Considered in Grand Committee
My Lords, as the Committee will no doubt appreciate, the construction sector is broad and a significant part of the UK economy. It is responsible for delivering infrastructure and large construction, including transport, energy, social infrastructure and commercial buildings. It is also responsible for delivering new housebuilding and for the repair, maintenance and improvement work needed for existing buildings and the built environment.
The traditional image of the industry and its workers is shifting. New technologies are enabling more efficient and modern methods of construction. We recognise the role that construction plays in reaching the UK’s net-zero targets, which the House passed into legislation in 2019.
This is a broad sector, as I said, and it is a large and growing one. It is valuable to our economy, currently contributing £155 billion, which represents 9% of our national gross value added. It is also valuable economically due to the large number and wide range of employment opportunities that it provides, many of them well-paid, highly-skilled roles offering excellent progression opportunities. It is valuable to the individual too; it employs 3.1 million workers, 813,000 of whom are self-employed.
In research conducted by the Construction Industry Training Board, known as the CITB, the Construction Skills Network forecast indicates that the sector will grow at an average rate of 4.4% across 2021-25. Skills interventions will be critical in meeting existing and future construction labour market demands and addressing skills deficits. New and existing workers will require interventions to retain, retrain and upskill as new regulations and technologies are introduced.
It is a broad, growing, and valuable sector, but it is a fragmented one too. Small and medium-sized enterprises make up more than 99% of all businesses, of which the majority are micro-businesses. It relies heavily on subcontracting and self-employment. This fragmentation creates long-held disincentives for employers to train and develop their construction workforce. This goes to the heart of what the CITB was created to do.
Established in 1964, the CITB is, at its core, industry led, and it exists to encourage the provision of construction training. It has a clearly defined role in identifying construction skills needs and plays a part, with others, in addressing them. It provides targeted training spend, as well as grants to employers, to encourage and enable workers to access and operate safely on construction sites, drive up skills levels and incentivise training that would otherwise not take place. It supports strategic initiatives to help to maintain and develop vital skills in the industry and to create a pipeline of skilled workers. It is developing occupational standards and recognised qualifications so that skills are transferable and increase productivity.
In all activity, the CITB is working in ways that will support the construction sector to develop an environmentally sustainable future, supporting the Government’s ambitions towards net zero. Over the coming three-year levy period, the CITB expects to raise around £502.2 million to invest in construction skills.
The recent 2021 levy order was for one year, not the usual three years. That order was more unusual still, as the levy rates that it prescribed were reduced to 50% of those prescribed by the three-year 2018 order. This was to accommodate the CITB’s decision to allow levy payers a payment holiday in response to cash flow pressures the industry was facing during the first Covid lockdown.
I now turn to the details of the draft order, and I thank the Joint Committee on Statutory Instruments and the Secondary Legislation Scrutiny Committee for considering this draft legislation. This three-year 2022 order returns to the levy rates prescribed by the three-year 2018 order—0.35% of the earnings paid by employers to directly employed workers and 1.25% of contract payments for indirectly employed workers—for businesses liable to pay the levy. However, the industry, having been consulted on the CITB’s delivery strategy and levy rate, supported the retention of the higher exemption and reduction thresholds for small employers contained in the 2021 order. Construction employers with an annual wage bill of up to £119,999—previously £79,999 in the 2018 order—will not pay any levy, while still having full access to CITB support.
It is projected that approximately 62% of all employers in scope of the levy will be exempt from paying it. Employers with a wage bill between £120,000—previously £80,000 in the 2018 order—and £399,999 will receive a 50% reduction on their levy liability while also receiving full access to CITB services. Approximately 14% of all employers in scope of the levy will receive a 50% reduction. Maintaining the increased exemption and reduction thresholds seeks to acknowledge and ease the budgetary pressures on SMEs.
The CITB 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: that both the majority of employers likely to pay the levy, and employers that together are likely to pay more than half the aggregate levy raised, consider that the proposals are necessary to encourage adequate training. Both requirements were satisfied, with 66.5% of likely levy payers in the industry, which between them are likely to pay 63.2% of the aggregate levy, supportive of the CITB’s proposals.
This order will enable the CITB to continue to carry out its vital training responsibilities, and I beg to move.
My Lords, I thank the Minister for her helpful and informative introduction to a welcome order of importance to our national economy and, indeed, to our future. I also acknowledge the ever-present commitment, conscientiousness and insight of my noble friend Lord Watson. I declare my interest in the register as president of the Engineering Education Scheme Wales, the EESW.
Page 2 of the order refers to consultation with Scottish Ministers, and I ask how and when consultations with Welsh Assembly Ministers took place. In the Explanatory Memorandum in paragraph 10.1, reference is made to a small group of employers that advised on the 2022 to 2024 levy orders. Will the Minister name the employers in the small group and describe the process? If the answer is not immediately forthcoming, perhaps she might write. Where in all this was there a place for trade unions? Was the TUC considered in any way?
Will the Minister expand on the role of technical colleges in the training of apprentices? Concerning apprentices, what role does a Minister play in relation to college trusts and boards? Surely these colleges have a huge and beneficial role. I have in mind here paragraphs 7.2 and 7.3 of the very helpful Explanatory Memorandum.
At paragraph 7.4 there is a more serious statement, which I will quote:
“The construction industry contributes 8.6% of the UK’s gross domestic product, employing over 2.5 million people. However, there remains a serious and distinct market failure in the development and maintenance 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.”
I thought it was very helpful to see that paragraph in our papers, and surely it is to the credit of the Government that it was put in. It is of huge importance, and I am sure the Minister will respond.
What special and urgent initiatives is the Minister undertaking on the basis of that serious paragraph? What policy stimuli are under way? Are not engineering apprentices of great national importance—for example, in our aerospace industry and the Ministry of Defence? How does a Minister liaise cross-departmentally to seek ever more and ever better apprenticeships?
I note the 21 November impact assessment and its self-evident helpfulness. Look, for example, at the figurative illustrations—figures 5 and 6—at paragraph 36. First, figure 5 shows the estimated CITB levy payable by employers in England, Scotland and Wales in 2018 versus 2022—that is, the changes. In this, general building, civil engineering and housebuilding come out on top, with £20 million for housebuilding. Why are the Government not pushing harder for housebuilding?
Secondly, figure 5 shows the levy paid by nations in 2022: some £149 million in England, £13.6 million in Scotland, but only, I note, £4.8 million in Wales. Will the Minister tell us what is going on in Wales? For certain, the Welsh Assembly and Government have a good record; all my compatriots are good payers, as I am sure the Minister would agree. Will she please comment and explain? Is it simply that the money that Wales pays is based on population only? But why so little?
Thirdly, in figure 6, it is good to see the brickie and the pointer itemised. The pointer puts the icing on the brick cake. Is the Minister prepared to agree? What are the Government doing to get more brickies and pointers? They are absolutely vital in housebuilding and they are in very short supply, which leads to bottlenecks. The Government want, in the most positive way, more housing built, but here is a bottleneck around the brickie and the pointer. We need many more in the industry, so how hard are the Government negotiating with the employers? Do they pressurise the chief executive officer of the CITB for more brickies and pointers?
Lastly, as a context for this order, at least for possibly youthful departmental officials, I refer to another place in the 1980s where, from the opposition Dispatch Box, I opposed the then Thatcher Government’s policies on industrial training boards. With large majorities, the Government would abolish board after board. Night after night, it seemed, the boards were despatched. The Secretary of State, James Prior, one-time PPS to Prime Minister Edward Heath, deputed his junior, Peter Morrison, soon to be PPS for Prime Minister Margaret Thatcher, to mastermind and operate the carnage. Our votes were three liners after the three-liner 10 o’clock votes. We never got away before midnight, and it was always a packed, restless House for that business.
I shared a national and constituency boundary with Peter Morrison, and always found the Secretary of State, Mr Prior, to be adamant. My other opponent was the substantially figured Mr Cyril Smith. That Government let the CITB survive; the CITB and engineering survived that midnight culling of those many boards. But constituency-wise my rayon factory stood down its apprentice school. Neither our steelworks nor the aerospace factory recruited apprentices for quite some years. That is a historic fact, and I relate it to the paragraph that I have quoted from our documents.
Britain’s perpetual skills and productivity crises are rooted in that midnight culling of the boards. I emphasise again what paragraph 7.4 refers to, and again thank the Minister for her opening speech.
I thank the noble Lord, Lord Jones, for that tour de force, and, having spent the week in Anglesey, we have a Welsh connection.
As the Minister rightly said, the construction industry is hugely important to the economy of the UK. She also referenced the need for a pipeline of skilled workers. What she did not talk about was the point made by the noble Lord, Lord Jones, that there is a national crisis in the shortage of construction workers, which could hamper the many infrastructure schemes that we have—not just big infrastructure schemes, but local and small ones. If my noble friend Lord Stunell was here, he would tell the Minister in no uncertain terms, which I think he has already done, about the dire consequences of not ensuring that those brickies and pointers, as the noble Lord, Lord Jones, said, are recruited as quickly they should be. I have also wondered why more women are not involved in the construction industry.
The Construction Industry Training Board undertakes a large number of activities, and the Minister spelled them out in some detail, but this is perhaps a time to question what has been going on. I wonder whether the CITB would be considered by Jacob Rees-Mogg as part of his bonfire of the quangos. I hope not, but I hope that it will be reformed and refocused, because there are real concerns. You have only to listen to the National Federation of Builders, which is calling for a fundamental restructuring of the CITB, including an end to its levy-raising powers. It states that the majority of construction employers asked do not see the CITB as adding value to the industry and do not believe that it meets the labour market or industry needs, and that they cannot access the training they need when they need it. That is quite a concern.
Employers in the construction industry are facing many issues, post Covid. Is it fair that the academic institutions receive so much more; should not the levy go directly to levy-paying employers? The levy returns can sometimes be challenging and time-consuming for employers, generating additional administrative costs. Importantly, there needs to be an easier and quicker way to complete the required documentation without further record-keeping. As I have said before, a business must focus on the job of the business, making a profit and securing jobs. When the bureaucracy gets in the way, that often causes real problems for the business.
I hope that the Minister will listen to the comments made and answer them. I too had scribbled down that it would be useful to know, on a regular basis, the names of the small group who advised: let us name them and see who they represent. I had also scribbled a note asking whether the TUC was involved.
My Lords, I thank the Minister for her introduction to the order, which it is fair to say is not controversial. It states that
“the Secretary of State is satisfied that the industrial training levy proposals are necessary to encourage adequate training in the industry”,
and we concur. For that reason, I do not propose to say much at all about the levy itself, which will continue much as before. Rather, I shall focus on the CITB and its role in assisting the construction industry to address some of the issues of recruitment and training it currently faces.
In a previous life, further back than I care to remember, I was a full-time official with a trade union in the engineering sector, and I recall dealing with several industry training boards on a number of different issues. Indeed, from memory, there were more than 20 in the 1980s, until the number was significantly reduced by the Industrial Training Act 1982. It is to be regretted that, apart from those in the film sector, only the Construction Industry Training Board and the Engineering Construction Industry Training Board are still in place today. The last two are non-departmental public bodies, and thus accountable to Parliament and, as the noble Lord, Lord Storey, said, possibly within the sights of the Minister for Brexit Opportunities and Government Efficiency—a quaint name, without a department behind it.
The order we are considering today runs to six pages, but its impact assessment is five times that length. That is to be welcomed, because it contains much interesting—in some cases, fascinating—information and statistics about the levy, the board and the construction industry itself. From it, we learn that the industry has had a levy and grant arrangement for 58 years. The impact assessment says that it currently employs more than 2.5 million people—the Minister said 3.1 million, so I am glad to hear it is growing—contributes 8.6% to GDP, and, if I caught it correctly, 9% of gross value added, which, as an economist, I think is a productivity metric. Both demonstrate the importance of the industry.
The CITB exists to ensure that the construction workforce has the right skills for now and the future, based on three strategic priorities: careers, standards and qualifications, and training and development. 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”.
It is stated that this is because
“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 upskilling and to pay for it, and that is a major factor in the low productivity levels from which our economy suffers. The introduction of the apprenticeship levy five years ago was a clear sign of the Government’s acceptance that employers will not in sufficient numbers invest of their own volition in skills development, and thus require a firm hand on their collective shoulder to encourage them to do so.
The training levy plays a key role in equipping the construction industry with the skilled and flexible workforce it needs. In the post-EU world in which we find ourselves, and given the large number of EU nationals who have traditionally worked in the construction industry 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 facing the economy.
Indeed, to quote the Explanatory Memorandum:
“It is essential, now more than ever, that employers have access to the support needed to upskill existing workers and adequately attract and train new talent, as industry seeks to fully recover from the impacts of the pandemic.”
Absolutely. This order will raise more than £0.5 billion between now and 2024 to invest in training skills, which is why employers have always strongly supported the levy and value the payback they get from their contributions.
However, as the Minister will have noted from the impact assessment, the consultation among employers on the CITB’s proposals for this levy produced a figure of 66.5% in support. That should cause some concern, because not only does it mean that a third of employers were not in favour of the levy—for reasons unknown, or at least not listed in the impact assessment—but the 66.5% figure was down from 76.9% when the vote was last held, in 2017. Perhaps the Minister can say whether DfE officials and/or Ministers have asked the CITB for its explanation of that reduction and what action, if any, the board will be asked to undertake to ensure it does not fall further in three years. More positive is the survey on the final page of the impact assessment, which shows that, when asked whether the statutory levy, grant and funding system should continue, 75% of employers said that it should.
The CITB has had an awkward few years recently, with more than its fair share of criticism from within the sector. The board was forcefully led by Sarah Beale from 2017 until her departure last year, and now has Tim Balcon as its CEO. Ms Beale oversaw a restructuring that saw its workforce cut by two-thirds as it returned to its core business, but that has not assuaged all in the sector. One of its largest participants, Build UK, recently called for fundamental changes, stating that there remains
“widespread frustration with the performance of CITB”.
Mr Balcon deserves the chance to make his influence felt, but are the Minister and her officials aware of the discontent with the board felt by some of the employers it exists to assist? If so, can she share any information as to what support—I am not talking about financial terms—might be offered to the board?
One of those areas should be the need for much greater diversity within the construction industry. The CITB itself deserves credit for becoming, under Sarah Beale, a female-led organisation in a male-dominated industry. One of the potential benefits of that was that it allowed the CITB to push boundaries and promote change, but much more remains to be done. ONS data shows that the construction industry’s 16% female workforce—a point referenced by the noble Lord, Lord Storey—compares with 23% in transportation and 25% in water supply and manufacturing, the other worst sectors.
The 2011 census showed that 13% of the UK population identified as black, Asian or minority ethnic, yet ONS data found that the percentage employed at that time in UK construction was just 7.5%. More worryingly, in a 2015 survey of its own, the CITB found that the actual figure could have been closer to 5%. We should be told what the current figures are, so that the board can begin to plot a course towards increasing the number substantially. As Kay Jarvis of the global infrastructure company blu-3 reported in 2020:
“The 2018 OutNext/PwC Out to Succeed survey also found construction had the third-worst image of all industries as an LGBT+ employer.”
A recent study by recruitment analytics specialist Hays discovered that, of those black people
“who managed to break into the construction sector”—
that term is perhaps of some importance—no less than
“78% claimed they had experienced career restrictions due to their race or other demographic factors such as sexuality and age.”
Whether this is down to structural prejudice or unconscious bias, it highlights the significant and clear challenge of discrimination in the hiring and promotion process, which surely must be addressed. The CITB is well positioned to do so; I hope that the Government will offer it every encouragement, perhaps by setting a baseline and then measuring year-on-year progress against it in respect of equality and diversity in various forms in construction.
Role models are extremely important in addressing prejudice. In 2019, UK Construction Week led a role model campaign that sought to provide a platform for people across the industry, particularly those from underrepresented groups, to share their success stories and discuss the challenges they have faced. Since then, applications for roles in construction have increased fourfold, which illustrates that having a positive example is often enough to encourage someone to apply for a position in the industry that they otherwise might not have applied for.
So the industry is making an attempt to tackle some of the inherent inequalities in the sector; that must be continued, side by side with the training and upskilling being offered to those in the industry and those seeking to develop a career in it. The apprenticeship levy has many faults but it has at least concentrated employers’ minds on the importance of bringing through the next generation of a skilled workforce. Together with the benefits that the Skills and Post-16 Education Bill will bring, there are more opportunities than ever for people—young and not so young—to access the training that they and the economy need.
Properly resourced, the CITB is positioned to focus on that delivery. I wish both the organisation and the industry it represents well. I hope that we will be presented with further progress in the development of skills and an industry with greater diversity when we are asked to consider the next draft levy order in three years’ time.
My Lords, I thank noble Lords for their contributions to the debate. I will attempt to cover the questions asked but I will of course write on any that I cannot answer at the Dispatch Box.
Before I go any further, the noble Lord, Lord Watson, highlighted the difference between the 2.5 million employees cited in the Explanatory Memorandum and the 3.1 million that I referred to in my opening remarks. The figure of 3.1 million comes from the Office for National Statistics and represents a wider definition of construction that includes the built environment and manufacturing. The figure in the Explanatory Memorandum is an estimate of the CITB-relevant part of the total. I hope that clarifies it for the noble Lord.
The noble Lord, Lord Jones, shared his deep expertise in the sector and asked a number of questions in relation to Wales. In line with the requirements of Section 88 of the Scotland Act 1998, we consulted Scottish Ministers—the noble Lord pointed this out—who confirmed that they are content with the levy order. The Welsh Assembly has also confirmed its support for the order.
The noble Lord asked why the contribution for Wales appears to be so small. The levy is charged to in-scope employers based on their wage bill, so it is possible that there are fewer or smaller such employers in Wales and this is reflected in those figures. The noble Lord also asked how much of the levy will be distributed in Scotland and Wales. The split in income and expenditure between England, Scotland and Wales is not something that the CITB generally measures or reports on.
The noble Lord asked about engagement with the unions. Obviously, it is up to the CITB as to who it engages with. It is the legislation that controls who can actually vote on the levy proposals.
The noble Lords, Lord Jones and Lord Storey, challenged whether the Government are doing enough with our investment in training, qualifications and skills in this area. We have already put in place a wide range of opportunities for adults to gain the skills that they need for employment and are ensuring that people have opportunities to study by delivering on the Prime Minister’s lifetime skills guarantee. The provision of skills, in construction in particular, is supported through a number of routes, including courses available through further education colleges and independent learning providers, with funding of more than £1.3 billion from the adult education budget. Noble Lords will be aware that we introduced construction T-levels in 2020, as an alternative vocational route into the sector, and are continuing to develop skills boot camps, which offer free and flexible courses of up to 16 weeks, funded through the national skills fund.
As noble Lords observed, apprenticeships remain a key route into this industry. There are currently over 640 high-quality, industry-designed standards available, and we aim to continue to improve and grow apprenticeships, so that more employers and individuals can benefit from them.
The noble Lords, Lord Watson and Lord Storey, rightly focused on the lack of diversity in the construction workforce. Obviously the CITB is not responsible for the construction workforce, but it has an important role in facilitating skills opportunities to help the industry strive towards a workforce that reflects today’s society. It undertakes a wide range of initiatives and activities; it works with industry and other partners to try to attract a diverse pool of new entrants into the industry and to promote construction careers. I share the hope of the noble Lord, Lord Watson, that in three years, when we debate this instrument again, the make-up of the sector will look very different from where it is today.
The CITB is funding the training of industry construction ambassadors on fairness, inclusion and respect, who contribute to a dedicated industry project which creates resources for employers to promote and celebrate best practice across the sector. It is also funding a digital resilience hub, which is a free and accessible tool that brings together mental health resources for those working in the construction industry. Finally, it is funding the on-site hubs that support individuals to become employment-ready and site-ready to take up opportunities in construction. Their target is to support underrepresented groups, including women and those from black, Asian and other minority-ethnic backgrounds, to secure sustainable job outcomes. It is fair to say that representation from those groups remains disproportionately low. The CITB continues to work with partners to try to address that.
The noble Lords, Lord Watson and Lord Storey, questioned the value of the CITB and raised some of the criticisms that have been lodged against it, and asked whether there would be an alternative model for funding skills development in the construction industry. The Government seek to evaluate the rationale for and effectiveness of its arm’s-length bodies through a programme of regular reviews, and that includes the ITBs. In 2017, the review of ITBs confirmed that there remains an ongoing need for a central skills body and recommended that the CITB should make stronger efforts to address the skills gap and market failure within the industry. That included the requirement for the CITB to lead on emerging needs, such as supporting the Government’s ambitions for housing.
I mentioned earlier that the impact assessment shows that 75% of employers, when asked, said that they wanted the current scheme to continue. Is it not unthinkable that, with that kind of backing, the Government might move away from the current model?
Obviously I cannot predict the future. I can only repeat what the review of 2017 said, on which basis the Government are moving forward. The review showed that there is an ongoing need for a central skills body and, as the noble Lord says, employers support it.
Following that review, the CITB’s implementation of its three-year transformation process, Vision 2020, has helped to make it a more focused and more agile partner to industry, and, as a result of the initiative, the CITB has implemented new governance structures so that industry voices are at the heart of decision-making, has launched new funding systems to allow employers to have easier access to support—the noble Lord, Lord Storey, referred to bureaucracy being a barrier to accessing support—and has moved to an investment model based on strategic commissioning. As I noted, the industry has expressed concerns about the performance of the CITB, but we are confident that it has worked hard to increase industry involvement in its strategic planning to address those concerns.
The noble Lord, Lord Storey, asked about the funding model and exactly what it pays for. The levy provides an investment in skills through a redistributive and collective fund, and it provides value through strategic initiatives that benefit the whole industry—I have referred to some of them already—such as attracting new entrants, identifying common standards and common training solutions, encouraging the transferability of skills, quality control of training provision, leadership and project management development, and collaborative behavioural training programmes.
The noble Lord, Lord Watson, asked about the relationship between the amount of levy that is paid and the grants that an employer might receive. We believe that employers receive value for money, but they do not expect to receive a direct financial return via the training grants that is equal to the levy that is paid. As I mentioned, the levy is an investment in skills through a redistributive and collective fund that benefits all employers.
The noble Lord, Lord Jones, asked about our housebuilding targets. One of the priorities from the DfE to the CITB for 2022-23 is providing support to the industry to meet our ambition to build 300,000 homes each year.
There continues to be the collective view across the sector that training should be funded through a statutory levy system and that that system should be used to contribute to a pool of skilled labour, now and in the future, for this critical sector. There is a firm belief that without the levy there would be a serious deterioration in the quality and quantity of training in the construction industry, leading to a deficiency in skills levels and in capacity. That would create particular challenges in the current economic environment, when skilled workers are needed to deliver the infrastructure projects required to meet the environmental challenge of reducing the UK’s carbon emissions to zero by 2050, as well as all the other ambitions that we have referred to in relation to other infrastructure and housebuilding projects.