Industrial Training Levy (Engineering Construction Industry Training Board) Order 2020
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Baroness Berridge
That the Grand Committee do consider the Industrial Training Levy (Engineering Construction Industry Training Board) Order 2020.
The Parliamentary Under-Secretary of State, Department for Education and Department for International Trade (Baroness Berridge) (Con)
My Lords, engineering construction as a label is not easily understood, but 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 workforce.
I ask your Lordships’ House to consider how different our lives would have been in recent months without the electricity, oil, gas and nuclear industries being able to cope with the shifts in demand on power supply; without access to clean, healthy water systems; or without the right infrastructure to enable the food industry to meet an unprecedented demand from the public—and, critically, to consider how much our hopes lie with the pharmaceutical industry being able to identify and roll out a vaccine to this terrible virus. All this is enabled by the engineering construction sector.
As noble Lords know, this House passed legislation only last year to ensure that Britain meets the Committee on Climate Change’s ambitious target to reduce emissions to net zero by 2050. These challenges, whether brought about by Covid, climate change or clean growth, mean that investment in skills and training and supporting young people into jobs in engineering construction are now more important than ever. This goes to the heart of the Engineering Construction Industry Training Board, known as the ECITB. The order before your Lordships will enable the ECITB to continue to play its role in securing and maintaining a sufficient supply of highly skilled labour in the engineering construction industry.
Established in 1964, the ECITB—then named the Engineering Industry Training Board—is industry led and is there to ensure that the engineering construction industry has a highly skilled workforce. It provides targeted training grants to employers to enable workers to access and operate safely on engineering construction sites, drive up skill levels and incentivise training that would otherwise not take place. It also supports strategic initiatives to maintain vital skills in the industry and create a pipeline of skilled workers.
The ECITB is responsive to the needs of the engineering construction industry. During lockdown, it swiftly introduced a package of support measures including a scheme to retain apprentices and graduates and a new scholarship to support new entrants. Over the coming three-year levy period, the ECITB expects to raise around £80 million, to be invested in skills training. The latest available figures show that in 2018, 99.4% of the levy raised went directly into supporting training.
Turning to the detail, I wish to thank the Secondary Legislation Scrutiny Committee for considering this draft order. The key change from the previous 2017 levy order is an increase in the levy rate for offsite employees. These offsite workers are defined by the geographical location of their work, which is mainly at a distance from an engineering construction site such as a chemical works or power station.
The offsite rate is increasing to reflect the substantial growth in demand for training grants for offsite workers in recent years. Last year, offsite training took out almost 25% of total grant expenditure, yet paid in only 13% of the total raised. The ECITB considers that the demand for offsite training is likely to increase further still as companies harness opportunities from new technologies and more work is conducted remotely. This increase from 0.14% to 0.33% of an employer’s annual payments to workers for services is being phased in over the three-year period of this levy order to minimise its impact on employers. Noble Lords will be reassured to learn that the sector affected gave overwhelming support for the increase. The rationale for a fairer split between who contributes to the pot and who can take from it is clear.
This order also recognises that SMEs are a critical part of the engineering industry but at the same time are less likely to have an in-house training budget. As such, it retains the exemption thresholds from the 2017 levy order, which ensure that smaller engineering construction firms can access the support that the ECITB provides without having to contribute financially. The ECITB expects that around 25% of all establishments within the scope of the levy will be exempted from payment.
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 those who pay more than half the levy raised must agree to the proposals. I assure noble Lords that both tests have been overwhelmingly met. To summarise, 75% of all companies in scope of paying the levy, who together are likely to pay 87% of the value of the levy, voted in favour of the proposals before us. This is testament to the value in which the ECITB is held by industry and the recognition that there is a long-term skills challenge, which can be addressed only through collective action.
This order will enable the ECITB to continue to carry out its vital training responsibilities. As the country responds to the Covid-19 pandemic, this is now more important than ever. I beg to move.
Baroness Berridge (Con)
My Lords, I thank noble Lords for their contributions to this debate today and will endeavour to answer many of the questions that have been raised. First, I join the noble Lord in his tribute to the noble Lord, Lord O’Neill, recognising his contribution to the sector. I extend my sympathies.
The noble Lord, Lord Addington, asked how we are encouraging people into this industry, specifically those with special educational needs. I thank the noble Lord for the question. The industry training boards exist in specific industries and are mainly funded by statutory levies on employers in their sectors. Employment in the engineering construction sector is linked to the project life cycle, which means that there is a high number of temporary workers and a lot of movement between employers. As a result, the need for high-level skills is not necessarily met in the training on a particular job, so the cost can be high for employers. Many of the core engineering skills are transferrable in the sector. I will unfortunately have to repeat this to the noble Lord, Lord Addington, as he will be in receipt of a second letter this afternoon from the chair of the ECITB on these specific issues. The ECITB is bound by the equality duties, so it is under an obligation to ensure that a diversity of people is recruited into the sector.
My noble friend Lord Bourne asked whether the ECITB is of another world. It is not. It has shown itself to be valuable, as was demonstrated when it was reviewed in 2017, when the decision was made to retain it. Other options were looked at, but it was seen that the payment of the levy was still supported and was dealing with an issue across the sector. The Covid pandemic poses particular challenges for employers and learners across the sector, so we would argue that the levy is more important than ever in ensuring resilience and the entry into and retainment of people in the sector. We know that the ECITB is firmly committed to doing all that it can to ensure that vital skills are retained in the sector, despite the ups and downs of particular projects.
On apprenticeships, I assure my noble friend Lord Bourne that a redundancy service has been launched, as we recognise that the Covid pandemic has affected them. He will be aware that specific funding of £1,500 per apprenticeship and £2,000 for any apprenticeship for people under 24 has been announced by the Government to try to ensure that new entrants are coming into the sector. As the Minister responsible for school capital, I am sure that he will also be aware of the build, build, build process, in which engineering construction will be vital.
I saved the concession for the noble Lord, Lord Hain. There is a recognition that there has been a market failure. It is addressed by a collective action, ensuring that across the sector there are appropriate training opportunities for people. That is part of the reason for the collective role of the board, which is distinctive. Apprenticeships are often employer-based, so this is a particular issue. The levy supports the industry well and has industry support. It is developing with working practices—hence we see the change in the percentage being asked for for offsite workers. As we have all seen in the Covid pandemic, there has been a recognition in many sectors other than engineering construction of the ability to work remotely—for example, if you are working on a nuclear plant or in a chemical works. The board and the levy are showing themselves fit for the developing world we live in, particularly post this epidemic.
Noble Lords will be aware that the Secretary of State for Education has talked about further education, further education, further education. The lack of parity sometimes between higher education and further education has meant a lack of investment in the skills that industries such as this need. We will soon be announcing details of the £2 million kickstart scheme for young people.
I want to move on to the points raised by the noble Baroness, Lady Garden of Frognal, about the apprenticeship levy and the potential difficulties for those who now pay both levies. She also commented on construction training qualifications. First, let me be clear that the ECITB levy and the apprenticeship levy fund different activities. 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 to develop the skills of their existing workforce. As I said, it is collective rather than employer based. It funds more than apprenticeships, although I recognise that apprenticeships are offered at various different levels. That sector-specific support may and does support apprentices within engineering construction in addition to the apprenticeship levy support. It is true that some organisations are in the scope of both levies. Even so, the sector has shown strong support for the ECITB levy. I reiterate that 75% of all levy payers, who between them are likely to pay 87% of the levy, voted in favour of the proposal that your Lordships’ House is discussing today.
I take this opportunity to emphasise that the levy order under debate is for the ECITB. Engineering construction is a specialised industry that underpins delivery, maintenance and decommissioning of the UK’s critical infrastructure. It is different from an industrial training board supporting skills in the broader construction sector, which is not for discussion today.
Regardless of the specific sector, I reassure noble Lords that training and qualifications are at the forefront of the Government’s plans for recovery. We are scaling up the National Careers Service and investing more money in offering 30,000 traineeships, as well as providing the additional funding for apprenticeships that I have outlined.
The ECITB recognises the need for diversity. I also have the pleasure of being the Minister for Women; I hosted a remote round table when it was International Women in Engineering Day, where I believe I had before me the only female BAME structural engineer working on the big sewage tunnel under London. I look forward to the day when I will be able to visit her on site. Therefore, there is a focus on that, and the industry recognises—the Government have various initiatives on this as well—that we need to increase the number of women studying STEM subjects, which is often a precursor to entering engineering and construction. However, there will be a focus on and the launch of the new T-levels. Although the Government support and recognise the value of vocational qualifications, there is too much complexity within them. There has been a review to ensure that good qualifications are maintained and offered clearly to young people—as clearly as the routes to higher education are outlined.
I thank the noble Lord, Lord Watson, for his questions. First, on whether the ECITB intends to return or retain levies paid this year or reduce levy payments in 2021, it does not have the legal power to issue levy rebates. It derives its powers to collect a levy through the Industrial Training Act 1982, the 2017 levy order and, once it is made, this order. This legislation would need to be amended to allow the ECITB to give rebates. Therefore, it does not intend to reduce levy payments in 2021. Given the impact of Covid-19, it is more important than ever that the ECITB is able to support employers to retain workers both immediately and in the longer term.
In response to the challenges created by Covid, the ECITB has introduced a package of measures to help industry, including: a Train to Retain scheme to help employers retain apprentices and graduates, which I outlined; a new scholarship scheme to support trainees embarking on engineering construction careers; and increased investment in digital training and assessment tools. Furthermore, the ECITB uses levy funds to strengthen the industry in the long term. By supporting employers to make sustainable investment in training to maintain vital skills and to create a pipeline of skilled workers, this helps to future-proof the industry. Without that investment, there would be a shortage of skilled workers to deliver infrastructure projects that will form part of this country’s recovery.
On the noble Lord’s question about the reasons for employers opposing the levy, the ECITB does not ask employers to document their reasons. However, I point out that of the 25% that the noble Lord outlined in his speech, 10% of levy-paying employers did not support the proposal, and 15% just did not respond.
The noble Lord also asked me to explain the reason for the phased increase in the levy rate for offsite employees over the three-year levy period. The offsite workforce consists of everyone who is working at a geographical distance from the site, and, as we can anticipate, the size of that offsite workforce is increasing; currently it represents 53% of the overall industry workforce. I should point out that while the offsite levy rate is increasing, it will remain significantly lower than the site levy rate. In the first year during which the levy will have an impact, it will increase by only 0.06%. Of the 129 employers who pay the offsite levy and were eligible to vote, 78% voted in favour of the levy.
Noble Lords will be aware from previous debates that the ECITB exists because of the support it receives from employers and employer interest groups in the engineering construction sector. It continues to be the collective view of industry that training should be funded through a statutory levy system to secure a sufficient pool of skilled labour and the future of the sector. There is a firm belief that without the levy, there would be a serious deterioration in the quality and quantity of training in this sector that would create particular challenges in the current economic climate, as such training is vital for meeting various infrastructure projects, including those relating to the environmental challenge of reducing the UK’s carbon emissions to zero. I commend the order to the Committee.