Considered in Grand Committee
My Lords, this is familiar ground for me, having moved the draft of industrial training board levy orders in the House on three occasions previously. The order before us enables the CITB to raise and collect a levy on employers in the construction industry. The objective of the levy is to raise funds to meet the CITB’s expenditure on training the workforce across the construction industry to secure a sufficient supply of skilled labour.
There is a strong public interest in a high-performing, efficient construction industry. Construction is one of the largest sectors in the UK economy, with a turnover of £370 billion, contributing £138 billion in value added to the UK economy and employing 3.1 million people, which is 9% of the total UK workforce. We know the construction industry faces many inherent disincentives to train. As Mark Farmer’s report and the Government’s own review of industry training boards identified late last year, construction is a highly fragmented industry, with SMEs making up more than 99% of all businesses. It relies heavily on subcontracting and self-employment, and it is the central role of the CITB to help incentivise firms to overcome these disincentives.
The scope of the CITB covers most construction activity. Construction is an extremely large and diverse industry, covering a highly disparate range of industries and trades—everything from major civil engineering works to private housebuilding. The Government recently published the 2017 update to the National Infrastructure and Construction Pipeline, setting out details of over £460 billion of planned infrastructure investment across the public and private sectors. Looking to the next 10 years, we project total public and private investment in infrastructure to be around £600 billion. This will be challenging; government and industry need to work together to ensure that we have the right people with the right skills to deliver this ambitious pipeline of investment.
We need also need a construction industry that has the right skills to build more homes, including in new and innovative ways. In the Autumn Statement, the Chancellor announced more than £15 billion of new financial support for housebuilding over the next five years, taking total financial support to at least £44 billion up to 2022-23. This will create, fund and drive a market that will raise housing supply to 300,000 a year on average by the mid-2020s. Building more homes using modern methods of construction, including off-site and smart techniques, is a part of this.
The construction industry recognises the important role of the CITB in helping it to attract, retain and develop individuals with the appropriate skills to meet the range of challenges it faces. The CITB recently estimated that 158,000 construction jobs are set to be created over the next five years. The CITB develops the skills of the existing workforce and new entrants into the industry through providing training grants and putting in place strategic initiatives that will benefit industry over the long term and secure a sustainable pipeline of skills. In 2016, the CITB used its levy income to provide £148 million of grants to 16,101 employers, including assisting them with the additional costs of employing an apprentice. In particular, the grant scheme supports and incentivises investment in training for smaller businesses, which carry out the majority of training but generally have greater constraints in their capacity to invest. The CITB also delivers a range of other functions such as sector-wide work on research, developing standards and qualifications and promoting construction as a career.
The CITB was established as an industry training board in 1964. The construction industry has therefore had a levy and grant arrangement for some 50 years. Recognising the need to consider the implications of the apprenticeship levy, increase domestic construction skills and improve the productivity of the sector, the Government recently concluded a significant review of industry training boards, including the CITB, which was published in November 2017. The review concluded that the CITB’s resources and capabilities continue to be vital in supporting the construction industry and allowing it to deal with the challenges it faces. The industry training board review supported the CITB levy being retained alongside the apprenticeship levy. It determined that, because relatively few employers in the construction industry are likely to pay both the apprenticeship and the CITB levies, removal of the CITB levy would mean significantly less funding being available for training, at a time when levels of training need to increase. It concluded that the CITB levy and the apprenticeship levy are complementary and pay for different types of training and employer support.
I now turn to how the order has met the legal requirements set out in the Industrial Training Act. The Act allows the CITB to submit a proposal to the Secretary of State for the raising and collection of a levy. The order can be made only if the Secretary of State is satisfied that certain legislative tests have been met. These include consideration that the amount of levy is appropriate in the circumstances, that the proposals are necessary to encourage adequate training in the industry and that more than half of the employers—who together are likely to pay the majority of the levy—also consider the proposals necessary to encourage adequate training in the industry. The Secretary of State was satisfied that these conditions had been met.
The CITB has undertaken its most extensive consultation with industry to date on the levy proposals before us. The consultation process, also known as the consensus process, has included direct consultation with trade bodies that represent 7,150 employers and 4,000 employers that are not members of trade bodies. The CITB scoped out a range of possible options, entered into discussion with employers to share the developed options and received their feedback before agreeing on the final levy proposal. The levy proposals have therefore been shaped significantly by industry.
Having listened to industry views and recognising the impact that the apprenticeship levy will have on training in the sector, the CITB proposes to decrease the levy rate from 0.5% to 0.35% arising from emoluments relating to people directly employed by an employer. The liability for the levy arising from indirect employment will remain at a rate of 1.25%, and the CITB will continue to use information about net construction industry scheme payments to determine this liability. Of those companies in scope of paying the levy, who together are likely to pay 69% of its value, 76% are in favour of the CITB proposals before us today. In line with the requirements of the Industrial Training Act, the Secretary of State is satisfied that the CITB has taken reasonable steps to ascertain the views of employers who are likely to be liable to levy payments in consequence of the levy proposals.
The order can also be made only if the Secretary of State is satisfied that the exemption thresholds set out in the proposals exempt suitable small employers from the levy. The order therefore provides that small firms whose combined payroll and net expenditure on subcontracted labour is less than £80,000 will not have to pay at all, but will be able to claim CITB grants and access support. Of all the establishments considered leviable by the CITB, it is expected that around 40% will be exempted from paying the levy. In addition, employers just above the small-firm threshold will receive a 50% reduction in the levy payable if their expenditure on payroll and subcontracted labour is between £80,000 and £400,000.
Over three years, the CITB’s proposals are expected to raise about £600 million of levy income, which will be directly invested back into industry. The order will enable the CITB to continue to carry out its vital training responsibilities, and I commend it to the Committee.
My Lords, I thank the Minister for introducing the order. As we know, the CITB has to apply every three years for authority to raise the levy from employers to enable it to continue operating and, as he set out, the industry is fragmented and has high levels of self-employment and subcontracting, and those create disincentives for employers to train and develop the workforce. The CITB is there to support and encourage training, which it has been doing since 1964, so it is well established and recognised throughout the industry.
The reduction of the levy to 0.35% from 0.5% must have been welcomed, as the Minister mentioned, and had the support of the great majority of employers. Of course, relatively few employers are large enough to pay the apprenticeship levy, so even after that is properly up and running, there will still be a need for the CITB to support training.
The Minister said that the two levies are complementary, but I wonder how the CITB levy will work alongside the apprenticeship levy. Will employers be prepared to pay for both, and has any assessment been done of the additional cost and burden on employers? Did the CITB consultation come up with any proposals to widen the apprenticeship levy to include skills, which is a widely mooted discussion at the moment?
The Minister says that the construction industry needs to recruit 158,000 people across the UK in the next five years. How will the Government help the industry to attract recruits, particularly in view of Brexit and the high number of EU citizens who currently work in the industry? What attempts are being made to recruit more women into construction? I am involved with one organisation called Women on the Tools and another called Women in Construction, which work to attract women and girls into the industry. Those who take the plunge find excellent work as plumbers, electricians, roofers and so on, but the macho nature of the workforce can make life difficult for women whose skills and interests lie in construction but who have to face up to being the only woman in the workforce or in training. To meet the skills and needs, women will need to be included.
Currently, only about 2% of those in construction are women; the figure rises to around 9% if it includes administrators and office workers. What are the CITB and the Government doing to broaden the recruitment base? The CITB’s review identified a key priority as careers, so how about careers information in schools? Are enough attempts being made to introduce pupils to the many and varied job and career opportunities in construction?
As ever with statutory instruments, there is little to oppose in this one. If the CITB has the agreement of the industry on these proposals and the Government agree to them, there is little for us to do or say. But this is a very important industry: it is heavily regulated for health and safety and has many demands and expectations put on it. Think of HS2 or Crossrail and other major infrastructure projects, not least a desperate need for housing. We shall need its many skills and talents when we eventually move out of this Palace. As it is, we have many construction experts here just to keep the building standing and us and all our visitors as safe as possible. If this order will help the industry on its way, we can only commend it.
My Lords, I thank the Minister for his crystal-clear exposition of the order. I certainly do not wish to oppose it and I much appreciate the figures supplied concerning the planned expenditure on infrastructure and the references to much-needed investment in housing.
My memory goes back to when I served in another place alongside the late Lord Eric Varley, some 30 years ago. In our opposition role, it appeared that night after night and month after month, after 10 pm there would be orders to abolish existing training boards. Those orders were brought forward by the late Peter Morrison, a Minister in the Department of Employment and the Member of Parliament for Chester, whose constituency abutted my own and with whom I often collaborated. I sometimes wonder whether the nation’s extreme shortage of skilled labour has its roots in those successive abandonments of training boards in those debates after 10 pm in the 1980s. We certainly all agree that the nation needs a more skilled workforce. I know that the CITB is a great survivor and has a substantial training ground in north Norfolk, not a million miles away from the Sandringham estate.
I do not wish to detain the Committee but could the Minister, perhaps with the aid of his officials, exemplify a typical SME and indicate what sort of money that business may need to find each year for the levy? He rightly mentioned housing investment. The names of some of the great companies which build houses across Britain come to mind, such as Redrow, Persimmon, Barratt and Taylor Woodrow. Is he able in this Committee, or if not in writing at another time, to say what sort of money they pay? What is the levy on such exemplary great companies in housing and/or construction? That is my query following his exposition.
My Lords, I will draw attention to one of the other facets of the importance of the construction industry and of the CITB. I too agree that the order should quite properly go forward, but a number of factors need a little further exploration. In presenting the case, the Minister set out the demands there will be on the construction industry in the infrastructure pipeline and the need to increase the number of homes built to 300,000 by the mid-2020s—2025 is seven years ahead. The infrastructure pipeline of £600 billion that he mentioned is, I understand, additional to that.
There is a requirement for 158,000 extra jobs in the construction industry. I am sure the Minister will be familiar with the statistic that some 70,000 people leave the industry each year and currently only about 40,000 UK residents are recruited to it. The difference is made up by EU 27 migrant workers. It is that side of the equation that I want to draw to the Minister’s attention.
While we might need another 158,000 employees to meet these very necessary targets, some 200,000 workers in the construction industry are from the EU 27 and another key ambition of the Government is to reduce inward migration to the tens of thousands, presumably over approximately the same timescale to the mid-2020s. Add those two figures together and you get more than a third of a million extra workers who need to be recruited from within the UK to maintain or deliver that. I have the advantage of a press release from the Federation of Master Builders from January, which says:
“Two-thirds of those running small and medium-sized … construction firms are struggling to hire bricklayers and carpenters as construction skills shortages hit a ‘record high’”.
We do not have any surplus. We certainly have pressure on that. The building survey report that I saw last week from GK Strategy—nowadays, with practically all jobs being online, you can also monitor how many people apply for jobs online—notes that the number of searches of UK-based jobs by workers in Romania has fallen by 36%. In other words, far fewer Romanians are looking at jobs in the UK as a destination they want to go for. Overall, there is a drop of some 30% in Eastern European searches for jobs in the UK.
The indication is that even without government policy action, the whole process of Brexit and the declaration of intent is leading to a reduced flow of workers coming in through the construction industry. The Home Builders Federation says that at the moment 17.7% of its workforce is from the EU 27, of which more than 50% are from Romania, the country from which applications appear to be drying up.
Putting all that together, the task being set for the Construction Industry Training Board—and, indeed, for the Government—is extremely serious and intense. It will require real focus and determination if we are not to find that some, if not both, of the Government’s ambitions about reducing migration on the one hand and delivering the infrastructure pipeline on the other are not to be frustrated.
Having read the CITB briefing in preparation for this discussion, and having met the CITB just over a month ago, I am well aware that it is planning to both shrink and refocus its work and to direct it in a different direction. I do not criticise that. It is necessary in view of the feelings of concern that were widespread in the industry about the CITB and its role. Indeed, the CECA—Civil Engineering Contractors Association —members’ survey, completed last year, reported that,
“some members felt it was becoming more difficult to get hold of their CITB representative especially since the CITB has re-organised. CECA members generally reported less satisfaction with CITB since recent changes”.
The consensus was indeed on the figures that the Minister gave but some pretty rough ground was covered in reaching it. Expectations of the CITB are clearly high and need to be delivered.
Putting all that together, I would be very interested to hear from the Minister not just what he has said already but how this proposal fits in with the broader aims of the construction industry strategy, as set out by the Government in their overall industrial strategy earlier this year. Does he agree that the CITB will need to expand and intensify its work, not least by getting the long list of courses and apprenticeships currently waiting for approval approved and those courses operating as quickly as possible? To pick up what my noble friend Lady Garden said about the two levies, will the Government please work with the industry and the CITB to make sure that, as the Minister expressed it, these things are complementary? That is not how the industry sees it. By and large, I would say that it is—using the other spelling—uncomplimentary about the fact that there are these two levies. The larger employers which fail to pay both are, frankly, gaming the system in order to spend the money, not necessarily on the task which the Minister clearly thinks is important, which is training and recruiting additional people for the industry, not simply upskilling those who are already in it.
My Lords, I thank the Minister for the clear and concise manner in which he laid out what this statutory instrument seeks to achieve. It is not often that we read from the same page but this is such an occasion because the Opposition fully support the introduction of the latest version of the CITB levy. The Minister started by saying, I think, that this is the third of these he has done. It is my second and I remember a year ago there were only two of us involved in the debate, so it was good to have contributions from the Liberal Democrats and my Labour colleague. It is an important industry so the way its training develops is very important as well.
From memory, there used to be in excess of 20 industrial training boards until they were significantly reduced in number by the Industrial Training Act 1982. That is the legislation under which this order is issued. Today there are just three boards, each of which is a non-departmental public body, and thus accountable to Parliament. They raise most of their funds through training levies and various commercial activities. We learn from the Explanatory Memorandum that the CITB expects to raise around £200 million in levy in each of the three years to which the order relates. It is to be hoped that the board will return more than this figure each year to the sector—as, to its credit, was the case in 2016.
It is interesting that the CITB itself made the proposal to reduce the rate of the levy for workers employed directly by the employer, but not for those employed indirectly. The memorandum explains that this is the result of the prevailing economic conditions and the skills needs of the sector. That is understandable, but why is there a differential? The economic conditions hit those employing people both directly and indirectly, so the rationale for the difference is not immediately obvious.
As is made plain in the impact assessment:
“There remains a serious and distinct market failure in the development of skills in the construction industry: the trading conditions, incentives and culture do not lead to a sufficient level of investment in skills by employers”.
Unfortunately, this malaise is not restricted to the construction sector. UK employers in many sectors have long been unwilling to recognise the need for skilling and upskilling, and that is a major factor in the low productivity levels from which our economy suffers. The apprenticeship levy was introduced a year ago as a clear sign that the Government accepted that employers would not, of their own volition, invest in skills in sufficient numbers and that they require a firm hand on their shoulder to “encourage” them to do so. As the Minister said, the levy we are discussing today will complement the apprenticeship levy: both will play a key role in equipping the construction industry with the skilled and flexible workforce that it needs.
At a time when the UK is preparing to leave the European Union, and given the large number of European Union nationals who work in construction in this country, it is not just important but absolutely vital that the industry is in a position to train—and continually retrain—its workforce for the challenges of the future. We know that employers in the construction industry support the levy and value the payback they get from their contributions. As the CITB itself says, the levy enables it to provide grants to train new staff and develop the skills of an existing workforce. It does so through peaks and troughs in the health of the industry, so that investment in skills and training continues.
The Minister referred in detail to the exemptions that are offered to small and medium-sized employers. Noble Lords may not appreciate that the term SME requires qualification in this context. More than 99% of the construction industry comprises small and medium-sized enterprises, but that embraces micro-companies with one to nine employees, small companies employing from 10 to 49 people and medium-sized companies employing 50 to 249. It is hardly surprising that these organisations find it more difficult to deliver training than larger employers do. It is instructive that the CITB allocates its grants in a manner that is surprisingly balanced throughout those four sectors. Some £24.6 million goes to micro-companies, £26.2 million to small companies and £33.4 million to medium-sized ones. The large ones receive only—a relative term—£44.5 million, so the CITB does an admirable job of ensuring that each of the sectors is enabled to train its staff appropriately.
The Explanatory Memorandum outlines the consultation on the levy proposals undertaken by the CITB. I was slightly taken aback to note that only 10 of the 14 employer organisations consulted backed the proposal, while 72% of employers not in membership of one of those organisations signified support. We are told that just under 77% of all employers supported the proposal, which is certainly a clear majority. However, this does mean that almost one-quarter of employers were not in favour, for reasons unknown or, at least, not listed in the Explanatory Memorandum. It is to be hoped that an enduring antipathy among some employers in the industry to allowing the costs of training to outweigh the benefits was not a factor. Might the Minister care to say something about that? Is he aware of why the consensus was not greater and has he considered asking the CITB to examine the reasons, with a view to building greater support when the levy comes to be renewed in 2021?
My final point concerns the future of the construction sector and ways in which the use of the levy can contribute to making the industry’s workforce more diverse. The CITB’s chief executive is Sarah Beale and she is clearly aware of the need to make construction open and attractive to all. Writing recently in the House magazine, she highlighted the fact that the industry being still overwhelmingly male means it is missing out on a huge pool of talent by not being seen as a first, second or even third choice for many women. Ms Beale went on to describe the development of a construction ambassador programme, enabling young people to hear what the industry is really like at first hand. The CITB is also rolling out an industry-wide campaign aimed at young people called Go Construct, pointing out the exciting opportunities available. These are positive and welcome steps and I congratulate the CITB, not just on identifying the need for such an approach but on then putting it into operation.
I wish both the organisation and the industry it represents well and look forward to hearing of further progress in the development of the skills that they need when we come to consider the effectiveness of the levy between this year and 2021.
My Lords, I start by thanking all noble Lords who have taken part in this short debate. I also echo the thoughts of the noble Lord, Lord Watson, who pointed out that it is not just him and me debating this important issue; we have representation from other parties, the Liberal Democrats in particular.
I will go straight in and address a number of questions that were asked about the order, and will start by looking at the apprenticeship scheme, because the noble Baroness, Lady Garden, asked about the levy. Even though I made it quite clear in my opening statement, understandably, she wanted to know a little more about how the CITB levy would work alongside the apprenticeship levy. We see them as complementary. The levy supports the extra costs employers face when taking on an apprentice. I am saying that also because the consultation raised that point as well, so the consultees—the employers—were perfectly happy for the two to go side by side.
The noble Baroness, Lady Garden, and the noble Lord, Lord Stunell, asked about the details of the apprenticeship levy. The CITB estimates that around 900 out of the 28,000 CITB levy-paying employers will pay both the CITB levy and the apprenticeship levy. The two are complementary, as I said, and pay for different types of training and employer support. The CITB provides grants that incentivise employers to take on apprentices and support travel and accommodation costs, but no other sector without an industry training board receives this support. Government funding generally covers apprenticeship training costs, while the CITB’s grant scheme supports the employers with the costs of having an apprentice—for example, wages and tools.
The noble Baroness, Lady Garden, asked about the flexibility within the apprenticeship levy. I think she is probably alluding to a recent debate in the Chamber on this matter. I continue to reassure her that we continue to work with employers and the wider stakeholders on how the apprenticeship levy is spent so that the funding system works effectively and flexibly for industry and meets employers’ skills needs, supports productivity across the country and supports our commitment to delivering 3 million apprenticeship starts in England by 2020. From April 2018, as she knows, we will allow eligible levy-paying employers to transfer up to 10% of the annual value of funds entering their digital accounts to other employers, and we will carefully monitor the implementation of this change. That could include employers in the supply chain of the main employers, which could obviously help with business.
The noble Lord, Lord Stunell, asked about the standards within apprenticeships and why it has taken so long to establish standards, which is a fair question. The Institute for Apprenticeships is responsible for managing the approval of new standards. It is important that we have a rigorous process for approving new standards so that we can be sure that we approve only high-quality proposals; that is an absolute cornerstone of what we are doing on apprenticeships. However, the institute has also been listening and consulting, and planning improvements to make the approvals process faster and better, and it will soon launch a simple, effective, two-stage review process for standards, starting with a root review and then more detailed scrutiny of a pathway support for trailblazers review. Employers will be actively involved in this. I cannot promise immediate improvement, but we are on it and it is important that we step up on speed; employers are telling us that.
The noble Baroness, Lady Garden, raised an important point about diversity. I say at the outset that the Government are committed to supporting the construction sector to increase the gender and ethnic diversity of its workforce to ensure that there are opportunities for all those who wish to pursue construction careers, regardless of their background. It is true that in 2014, women made up 46.6% of the working population, and yet only 14.5% of the construction workforce are women. The noble Baroness mentioned 2%, but I do not recognise that figure. However, the point is that it is very low—too low.
The noble Baroness makes a very good point: 2% is far too low for those at the front end. The Government are very much aware of that. The CITB has taken practical steps by developing a cross-industry fairness, inclusion and respect programme, which will invest in activities to make the sector a more attractive place to work in for people of all backgrounds, particularly women.
There is more. The CITB careers hub, Go Construct, provides online guidance and case studies for prospective employees and employers on a range of diversity topics, including gender and race. In addition, the wage gap between women and men is 17% and people with disabilities earn 9.9% less, so there are suggestions that women fail to be promoted once given additional responsibilities. This is another linked area that we are looking at and the CITB is also aware of it. Those points are important.
The noble Baroness, Lady Garden, mentioned the EU and Brexit, asking whether our leaving the EU will reduce skills and our capacity in the sector further. We see this in a different light from her—she will probably not be surprised by what I am about to say—because we see it as an opportunity for industry to invest in its workforce and tackle the long-standing issues around training and productivity. We expect industry, working with government, to offer rewarding careers to a new generation of British construction workers. In parallel, local areas have the opportunity to use housebuilding to create skilled jobs and drive growth. There is more because, as the noble Baroness will know, negotiations are continuing and we will have to wait for their outcome to know what the construction sector will consist of after Brexit.
The noble Lord, Lord Jones, asked about the amount of levy paid by an SME and what is paid by larger housebuilders; that is two questions, actually. As he alluded to, I cannot give a specific example. Perhaps I can reassure him to this extent: as I mentioned, very small employers with a wage bill of less than £80,000 are entirely exempt from the levy, slightly larger firms—those with a wage bill of £80,000 to £400,000—pay a 50% reduced rate, and SMEs receive 60% of all CITB grants in return. I hope there is some reassurance there —without giving specific examples—that housebuilding firms fall into that as well.
The noble Lord, Lord Stunell, asked about skill shortages, which is another item high on the Government’s list. The CITB is committed to helping construction employers to deliver the pipeline of work faster, better and more efficiently. The CITB aims to use its evidence base on skills requirements to ensure that employers can access the high-quality training its workforce needs. The key is to work with employers and design with them a skills system more responsive to the needs of industry.
I was about to move on to a further point made by the noble Lord about the CITB and its efficiency. He may well be aware that reforms are under way as a result of the report published on the ITB back in November 2017 and linked to the 2016 skills plan. The report found that the CITB levy remained necessary, which is why we are here, but that it must reform and serve the skills needs of the construction industry better. That is a very clear message. Recommendations were made in two areas: improving governance and accountability; and ensuring that the CITB has a more positive impact on the industry. I hope I can reassure the noble Lord that, with the changes being made at the moment, the CITB will be fit for purpose to handle the issues that he raised.
The noble Lord, Lord Watson, asked why there was a higher levy rate on indirect subcontractor labour payments. In the main, employers using subcontracted labour have fewer incentives to provide training opportunities and therefore do not contribute to the overall supply of skilled labour. The higher levy rate is intended to compensate for that. That is the direct answer. The noble Lord also asked about the consultation and the level of support. I would argue that 76% support is good. The noble Lord looked at the negative side of that, which I respect. However, some of the employer organisations that did not support the levy proposal during the consultation process were supportive of the levy system but wanted to see improvements in the CITB’s governance and operation. That ties in with my final comment to the noble Lord, Lord Stunell. The industry training board review found that the CITB levy remained necessary but that it must reform, as I said.
I hope I have answered noble Lords’ questions. If I have not, I will certainly write to noble Lords. I conclude by saying that it continues to be the collective view of the majority of employers in the construction industry that training should be funded through a statutory levy system to secure a sufficient pool of skilled labour, which is so important for our country. I commend the order to the Committee.