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Industrial Training Levy (Engineering Construction Industry Training Board) Order 2023

Volume 831: debated on Wednesday 5 July 2023

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Industrial Training Levy (Engineering Construction Industry Training Board) Order 2023.

My Lords, as the Committee will no doubt appreciate, the engineering construction sector is broad and a significant part of the UK economy. At the heart of the industry is its workforce, and it is vital that the industry has the skills base and expertise to build the infrastructure required to achieve net zero by 2050 and by 2045 in Scotland.

The ECITB predicts that at least 25,000 new roles will be needed for planned projects between now and 2025. This number is expected to grow as other projects are deployed—for example, the retrofitting of industrial sites with carbon capture and hydrogen production technologies, the further expansion of offshore wind, and increasing our plans for the deployment of civil nuclear to provide up to 25% of our projected electricity demand by 2050, as envisaged in the British Energy Security Strategy announced last year.

The ECITB was established in 1964 under the Industrial Training Act. It has a clearly defined role in identifying engineering construction skill needs and plays a part, with others, in addressing them. The ECITB has a role in addressing any market failure through its levy and grants system, which gives employees essential skills necessary to access and work on engineering construction sites, drive up skill levels and incentivise training that otherwise simply would not take place. This three-year levy order is expected to raise around £91.5 million, based on average industry growth scenarios, to invest in engineering and construction skills. The levy will be used to support strategic initiatives to help maintain and develop vital skills in the industry and create a pipeline of skilled workers.

I turn now to the details of the draft order; I thank the Joint Committee on Statutory Instruments and the Secondary Legislation Scrutiny Committee for considering it. The previous 2020 ECITB levy order introduced a phased increase to levy rates payable by off-site employees, while maintaining the same levy rates for on-site employees, across its three levy periods. This three-year 2023 levy order seeks to maintain the levy rates prescribed for the third phase of the 2020 order, currently in place, for each of the next three levy periods, and for both off-site and on-site employees. Those rates are 0.33% of the earnings paid by employers to off-site employees and 1.2% of those paid to on-site employees for those businesses that are liable to pay the levy.

Engineering construction employers with an annual wage bill of less than £275,000 for on-site employees will not pay any levy. Employers with an average wage bill of less than £1 million for off-site employees will also be exempted from paying the levy. It is important to note that these exemptions do not stop employers accessing the same ECITB support available to levy-paying employers. It is projected that approximately 18% of all employers in scope of the levy will be exempt from paying it.

The ECITB has consulted industry on the levy proposals via the consensus process required under the Industrial Training Act 1982. Consensus is achieved by satisfying two requirements: both the majority of employers likely to pay the levy and those employers who, together, are likely to pay more than half the aggregate levy raised must agree that the levy proposals are necessary to encourage adequate training. I reassure your Lordships that both requirements were overwhelmingly satisfied, with 85% of employers in scope of paying the levy—between them, they are likely to pay 97% of the aggregate levy—supportive of the ECITB’s proposals. I am delighted to say that this is a significant increase from 2019, when 75% of the likely levy-paying employers, who, between them, were likely to pay 87% of the aggregate levy, were in support of those levy proposals.

This order has significant industry support and will enable the ECITB to continue to carry out its vital training responsibilities. I beg to move.

My thanks go to the Minister for the clear and concise manner in which she laid out this statutory instrument and what it seeks to achieve. The Opposition welcome its current continuance.

We know that the purpose of the instrument is to enable the engineering construction industry to raise and collect a levy on employers. Some years ago, industry training boards were transformed from statutory to non-statutory bodies. The CITB and the ECITB retained their statutory status and powers. We are now considering this routine order.

The CITB exists to ensure that the construction workforce has the right skills for not just now but the future based on three strategic priorities: careers; standards and qualifications; and training and development. However, there is a distinct market failure in the development of skills in the construction industry. This is partly due to the trading conditions, incentives and culture that fail to lead to a sufficient level of investment in skills by employers.

Sadly, it is not just this sector of business. Many employers have failed and continue to fail their employees’ upskilling needs, which leads to low levels of productivity. The introduction of the apprenticeship levy six years ago pointed to this fact. The Government needed to encourage employers to invest in skill development, and legislation was needed to support this encouragement.

The economic success of any country relies on delivering key infrastructure. There is a further economic benefit, and this industry provides a wide range of employment opportunities, many of them well paid, highly skilled and with career progression.

Nevertheless, there are intrinsic sectoral barriers that hinder workforce training and the development of skills. Employment in the sector is linked closely to the actual project, which means that there are high numbers of temporary workers and a lot of movement between employers. Furthermore, training costs are high in such a skilled industry and many core engineering skills are transferrable to other industries. This results in individual employers lacking the incentive to train their workforce out of fear of plundering by rival firms. There are few incentives for individual employers to train since the work is often short-term and the labour force highly mobile. This means that long-term skills are overlooked; these are vital, especially in engineering.

The ECITB is right to claim that it helps to make the labour market in engineering construction more efficient and effective. Its intention is to address this market failure by providing grants to employers to train their workforces. I understand that funding from the apprenticeship levy supports apprentices across all sectors and occupations, whereas the ECITB is specifically for the engineering construction industry, using levy funds to provide direct grants to employers to train staff or develop the skills of their existing workforce.

Employers have long asked to be able to use the levy for a wide range of training, not just apprenticeships. Does the Minister have any update for us on whether that change might happen? We have seen more than a decade of decline in skills and training opportunities, which is making the United Kingdom poorer. Businesses, especially those in the engineering construction industry, are unable to fill job vacancies, are being held back by a lack of people with the skills they need and have growing skills shortages. How are the Government addressing these skills shortages in the short, medium and longer term?

Young people and adults are ambitious for their families’ futures. They want to learn new skills to get new jobs or progress at work. However, they are being let down and are unable to find training opportunities. Apprenticeship starts have plummeted, with 200,000 fewer people starting these training opportunities. More than 11 million people in the UK lack the basic digital skills needed in our economy while four in 10 young people are leaving education without the qualifications that they need to get on.

By harnessing the ambition and determination of British people, a Labour Government will face these challenges and create a skills system that works for businesses and people across our country. Labour will give businesses the flexibility that they are asking for to train their workforce and deliver growth. We will start by turning the apprenticeships levy into a growth and skills levy so that it can be used on the greater range of training courses that businesses tell us they need, so that adults can gain new skills and businesses not just in this sector but across the whole economy can grow.

In the intervening time, His Majesty’s Opposition support the continuance of the current scheme through this industrial training levy order.

I thank the noble Baroness for her support for this order and for recognising the importance of skills training in this area. She paints a rather bleaker picture of the situation as it stands today but certainly raises some helpful points, which I will try to clarify.

The noble Baroness asked what the Government’s vision for skills is, both in the short and medium term. I am not sure that time permits me to go into all that but I hope she will recognise that the Government have made a huge investment in skills and apprenticeships, whether that be in the new T-levels, many of which are targeted towards some of the skills demands in engineering and construction, as well as more widely, with the reform of level 4 and level 5 qualifications, the introduction of the lifelong learning entitlement and the provision of boot camps for skills—including digital skills, to which the noble Baroness referred.

With regard to the apprenticeship levy, although I absolutely do not suggest that the noble Baroness is in this camp, for the record, I feel that there is a slightly outdated understanding of the use of the apprenticeship levy. In the financial year 2021-22, 99.6% of the £2.5 billion apprenticeship budget was spent. I appreciate that, in previous years, there were underspends but, in fact, demand for apprenticeships is going up. The awareness and absolutely rightful recognition of the value of apprenticeships, including degree apprenticeships, is much more widespread among young people today than it was even just a few years ago. That programme has gained a lot of traction.

Returning to the order, it is clear from the support that the ECITB’s proposals received from levy-paying employers that the engineering construction industry continues to believe that it is right that training is funded through a statutory levy system. As previously stated, this sector is absolutely critical to delivering the infrastructure projects required to meet the environmental challenge of reducing the UK’s carbon emissions to zero by 2050. The levy system must continue to be used to help develop a pool of skilled labour, both now and in the future, for this critical sector.

If the levy ceased, it would fall on employers to determine their own training arrangements, devise their own standards and qualifications, and cover the full cost of training. Further, without the grants provided by the levy, many small businesses would simply not be able to afford to train their workforce. There is a firm belief that, without the levy, there would be a serious deterioration in the quality of training, creating a deficiency in skills levels and capacity and, crucially, leaving the sector unable to deliver key projects vital to the UK’s economic growth.

Motion agreed.