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General Committees

Debated on Tuesday 8 September 2020

Delegated Legislation Committee

Draft Industrial Training Levy (Engineering Construction Industry Training Board) order 2020

The Committee consisted of the following Members:

Chair: †Hannah Bardell

† Bailey, Shaun (West Bromwich West) (Con)

† Clarkson, Chris (Heywood and Middleton) (Con)

Cooper, Rosie (West Lancashire) (Lab)

† Edwards, Ruth (Rushcliffe) (Con)

† Howell, Paul (Sedgefield) (Con)

† Johnston, David (Wantage) (Con)

† Keegan, Gillian (Parliamentary Under-Secretary of State for Education)

Keeley, Barbara (Worsley and Eccles South) (Lab)

Lewis, Clive (Norwich South) (Lab)

Lloyd, Tony (Rochdale) (Lab)

† Mohindra, Mr Gagan (South West Hertfordshire) (Con)

† Perkins, Mr Toby (Chesterfield) (Lab)

† Richardson, Angela (Guildford) (Con)

Thompson, Owen (Midlothian) (SNP)

† Tomlinson, Michael (Lord Commissioner of Her Majesty's Treasury)

† Twist, Liz (Blaydon) (Lab)

† Vara, Mr Shailesh (North West Cambridgeshire) (Con)

Bradley Albrow, Committee Clerk

† attended the Committee

Fifth Delegated Legislation Committee

Tuesday 8 September 2020

[Hannah Bardell in the Chair]

Draft Industrial Training Levy (Engineering Construction Industry Training Board) Order 2020

I thank Members for their attendance. I advise them that this is my first chairing obligation, so please be gentle and I will be kind.

I beg to move,

That the Committee has considered the draft Industrial Training Levy (Engineering Construction Industry Training Board) Order 2020.

Thank you, Chair. This is also my first time as a Minister delivering a piece of legislation—a double first.

The draft order will allow the Engineering Construction Industry Training Board, or ECITB, to raise and collect a levy from employers in the engineering construction industry. Engineering construction touches our lives daily in unseen but vital ways, powering our homes and offices, providing clean water, processing and producing food, and the production of pharmaceuticals. The industry makes up more than one fifth of the total UK economy. Before covid, it directly supported about 190,000 jobs and was due to expand. It delivers crucial infrastructure that allows us to compete globally and has a key role in moving the country ever closer to net zero carbon emissions by 2050.

Even without covid’s impact on gas and oil, in which the hon. Member for Midlothian (Owen Thompson) would have a keen interest, were he in his place, engineering construction is a changing sector. High-tech skills are being poached by other sectors, the workforce are ageing and technologies are fast changing. That is why the Government announced a £5 billion accelerated investment in infrastructure projects to help fuel—excuse the pun—jobs and economic recovery from covid-19. For my Department, together with the ECITB, it is now more important than ever that we invest in skills and training to bring new talent up through the pipeline, to improve diversity and to retain existing knowledge.

The ECITB was established under the Industrial Training Act 1964—which makes it even older than me— to address the market failure of the sector to provide employee training. It provides targeted training grants to employers to enable workers to access and operate safely on engineering construction sites, to drive up skill levels and to incentivise training that would otherwise not take place. There is a balance to be struck between attracting new people and retaining existing workers.

Post covid, the ECITB swiftly introduced, among other measures, a scheme to help employers retain apprentices and graduates, and a new scholarship for trainees embarking on engineering construction careers. Recently, it has also published a report on transferability of skills, which will become increasingly important as we move from our dependency on fossil fuels to green energy. I am sure that our Scottish neighbours will have a keen interest in that, too.

On the draft order, the ECITB recognises budgetary pressures on small and medium-sized enterprises, which is why exemption thresholds have been retained. Approximately 25% of all establishments in scope of the levy will be exempted from payment and yet still able to access the pot. The levy rate for off-site employees, however, is increasing from 0.14% to 0.33% of an employer’s annual payments to workers for services. That will be phased in over three years.

That increase reflects a substantial growth in demand for training grants for off-site workers. Last year, off-site training took out almost 25% of the levy pot and paid in 13%. The ECITB considers that that demand is likely to increase further still as companies harness opportunities from new technologies and as more work is conducted remotely, such as remote fault diagnostics.

The ECITB has consulted industry on the levy proposals via its consensus process. Consensus consists of two tests: both the majority who pay the levy and in addition those who pay more than half of the levy raised must agree to the proposals. I reassure the Committee that both tests have been met overwhelmingly: 78% of off-site levy payers voted in favour, 66% of Scottish employers were in favour—representing 93% of the Scottish levy raised—and, collectively, 75% of all companies in scope of paying the levy and that together are likely to pay 87% of it voted in favour of the proposals before us.

That support is a testament to the value that the industry attaches to the ECITB and the recognition that there is a long-term skills challenge that can only be addressed through collective action. During the three-year levy period, this order is expected to raise around £80 million, which is to be invested in skills training for the engineering construction industry. In 2018, 99.4% of the levy raised went directly into supporting training.

To conclude, the order will enable the ECITB to continue carrying out its vital training responsibilities, and I commend it to the Committee.

Thank you very much indeed, Ms Bardell, for calling me to speak; it is a great pleasure to serve under your fledgling chairship. I also congratulate my counterpart, the Minister, on her virgin voyage, and I thank her for setting out the order, as published.

I do not intend to detain the Committee for too long. I am pleased to outline our support for the order, as we have supported it for many years previously. As many hon. Members may remember, when my hon. Friend Gordon Marsden—the previous Member for Blackpool, South—gave his approval to then order in 2017, he said that the ECITB and its associated board, the Construction Industry Training Board

‘have been an excellent example over more than 50 years of bodies in the industry coming together voluntarily to work with Government to make progress.’

—[Official Report, Fifth Delegated Legislation Committee, 21 March 2017; c. 6.]

I share that assessment.

As Members will be aware, industry boards such as the ECITB were set up in the first place to encourage young people into the industry and to address skills shortages. Given the current economic challenges, which the Minister has just laid out, those needs are greater than ever.

Industry has changed significantly since the initial creation of industry boards back in 1964. Today, engineering construction is often made up of short-term and project work. For that reason in particular, investment in upskilling and retraining is especially vital for both the industry and its workforce. As the Minister said, pre-covid 190,000 people were dependent on engineering construction. The EICTB’s three-year plan outlined that it was consulting on a tier one provider model, including exploring course in a box product and online training courses, and funding a pilot programme for providers to develop and evaluate virtual learning and training solutions. In the light of covid, it would be helpful to know the extent to which those plans have been accelerated since the report was produced.

Since the previous order in 2017, the ECITB’s grants consultation summary report sets out that in 2016-17 30% of the grant expenditure went to management and professional training, 18% went to apprenticeships and 15% to technical training. The consultation and the truly overwhelming support within the industry for a levy on itself were a recognition that the levy was an investment not only in the staff of particular companies but in the entire industry’s future pipeline of workers. That is a really positive sign and a really positive development.

I also welcome the £4.5 million scheme announced in June by the ECITB to support the retention and development of key skills in the industry, in particular its new scholarships to support trainees embarking on an engineering construction career. I am interested to know whether the Minister feels that that scheme is enough currently, whether she feels confident that all of that money will be spent, and whether she thinks there will be a need for further investment to encourage more apprenticeships and training schemes for young people in the light of the huge drop-off in apprenticeships that we have seen in recent months.

In its recent three-year plan, the ECITB set out its commitment to a graduate programme, which is very welcome. However, it would be useful to know how the most disadvantaged young people will be encouraged into the industry, so I have a number of other questions that I hope the Minister can respond to.

Have the relevant devolved Administrations been consulted about this order? The Minister mentioned the hon. Member for Midlothian—I would be interested in any communications with the devolved Administrations and whether any specific issues have been raised about those markets. Have the plans and the proposals changed or been updated at all following the advent of covid, and has there been any assessment of whether they need to be?

I was very pleased to read that £500,000 will be made available from the grant scheme for diversity and inclusion training for managers, and interventions to support under-represented groups. What key performance indicators will monitor the impact of those programmes to encourage women, black, Asian and minority ethnic and disadvantaged or under-represented groups into the industry?

Given the impact of covid on employers, has consideration been given to whether there should be the option of a staggered levy, paid over the course of the year rather than in one instalment and with one month to pay? How will the Department for Education levy be used to support the training and development of staff working for smaller firms as well as of those working for larger ones? The Minister will be aware that, although only 18% of the levy in 2016-17 went towards apprenticeships, 54% of respondents to the survey believed that apprenticeships were the most valuable component of the levy expenditure, so does she have any plans to ensure that more of the levy is spent on apprenticeships?

I welcome the commitment from the ECITB in its three-year plan to equip the industry with skills to ensure that relevant sectors are able to deliver the net zero carbon economy by 2050. Does the Minister believe that we are on target? Should we be being more ambitious? In the light of covid, does she have any reservations about our capacity to achieve that? Is there an argument for greater accountability of the ECITB going forward? How does the DFE monitor and evaluate its aims and objectives, and to what extent does she feel that it is a successful model?

We welcome this fine example of a trade body being willing to invest in the skills of the future. Its recognition of their value is far-sighted and reflects well on the industry and its members, particularly given the financial pressures that have been brought to bear on the sector. Although I await with interest the Minister’s responses to my questions, I also look forward to supporting this very worthy initiative.

I thank the hon. Gentleman for his remarks. Before I turn to his questions, I reiterate the important strategic role that the engineering construction industry has to play in the economy as the country responds to and recovers from the impact of covid-19. There can be no doubt about how reliant we are on a skilled engineering construction workforce.

The hon. Gentleman asked how we will evolve training. A number of conversations have been had about modular training, and enabling people working in one sector, such as oil and gas, to use and transfer their skills into other sectors, such as renewables and renewable energy. The ECITB is very much focused, along with the Institute for Apprenticeships and Technical Education, on looking at how we can facilitate that transfer of skills and move into green jobs, so the skills in a box—the ability to have more modular upskilling capability to enable our green jobs revolution—is very much at the heart of our strategy.

Apprenticeships are absolutely key to the way that the industry goes about training its young people. As the hon. Gentleman will be aware, the Department has introduced traineeships that are also being considered as pre-apprenticeships, to enable even more people to build the pipeline. There are 132 apprenticeship standards, so the Department and the Institute for Apprenticeships and Technical Education have done a lot of work to ensure that we support the sector, and a broad range of apprenticeship standards are in place.

The hon. Gentleman mentioned diversity and the ability of those with special educational needs and any sorts of disabilities to access the sector. Equality and diversity within the industry is a challenge, and the industry knows that, and knows that it needs to encourage greater diversity among the engineering construction workforce, particularly by increasing female and BAME representation. The ECITB has recognised that it has a key role to play in that. The levy enables initiatives that are aimed at attracting a diverse pool of new entrants to the industry and promoting careers and training in engineering and construction post 16.

The ECITB is working with partners such as the Women’s Engineering Society and EqualEngineers to raise awareness and showcase diversity in action through public relations activities and campaigns. The ECITB has a female chair and four of the 12 board members are women, which also shows good progress. As is typical with all courses offered by the DFE, further education providers and independent training and apprenticeship providers, it is vital that all those providers make sure that their courses are accessible to anybody with special educational needs. Much more effort is being made to focus on that to make sure that accessibility results in more people with disabilities having opportunities in this field.

On overview, a strategy and business plan takes account of what will happen in the three years and how we will facilitate the move to green jobs to facilitate net zero carbon economy and to attract young people, who are probably much more attracted by an industry that has renewables and green jobs than perhaps they would be by an old oil and gas sector, so that is a way to make sure we have a solid pipeline of workers. I have oversight of the strategy and business plan, and I also conduct an annual performance appraisal of the chair of the ECITB. In fact, I completed that just last week. The ECITB is doing a good job, which is borne out by the fact that so many employers still support its overall purpose and aim, and many of the board members are key leaders in the sector.

The ECITB levy is ring-fenced for activities such as training new staff in many different ways or developing the skills of the existing engineering construction workforce. The majority of the engineering construction training would be unlikely to take place without that, and without such investment we would not have the skilled workers that we need and we would not be able to deliver infrastructure projects. Most of that is project-based work which will form part of the country’s recovery as well as support the transition to greener, sustainable energies linked to decarbonisation. That strategy continues to represent the collective view of employers in the engineering construction industry. I am delighted that the hon. Gentleman and his Labour party colleagues also support that policy, because it is right that engineering construction industry training should be funded through a statutory levy system in order to secure a sufficient pool of skilled and talented labour. I commend the order to the Committee.

Question put and agreed to.

Committee rose.

Draft Greenhouse Gas Emissions Trading Scheme Order 2020

The Committee consisted of the following Members:

Chair: †Ian Paisley

† Britcliffe, Sara (Hyndburn) (Con)

Coyle, Neil (Bermondsey and Old Southwark) (Lab)

† Davison, Dehenna (Bishop Auckland) (Con)

† Fletcher, Colleen (Coventry North East) (Lab)

† Fletcher, Mark (Bolsover) (Con)

† Gibson, Peter (Darlington) (Con)

† Holmes, Paul (Eastleigh) (Con)

† Kwarteng, Kwasi (Minister for Business, Energy and Clean Growth)

Mahmood, Shabana (Birmingham, Ladywood) (Lab)

† Mangnall, Anthony (Totnes) (Con)

† Osborne, Kate (Jarrow) (Lab)

† Pennycook, Matthew (Greenwich and Woolwich) (Lab)

† Tarry, Sam (Ilford South) (Lab)

Thompson, Owen (Midlothian) (SNP)

† Tomlinson, Michael (Lord Commissioner of Her Majesty's Treasury)

† Webb, Suzanne (Stourbridge) (Con)

† Wood, Mike (Dudley South) (Con)

Jack Dent, Committee Clerk

† attended the Committee

Fourth Delegated Legislation Committee

Tuesday 8 September 2020

[Ian Paisley in the Chair]

Draft Greenhouse Gas Emissions Trading Scheme Order 2020

I beg to move,

That the Committee has considered the draft Greenhouse Gas Emissions Trading Scheme Order 2020.

It is a real pleasure to open this short debate, I hope, with you in the Chair, Mr Paisley. The Order in Council, which was laid before the House on 13 July 2020 in draft under the Climate Change Act 2008, establishes a UK-wide greenhouse gas emissions trading system—a UK ETS—as a policy replacement for our participation in the EU emissions trading system. The UK will cease to participate in the EU ETS at the end of the transition period at the end of the year as a consequence, obviously, of our withdrawal from the EU.

This stand-alone UK ETS, as some people refer to it, has been agreed by the four Governments of the UK nations, and those positions are set out in the Government’s response to the future of carbon pricing consultation, published on 1 June this year. Further secondary legislation will be introduced later this year that will introduce additional elements to the UK ETS. We have drawn on the best of the current system, which the UK, as everyone knows, was instrumental in developing, and we have made a number of improvements where possible to ensure greater flexibility to work in the interests of the UK and the global fight against climate change.

Given the importance of our net zero commitments, we will consult next year on what an appropriate development for the UK ETS cap is for the remainder of the first phase, once the Committee on Climate Change’s advice on the sixth carbon budget is published. We expect that to be published later this year. Reducing emissions while supporting UK business is central to my Department’s mission. We think that this is exactly the right way to go, and we always like to remind people that over the past 30 years our emissions have gone down by 45% while the UK economy has grown by 75%. It is absolutely the case that reducing carbon emissions is not really the enemy of economic development but can work very well with it.

The draft Order in Council establishes a UK ETS, as I have said, that will be operational from 1 January 2021. It establishes the scope of the UK ETS, which includes energy-intensive industries, the electricity generation sector and aviation, and it establishes a cap on allowances created under the UK ETS each year. That is a crucial point. The initial level of the cap will be 5% below what would have been the case had we stayed in the EU ETS. That means that the standard that we are establishing is more stringent in terms of carbon emissions than would have been the case had we stayed in the EU ETS.

The Order in Council also establishes a scheme for monitoring, reporting and verification requirements. The UK ETS clearly offers participants a robust and proportionate enforcement system, and it will establish and define the roles of national regulators in monitoring and enforcing the scheme. Finally, the order will establish a post-transition period carbon pricing policy for the UK. We want to encourage the best means of reducing carbon emissions and we feel that that is obviously central to the net zero target that we enshrined in law last year. On that basis, I commend the order to the Committee.

It is a pleasure to serve under your chairmanship, Mr Paisley. The matter that we are discussing this morning is important, and although, for reasons that I will come to, the Opposition support the establishment of a UK-wide emissions scheme and consequently do not intend to press the order to a Division, I hope that Committee members will forgive me if I spend a short time setting out a series of questions that I hope the Minister will be in a position to answer.

We know that carbon pricing alone will not deliver sufficient decarbonisation to achieve the net zero emissions target that we legislated for just over a year ago, but if we are to deliver significant reductions it is essential that the UK has a robust carbon price, however that is achieved, at the point that our participation in the EU ETS ceases at the end of the transition period on 31 December. Given the circumstances in which we find ourselves, the Opposition’s clear preference is for a UK ETS that is linked to the EU ETS. That latter option would retain for the country the key benefits that flowed from participation in the latter, with its larger pool of participants, including more opportunities for emissions reduction, greater cost-efficiencies, increased liquidity and a lower risk of market abuse.

We therefore support the order on the basis that a UK ETS is a precondition for a linked UK-EU scheme and recognise that, given the uncertainties around the ongoing negotiations with the EU, it is important that the legislation that will establish it is completed before the end of the transition period. However, I would be grateful if the Minister could provide some further clarity regarding the Government’s present position on the possible future link between the UK ETS, to be established via the order, and the EU ETS.

In the May 2019 consultation document on the future of UK carbon pricing, the UK Government and the devolved Administrations stated clearly that securing a linking agreement with the EU was their preferred option. In contrast, the explanatory memorandum to the order merely states that the UK Government are

“open to considering a link…if such a linking agreement…is in both sides’ interests”.

I obviously do not expect the Minister to comment on the ongoing negotiations, but I would be grateful if he could clarify that a UK ETS link to the EU ETS remains the Government’s preferred option, and that they are still actively seeking to secure it as part of the negotiations.

The Opposition hope that a linked agreement is successfully negotiated, but there is obviously a chance that that is not the case, or at least that no agreement is secured for some time following the end of the transition period. In those circumstances, in order to avoid a carbon pricing gap, the Government have made it clear that we would have to fall back on either the UK ETS that the order facilitates, but as a stand-alone system, as the Minister made clear, or a carbon emissions tax from 1 January 2021.

Both options are, I think, sub-optimal compared with the option of a UK ETS linked to the EU ETS, and both, as I am sure the Minister will be aware, are potentially problematic. The management of a stand-alone UK ETS will require a significant amount of Government intervention on the part of his Department, and even then risks being dysfunctional, with a highly volatile price plagued by low levels of liquidity and high levels of speculation.

In contrast, a carbon emissions tax provides certainty of price, but may be less cost-effective for business, more open to political interventions that risk undermining price stability and, because there is obviously no cap on total emissions, would require institutional safeguards to ensure that prices remain consistent with the UK’s net zero target. Some of those problems may be overcome by good policy design, but the workings of either scheme are not the focus of this morning’s discussion.

I am concerned about certainty for those covered by the arrangement. With just 16 weeks until the transition period ends, surely the Minister recognises that the emitters covered by either scheme require some certainty about which of those two options the Government will ultimately opt for as a fall-back if no linking agreement is in place on 1 January next year. That choice is not subject in any way to the negotiations taking place with the EU.

We have been asked to pass today’s order and will, one presumes, be asked to pass a similar order for those aspects of the carbon emissions tax yet to be legislated because the Government have not been able to resolve internally which of the two is their fall-back preference, and have therefore been forced to ask Parliament to authorise both options in advance of a decision. We know that officials at the Minister’s Department and at the Treasury have failed to reach agreement, but he should at least be able to tell the Committee when a decision will finally be made on what the preferred fall-back option is if the Government fail to negotiate a linked UK-EU ETS, ready to go in 16 weeks’ time, so that those affected can properly plan for what comes next. I hope that he can shed some light on those aspects.

Before I bring my remarks to a close, I have two technical questions about the UK ETS, which is the subject of the order, and I hope that the Minister might be able to shed some light on the Government’s thinking on both of them. First, he must surely accept that the proposed initial cap, which I concede is set 5% below the UK’s notional share of the EU ETS, is wholly inadequate as a tool for reducing emissions. UK emissions last year in sectors covered by the EU ETS stood at 129 megatonnes and are predicted to fall further next year. The allowance cap that the Government propose for a UK ETS through the order is 156 megatonnnes—well above that level.

I note the Government’s arguments about the impact of the pandemic and the economic emergency in predicting future emissions as well as the need to minimise the risk associated with the transition, but the arguments for that amount of proposed headroom are far from robust. Will the Minister explain why it was determined that the scheme’s starting point should not be the latest data on UK emissions in the traded sector, particularly given that the market stability mechanisms, which the Government argue will support the price, will not function in the first year of the UK stand-alone ETS?

Secondly, we of course agree with the Government that the cap should be tightened in line with a trajectory consistent with a net zero target and the Committee on Climate Change’s advice on the sixth carbon budget. We also appreciate that the market needs appropriate forewarning and that industry should have enough notice to prepare for that. However, given how important ambitious climate action is in this decade, as the Minister knows, why will it take until at least January 2023, and potentially until 2024, for that alignment to take place?

The Opposition support the establishment of a UK-wide emissions scheme as a necessary contingency, but I cannot stress enough to the Minister that, as he knows, we cannot have a dysfunctional carbon pricing system in place in the year we are to host COP26. The challenge of designing a watertight stand-alone UK ETS should be a spur to the Government’s efforts to negotiate a link-in agreement with the EU system as soon as possible.

In response to the hon. Gentleman’s questions, he will know that in the past the Government consistently said that our primary objective was to get a UK ETS linked, as he described, with the EU ETS. However, he also knows, as he mentioned, that that is a subject of ongoing negotiation and discussion between our negotiators and the EU. Should there fail to be an agreement, this is our fall-back position.

In terms of a carbon tax and a UK ETS stand-alone scheme, we are talking to the devolved Governments all the time and it would be premature for me to say here what the outcome of those discussions will be. The hon. Gentleman is aware that the Treasury is also involved in the discussions. I can shed no further light on that.

With respect to the hon. Gentleman’s technical questions, yes, he can say that the proposed target, even though it is 5% more stringent than if we had stayed in the EU ETS, is not going far enough, but we have said specifically that once the cap is established we will consult on tightening it. We have also said, very specifically, that we will wait for what the Committee on Climate Change says about the sixth carbon budget. When that happens, we can have a further discussion and look at the cap again. As I have said, this is bridging legislation, trying to smooth our ETS and carbon emissions policy as we exit the EU. Clearly, once we have more information, particularly from the CCC about the sixth carbon budget, we can look at the cap again and, I am sure, make it even more stringent.

Alongside the UK ETS, the Government have a range of ambitious policies that will help industry reduce costs and decarbonise. Of course, in the midst of the covid-19 crisis, we are very focused, as many hon. Members know, on the green recovery. These schemes, along with this Order in Council, will maintain that we have an effective carbon pricing policy. With the EU ETS having covered about a third of UK emissions between 2013 and 2020, carbon pricing is, as the hon. Gentleman suggested a key tool. It is not the only way in which we will deal with carbon emissions, but it is a key tool in the fight against climate change. I commend the order to the Committee.

Question put and agreed to.

Committee rose.