Industrial Training Levy (Construction Industry Training Board) Order 2018

Baroness Garden of Frognal Excerpts

Tuesday 20th March 2018 Grand Committee

[Viscount Younger of Leckie (Con)]

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.

[Baroness Garden of Frognal (LD)]

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.

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[Viscount Younger of Leckie]

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.

[Baroness Garden of Frognal]

The figure of 2% is for women doing construction jobs. The additional figure is because quite a lot of them work in office and admin jobs; they are working in the construction industry but not doing the plumbing and the roofing.

[Viscount Younger of Leckie]

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.