those in the EU. According to the latest available international comparison, the UK spends 55% less than Germany and just over 70% less than France per employee on vocational training. We are forecast to fall from 24th to 28th out of 33 OECD countries for intermediate skills by 2020. We need urgently to address this underinvestment, and the immigration skills charge is one way we are doing so.

The charge was first announced in May 2015. The Immigration Act 2014, as amended last year, provides the Secretary of State with the power to require certain employers who recruit skilled workers from outside the European Economic Area to pay an immigration skills charge. These regulations provide for the amount and obligation to pay the charge. Through the charge we want to incentivise employers to think differently about their recruitment and skills decisions and the balance between investing in UK skills and overseas recruitment.

There is no doubt that skilled migration has brought economic benefit to the UK. It has boosted our ability to compete in global markets and helped make us world leaders in many sectors. There are many examples of good practice, but it seems that some employers would prefer to recruit skilled workers from overseas rather than invest in training UK workers. Use of the tier 2 visa route grew by 37% between 2010 and 2016. Our aim is to see UK workers with the right skills fill these roles.

When we first announced this policy, we commissioned the independent Migration Advisory Committee to advise on applying a skills charge to employers recruiting workers from outside the European Economic Area as part of its wider review of tier 2. As the Secondary Legislation Scrutiny Committee acknowledged, most respondents to the MAC’s consultation were not in favour of a charge. It is not surprising that those who will have to pay the charge did not welcome it. Based on the SLSC’s comments, we revised and re-laid the Explanatory Memorandum accompanying the regulations to reflect more of the evidence we considered. The MAC, which is made up of independent experts in the fields of economics and migration policy, supported it. The committee analysed different levels of charge and took into account views from more than 250 written submissions and from meetings with more than 200 public and private sector employers. It considered that a flat charge of £1,000 per worker per year would be large enough to have an impact on employer behaviour and that this would be the right level to incentivise employers to reduce their reliance on migrant workers.

Where the Government took a different line from the MAC was to protect the UK’s position as a centre of excellence for education and research and to support smaller employers. We announced the rate, scope, exemptions and introduction date for the charge in March last year. The draft regulations implement the decisions taken last year. We believe that this has given employers enough time to prepare for its introduction on 6 April, subject to parliamentary consideration. In deciding the scope and rate of the charge, we took into account the MAC’s recommendations, but we also responded to concerns raised in Parliament during the passage of the Immigration Bill and from employers to announce a number of exemptions and a lower rate for charities and smaller employers. For that reason, Regulation 3 introduces a reduced rate of £364 per individual per year for small and charitable sponsors.

Regulation 4 provides for the exemptions. As the MAC recommended, sponsors of tier 2 intra-company transfer graduate trainees are exempt from paying the charge. The Government have also exempted specified PhD-level occupations, including higher education lecturers and researchers. In addition, those switching from a tier 4 student visa to a tier 2 general visa to take up a graduate-level position in the UK are exempt. This was welcomed by the British Medical Association as it will benefit doctors completing their foundation training. These exemptions are designed to protect employers’ ability to recruit the brightest and the best. For out-of-country applications for entry clearance, the regulations provide that the charge does not apply for leave of less than six months.

Regulation 5 provides that the sponsor must pay the charge up front. This is for a minimum of 12 months and then in six-monthly increments, rounded up. It will be calculated according to the length of employment the sponsor enters on the certificate of sponsorship. Employers will pay the charge as part of the existing sponsorship process, administered by the Home Office.

Regulation 6 provides that part or all of the charge may be refunded or waived. Regulation 7 means that the charge will not be retrospective. Employers of individuals who are already in the UK on a tier 2 visa or have been assigned a tier 2 certificate of sponsorship at the time the regulations come into force will not have to pay the charge. This is also the case where these individuals apply to extend their stay or change job or employer.

I turn to how the funding raised will be used. Based on Home Office analysis of the use of the tier 2 route, it is estimated that the charge could raise £100 million in the first year. The Home Office will collect the charge and transfer it to the Consolidated Fund, less an amount to cover the costs of collection. The population percentages underlying the Barnett formula will be used by the Treasury to determine the split of funding between the Department for Education and each of the devolved Administrations.

The income raised from the charge will be used to address skills gaps in the workforce. It will make a contribution to the department’s skills budget, ensuring that we can continue to make a significant investment in developing the skills the country needs. The charge will raise income but it is also designed to change employer behaviour, and that applies across all sectors.

I recognise the concerns about the impact of the charge on health and education in particular. The MAC was clear in its recommendation that the public sector should not be exempt. As an employer like any other, it should be incentivised to consider the UK labour market first. This is in line with government policy. It is not sustainable to rely on recruiting overseas staff. We are committed to building homegrown skills, to recruit from the domestic labour market and to invest in training.

We recognise that immigration has a role to play in the supply of workers where there are genuine skills shortages, but that should not come at the expense of investment in skills in our country. The immigration skills charge is designed to incentivise employers to invest in training and upskilling the resident workforce. It will also raise funding to support ongoing investment by the Government in their skills programmes. I hope that the Committee will support these regulations. I beg to move.

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My Lords, I welcome these regulations. They are well targeted, have a good concept, good execution, with a sensible set of exemptions and remission for small businesses. I am disappointed that they do not extend to hospitality and construction, both areas where we have a substantial tendency for employers to bring in people from overseas rather than concentrate on training our own people. However, I entirely understand, given that most of that migration is from the EU, why we do not wish to complicate our Brexit negotiations by trying this on the continent just yet. However, when you talk to hospitality employers, they say, “We have to employ these overseas people because the Brits just don’t know how to treat customers”. I say let us bring back the British Airways charm school, which is what I grew up with. We can do this; we just need to train people properly. I do not think that we should accept the excuses of our hospitality industry. We should apply this principle to it to get it to bring our own people up to speed.

However, within the industries this measure is aimed at, it is an excellent idea. It is largely, I think, aimed in practice at IT and industries round that. I would be very grateful if the Minister or his colleagues would agree to meet me and representatives of the tech industry to discuss how to craft training which will meet the needs of employers who are hit by this levy so that the incentive which is provided by it can be directed at the provision of training which will ensure that the objectives of the levy are realised.

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We are all being so polite. Perhaps we have learned from the charm school with which the noble Lord, Lord Lucas, grew up. We, of course, support investment in skills and training but it is appropriate to put these proposals in the context of the very tight brief which the MAC, as always, was given. It was required to advise on,

“significantly reducing the level of economic migration from outside the EU”,

taking into account the impact on the economy, including on productivity and competitiveness, and was asked to consider five issues, of which a skills levy was one. As the Minister said, at the time of the review the Government had already signalled an intent to introduce the charge. It is fair to acknowledge the MAC endorsement of the proposal. It said in its review:

“We consider that the imposition of an ISC will serve to incentivise employers to reduce their reliance on employing migrant workers and to invest in training and upskilling UK workers”.

But I also observe that, certainly in the health sector, that gives the term “incentivise” a rather new meaning. The Explanatory Memorandum refers to a collapse in training. Will the Minister tell the Committee whether the Government have analysed why that has been the case?

The letter from the Minister, Robert Halfon, to the Secondary Legislation Scrutiny Committee confirms that this is a tax. We know that the Treasury hates hypothecation, but given its rationale it seems to us that those who are paying it must be able to see how it is used and, more than that, be involved in decisions about the application of the funds, because they know what normally works best in their own sectors. There must be a lot of sector-specific experience which should be tapped, as well as this being in the interest of transparency.

The Institute of Directors recognised that “penalising employers” who need to look to the “global talent pool” is,

“not the answer to gaining more home-grown talent”.

To balance that, PwC said:

“The levy will not impact the way that companies recruit as they require the skills they require”.

It raised the spectre of, in the long term,

“parts of businesses moving overseas, if mounting costs become prohibitive and companies risk damaging their brands by providing substandard products or services”.

I recall that during the passage of the Bill an argument used against this, partly in the higher education sector, was that some industries will pay the charge but would not see any benefits because their sectors are not apprenticeship-appropriate. That applied in particular to the health sector. I will leave it to my noble friend Lady Walmsley to deal in detail with the health sector. I know that I will support everything that she says.

During the passage of the Bill we also expressed concern about the costs of the bureaucracy of this exercise. Given the investment that the sectors in question already make in training, there seemed to be a danger of a charge being levied, having administration costs deducted and the balance then returned to them. I have been assured that the deduction will be small because the Home Office visa system will be used, but there will be a deduction. We can add to that the unquantified cost of the loading on to the Home Office, which is overloaded. It probably feels that the light at the end of the tunnel is that ever-present oncoming train.

The MAC also said that,

“it is impossible to conclude, ex ante, whether the benefit arising to employers … will outweigh the costs imposed on Tier 2 sponsors”,

because the Government have not yet determined how the revenue will be reinvested. That is clearly a significant point. It is clear that the health sector has come to a conclusion, and it is not the positive conclusion that the Government want to see. Robert Halfon, in his letter to the Secondary Legislation Scrutiny Committee, said:

“The cost to the healthcare sector and to the NHS in particular has not been estimated”.

That is quite an astonishing statement.

One other area is that of intercompany transfers. The Minister has referred to the exemption in the regulations, but the exemption is limited to trainees. Why is it so limited? Is it simply because they are trainees? That fits in with the thrust of the proposals. I ask that question and make the implied point because we need to do all that we can to attract, retain and not deter international companies basing themselves in the UK. I do not think that I need to fill in the gaps between the lines there.

There are steps that the Government can take after taking through these regulations, particularly by way of exemptions and by working with different sectors, which would make them more palatable to those who find them unpalatable, and more effective, and might help to avoid unintended consequences, as these charges are clearly going to be significant for some sectors.

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My Lords, as my noble friend Lady Hamwee said, I would like to say a few words about health and social care. Report after report shows the dire financial straits in which NHS employers find themselves, with 75% of hospitals already in deficit and A&E departments struggling to meet the four-hour target for attending to patients. There is a shortage of nurses, and retention is terrible. Doctors’ rosters are not filled, resulting in cancelled patient treatments, which puts a greater burden on existing staff, who are acting as the shock absorber for the system. GP practices cannot fill vacancies. Care homes providers are handing back local authority contracts because they cannot provide a decent service within the amount of fees that they are paid. The number of care beds is falling while demand is rising, and 1.2 million elderly and disabled people are not receiving the care that they need.

It is in this climate that the Government have decided to tax health and care employers for every worker from outside the EEA who is on a tier 2 visa. You could not make it up. On top of this, they choose to do it at a time when they have removed the nurse training bursary and have no idea of the effect that it will have on the number of nurses in training. It is no wonder that the BMA and the RCN have written to the Home Secretary, laying out the damaging effects of the charge on health and care. The Government may not have calculated how much it is going to cost them, but they have—it is £7.2 million per year, which will deter cash-strapped employers from filling rosters with essential staff, thereby putting patients at risk. I ask myself why the Government could not make those calculations. Perhaps it is because it is so politically embarrassing.

It is little wonder that the Secondary Legislation Scrutiny Committee had serious concerns about the measure, with particular regard to the fact that the memorandum laid with the instrument said nothing about the opposition to the measure voiced by those who were consulted. It was also provided with no information about the impact of the measure, particularly on health and care employers, who are the sector fourth-most affected by the charge. It is no wonder that it was not provided with that information since, in reply to its questions, as my noble friend has just said, Robert Halfon MP confessed that the cost of the charge to the NHS has not been estimated because it is classified as a tax. His letter also shows complete ignorance of the nature of the modern nursing workforce, saying:

“There is no direct impact on employers of care workers as they do not qualify for entry to the UK under the Tier 2 route. Tier 2 has been reserved for graduate occupations since 2011”.

Yes, nursing has been a graduate occupation for a similar length of time. Does the Minister think that care employers do not employ graduate nurses any longer?

The ISC was intended to deter employers recruiting from abroad, but health and care employers have no option, and they have no need for this. As the BMA letter says:

“Checks and balances are already in place to ensure posts are first offered to UK and EU nationals through the resident labour market test”.

Although we are going to introduce apprentice nurses later this year, doctors undergo long and rigorous training, and it is impossible to upskill UK citizens overnight.

Where is the money going? I understand that it will go into the Consolidated Fund, as the Minister said, and some will then be sent out to the Department for Education and the devolved Administrations to help fill the skills gap. Will the amount raised from health and care employers be added up and go to Health Education England to ensure it is used to train more UK doctors and nurses? According to the BMA, the Government have suggested that some of it will be reinvested in the health workforce but, as I understand it, there is no guarantee, nor, as far as I can see, any mechanism to ensure that it goes to training health professionals.

The only solution to this mess is to add health and care workers to the list of exemptions in Regulation 4(a). I was interested to see the jobs which are included in the exemptions. Is it really true that we have a critical shortage of social scientists and research and development managers? They will not be saving lives in our hospitals and nursing in care homes at any time soon, will they?

Thousands of doctors and nurses come to the UK every year to work in the NHS and care services, which would be utterly devastated without them. The Government are being immensely short-sighted by imposing this tax. The NHS is not a business that can absorb extra taxes by reducing profits. I call on the Government to introduce exemptions from this charge for health and care workers. If they do not do so, they will be adding to the already unsustainable funding situation of our health and care services and to the £20 billion black hole in the health budget and the £6 billion black hole in the care budget by 2020.

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My Lords, the Labour Force Survey showed that by 2014 the number of workers participating in training courses away from their own workplace has collapsed since 1992. I will not repeat the figures that the Minister gave, but this feeds into a pattern. In general, UK employers underinvest in training relative to comparable countries. It is therefore understandable that the Government should decide to incentivise employers to invest in training so as to maximise the number of jobs available to the domestic workforce. In that aim, we support what the Government are attempting to achieve through these regulations.

However, the Secondary Legislation Scrutiny Committee was critical of the fact that the Explanatory Memorandum laid with the instrument said nothing about the opposition to the proposals voiced by most of those consulted by the Migration Advisory Committee. The Secondary Legislation Scrutiny Committee was also critical of the fact that the Explanatory Memorandum provided little or no detail about the impact of the charge on those employers likely to be affected. That led the committee to conclude that the process of policy formulation for the proposals was not complete and that the Government were not in a position to supply Parliament with sufficient information about the implementation and impact of the proposed charge. If that is not the source of some embarrassment to the Minister and his officials, then it ought to be.

As far back as May 2015, the then Prime Minister announced the intention to introduce the charge, and in March 2016 the scope of the charge was set out. Why then was the DfE not ready when the regulations came to be submitted? Given the array of staff in the department, there is surely no excuse for this. I hope that the Minister will apologise and give an assurance that in future his officials will be better prepared.

Since the charge was first proposed almost two years ago, we can discount any suggestion that it had its roots in what I regret to say is the increasingly anti-immigrant rhetoric that since last year’s referendum has characterised some government policy. The Government’s generally hostile approach towards migration—and the definition of it, as evidenced by their attitude on the Higher Education and Research Bill in relation to international students—risks further fuelling discrimination and social tension.

Changes to migration policies should be developed through consultation with employers and trade unions and, once agreed, should be introduced with adequate lead-in time to allow employers and employees to plan accordingly. That allows short-term gaps in the labour market to be filled while other measures are taken to address long-term training needs in the domestic labour market. It is to be hoped that that is what this charge will achieve.

Last week, during the briefing session on the charge, the Minister for Skills, Mr Halfon, explained that it will be used to address skills gaps in the workforce. In terms of the resources available to do so, and to some extent reflecting what the noble Baroness, Lady Walmsley, has said, the Minister said he anticipated an annual surplus of around £100 million once the Home Office had deducted the costs involved in collecting the charge.

Identifying those skills gaps is at the heart of these regulations. The UK Commission for Employment and Skills’ Employer Skills Survey 2015 shows that, while overall employer investment in training, in kind and cash, increased between 2011 and 2015, per employee expenditure flatlined at £1,600, despite a period of economic recovery and business growth. That was the last survey to be published, and I regret to say that it will remain the last survey to be published because earlier this year the Government closed the UK Commission for Employment and Skills. We no longer have a national overview. Perhaps the Minister will explain the rationale behind what appears to be an extraordinary step. What will replace it?

The Employer Skills Survey 2015 highlighted what it termed skill-shortage vacancies by sector and listed 13. The top five were: construction; manufacturing; electricity, gas and water; transport and communications; and agriculture. Interestingly, health and social work were only in seventh place, despite the regular reports of difficulty in filling vacancies. The noble Baroness, Lady Walmsley, has stolen a bit of my thunder here, so I will not repeat the thrust of her argument. Certainly, the proportion of NHS staff who are not UK nationals is high, although already in decline following last year’s referendum. It seems questionable, at the very least, that the list of exempted occupations listed in the regulations does not include doctors or nurses at a time when the NHS is under real pressure in filling posts in these areas. I acknowledge that the noble Baroness, Lady Walmsley, said that it goes wider than doctors and nurses. Enforcing the levy would effectively penalise the NHS for recruiting workers from outside the EEA to fill gaps in an already stretched workforce in an essential public service. I accept that to some extent the NHS has over the years gone for the easier option of hiring from outwith the UK, but the pressures currently being experienced there will be as nothing two years hence. I urge the Minister to consider what the noble Baroness, Lady Walmsley, said and what the pressures on the NHS will be if the charge is applied across the board for that sector.

Science, technology, engineering and mathematics are also areas where there are skills gaps, not least in schools, where recruitment also remains a problem. I shall not repeat the comments I made in respect of the Engineering Construction Industry Training Board in a previous debate. Few teachers will earn above the £30,000 cut-off for the charge, and so non-EEA nationals will be unable to be used to help fill these gaps. From memory, Mr Halfon—or perhaps it was officials—said that there are only about 150 non-EEA nationals in that bracket. I accept that that is not a big number, but none the less these gaps need to be filled. With maths and ICT demonstrating digital skills shortages for the jobs of tomorrow, there could have been a case for relaxing the charge in these areas.

One suggestion I shall make concerns the follow-through on the charge, which we all hope will meet its aims. Could employers not be eligible for some sort of rebate on the charge for employing a non-EEA worker? There is an element of double-charging. If an employer has identified a gap for a group of employees, so that he or she has to take on workers from outwith the UK and, I assume in this case, from outwith the EEA, while doing that, the employer is meeting the aims of this charge by bringing through young, or perhaps not so young, people to train them up to the necessary level. So he is paying the charge for them to be employed and to be trained, and he is also paying a surcharge for those outwith the EEA who he is using temporarily. So in a sense he is training people for the long-term good of the business and of the UK economy, and there does seem to be an element of double-charging, particularly when the £1,000 rises over the years to a maximum of £5,000—leaving aside the charitable sector—when the employer is in fact doing what the Government want him or her to do: training employees.

My other question for the Minister is: when will the charge be reviewed? I do not know whether there is any significance in the fact that the assumption in the regulations is that it covers only non-EEA employees for up to five years. I am not clear whether that is to be a maximum. But there may be a case for, in effect, a sunset clause so that after five years the regulations could be reviewed and some assessment made of the charge’s success. As I said earlier, all of us in this debate, whatever our views and however critical we have been, want to see the outcome that the Government intend. I would be interested in the Minister’s views on that point. I do not expect him to respond just now. I do not expect his officials to give him a response just now. If it is more convenient, I am more than happy to receive something in writing.

Overall, I certainly want to see this charge introduced effectively and fairly, leading to a situation where there are more UK workers able to fill the gaps that are evident now and likely to be even more evident in the post-EU years ahead of us. To that extent, I do not do this often but I wish the Government well because I think their intentions are good, but there are certainly some rough edges in this charge which could perhaps be smoothed down to make it more palatable and perhaps even more effective.

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My Lords, I thank all noble Lords for a really interesting debate. We welcome this feedback. I come back to my opening remarks: the investment in skills is crucial to a productive, strong UK economy—an economy which gives people from all backgrounds the opportunity to fill today’s skilled roles as well as those in the future. Migration has a role to play in supporting the development and supply of expertise and skills and we want to continue to attract the brightest and the best, but through the immigration skills charge we want to incentivise employers to invest in training. I am grateful for the support that has been expressed today for our desire to upskill our workforce. I am afraid that I will not cover all the points that have been raised but I will write to all noble Lords present today.

The noble Baronesses, Lady Walmsley and Lady Hamwee, asked why this impacts particularly on the health service. The MAC was clear in its view that the charge should apply to the public sector. It is not sustainable to rely on recruiting overseas staff and the Government are committed to building home-grown skills. All employers need to look at how they meet their longer-term skills needs, and the long-term strategy must be to train and retain our own nurses and doctors in the UK. Steps are being taken to address the shortage of nurses, including continued investment in training, retention strategies, and a return to practice campaign. We are introducing a new nursing degree apprenticeship. Health Education England has increased nurse training places by 50% over the past two years and is forecasting that more than 40,000 additional nurses will be available by 2020. Similarly, Health Education England is forecasting that more than 11,000 additional doctors will be available by 2020. The noble Baroness, Lady Walmsley, asked about the number of nurses impacted by the charge: 2,600 certificates of sponsorship were used for nurses in the year ending August 2015.

The noble Lord, Lord Watson, asked about the delay in publishing the impact assessment. As the charge is classified as a tax, we have not been required to carry out a formal impact assessment. It is also difficult to do so because it is difficult to anticipate how employers will respond to the charge and to wider changes to tier 2. In addition, the charge does not sit as an isolated measure—it is part of a wider skills programme to develop a strong, productive economy. On the noble Lord’s point about how we will assess and evaluate the impact of the policy and whether the charge will be reviewed, we will monitor the operation of the charge and will undertake a review of the policy after one year, as covered in the Explanatory Memorandum.

To clarify some of the exempted occupations: intra-company transfer graduate trainees are exempt as they sit with the investment by employers in skills. Other exemptions which apply to the tier 2 general category also apply to ICTs: PhD-level jobs, visas for less than six months and transfer responses before 6 April this year.

The noble Baroness, Lady Walmsley, asked whether the income would specifically go to NHS training. There have been discussions with the Department of Health about how health education and training can benefit from the Government’s wider skills reforms such as apprenticeships. The amount of funding generated by the charge will depend on the use of the tier 2 skilled workforce route. The income raised from the charge will be used to address the skills gap in the workforce. The immigration skills charge is making a contribution to the department’s budgets and is helping to sustain our investment in skills.

I was very grateful to my noble friend Lord Lucas for his comments in support of these regulations. I will be very happy to meet him and representatives of the IT industry to discuss how we can ensure the appropriate training in that sector.

There has been broad agreement about the need to invest and give people from all backgrounds the opportunity to develop and learn and be part of a highly skilled, competitive and successful economy. That is why we are introducing this charge. I will write to noble Lords to cover other points.

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Before the Minister finishes, I mentioned the UK Commission for Employment and Skills, and that apparently it has been disbanded. Perhaps the Minister can give me a commitment that he will also write to me about that. I am happy to leave it at that just now.

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I will certainly cover that.

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Before the Minister concludes his remarks, I will make one point. Of course I agree with what he said about the need for employers to make a contribution to the training of the workforce from whom they will eventually benefit. However, is he aware of the very high level of commitment to training that all health and care employers already make? It takes them a lot of time and costs them a lot of money. Every ward has training nurses on it; every clinical team has trainee doctors on it; most GP practices have GP trainees; most care homes also have trainee co-workers. An enormous contribution is made already. The noble Lord, Lord Watson, talked about double charging—that is what we have here.

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I have listened to what the noble Baroness and the noble Lord have said but I cannot add any more at this stage. I commend the regulations to the Committee.

Motion agreed.

Committee adjourned at 6.33 pm.