Industrial Training Levy (Construction Industry Training Board) Order 2015

Lord Ashton of Hyde Excerpts

Thursday 26th February 2015 Grand Committee

Moved by

[Lord Ashton of Hyde]

That the Grand Committee do consider the Industrial Training Levy (Construction Industry Training Board) Order 2015.

Relevant document: 21st Report from the Joint Committee on Statutory Instruments

[Lord Ashton of Hyde (Con)]

My Lords, I beg to move that the Committee considers the draft Industrial Training Levy Orders 2015. There are two orders before us today, one for the Construction Industry Training Board and another for the Engineering Construction Industry Training Board. The purpose of these orders is to seek authority for the Construction Industry Training Board—referred to as the CITB—and the Engineering Construction Industry Training Board—referred to as the ECITB—to continue to impose a levy on employers in the industries they cover.

Established under the Industrial Training Act 1982, the core activity of the CITB and the ECITB is to invest levy money in skills training. This investment develops the skills of the existing workforce and helps attract new entrants into these industries through the provision of training grants and other services. I think we all agree that skills are central to creating a strong, sustainable and balanced economy. The Government are committed to ensuring that skills provision meets the needs of both employers and learners. Although government helps set the framework for success, it is employers who equip the workforce with the skills that they need.

The CITB and the ECITB are employer-led and have a central role in training the workforce in their respective industries. They provide a wide range of services, which include the setting of occupational standards, developing vocational qualifications, delivering apprenticeships and offering direct grants to employers who carry out training. In doing all this, the Government look to the CITB and the ECITB to minimise bureaucracy and to ensure that support to employers is relevant and accessible.

The majority of employers in the construction industry and the engineering construction industry continue to support a statutory framework for training. The orders that we are considering today will enable these statutory levy arrangements to continue. The Industrial Training Act 1982 permits an industry training board to raise a levy on employers so that the costs of training are shared more evenly across the industry. The orders will give effect to proposals submitted to the Secretary of State for levies to be collected by the CITB in 2015, 2016 and 2017 and by the ECITB in 2016, 2017 and 2018.

The affirmative resolution procedure is required under the Act because both proposals involve the imposition of a levy in excess of 1% of payroll on some classes of employer. In each case, the levies are based on employers’ payrolls and their use of subcontracted labour. For both boards, the proposals involve levy rates in excess of 0.2% with no exemption, other than for small firms. In such cases, the Act requires that a levy order can be made only if the proposals have the support of the majority of employers who together are likely to pay the majority of the levy. The Secretary of State is satisfied that this condition has been met.

The Act also requires that both boards include proposals for exempting small employers from the levy. These orders therefore provide that small firms are exempt if their total emoluments are below a certain threshold that the industry considers to be appropriate. Those firms that are exempt from paying the levy can still benefit from grants and other support from the boards.

For the CITB, the levy rate for PAYE employees will remain at 0.5% of payroll for 2015, 2016 and 2017. The levy rate on labour-only subcontractors will remain at 1.5% for the first two levy periods—2015 and 2016—only. For the third levy period, in 2017, the labour-only subcontractor rate will be replaced by a levy on payments employers make to net-paid subcontractors made through the HMRC construction industry scheme. The levy rate for net-paid subcontractors will be 1.25% for 2017. This change was agreed by the industry and greatly simplifies administration by using existing data that firms already supply to HMRC. Employers whose total wage costs are less than £80,000 will still not have to pay the levy. Employers whose total wage costs are between £80,000 and £100,000 will have a 50% reduction in their levy liability for 2015 and 2016. For 2017, as part of the changes being introduced, employers with total wage costs of between £80,000 and £400,000 will have a 50% reduction in their levy liability. Of all the employers which are considered leviable by the CITB, it is expected that more than 50% will be exempt from paying the levy.

For the ECITB, the levy rate for site employees will remain at 1.5% of total payroll, plus net expenditure on subcontract labour. Employers who spend less than £275,000 on site employees will not have to pay that part of the levy. The rate in respect of off-site employees, often referred to as head office employees, will remain at 0.18% of total payroll, plus net expenditure on subcontract labour. Employers who spend less than £1 million in respect of off-site employees will not have to pay that part of the levy. Of all the establishments that are considered to be leviable by the ECITB, it is expected that around 35% will be exempt from paying the levy. For the CITB, the proposals are expected to raise around £520 million in levy income over three years. For the ECITB, the proposals are expected to raise around £90 million in levy income over three years.

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[Lord Young of Norwood Green (Lab)]

My Lords, in principle I, too, welcome the changes in the levy for the CITB and the ECITB. I have a number of questions to put to the Minister, whom I thank for the introduction.

I believe that there is a triennial review taking place. One should know the fate of that, because it is important. We need to be sure that the way in which the levy is organised does not mean that it is at odds with the way in which the CITB is developing.

We have two main concerns about the change in the third year of the levy period. The impact assessment discusses this. I hope the Minister will elaborate a bit further on any mitigating steps to be put in place. The first concern is that the nature of the construction sector is very much that of a subcontracting model. In many respects, prime companies often squeeze the margins of their subcontractors. How will that be addressed? The impact assessment states that a potential effect is the passing on of the costs of the levy from main contractors to subcontractors. That is a common practice outside the existing system and it reduces the legitimacy for employers if they do not pay levies on payments to their own subcontractors. I would welcome the Minister addressing that.

We are particularly concerned about the potential with the change in the third year for the greater use of umbrella companies and labour agencies. That is a real problem for the construction sector. Trade unions such as the Union of Construction Allied Trades & Technicians and others have rightly highlighted the fact that it undermines the efficiency, operation and fairness of the construction sector. This measure could help to increase that usage. What will the Minister do to mitigate that?

My noble friend Lady Donaghy anticipated me—I, too, will refer to the fact that there is a savage irony that despite the levy we still have a shortage in basic but essential skills such as bricklaying. We ought to be looking at how well this scheme does in attracting young people into the industry—especially young women—pointing out that these are good skills and the pay can be good in the right circumstances. We have some concerns about what the industry is doing to improve on that.

In relation to the Engineering Construction Industry Training Board, we know that there is a large demand for new engineering jobs. We have a significant skills shortage in this sector. EngineeringUK states in its latest report:

“Filling the demand for new engineering jobs will generate an additional £27 billion per year for the UK economy from 2022 … To meet projected employer demand the number of engineering apprentices and graduates entering the industry will need to double … Engineering companies will need 182,000 people per year with engineering skills in the decade to 2022 but there is a current annual shortfall of 55,000 skilled workers”.

Do we believe that with the levy as it is currently structured the industry is going to meet that challenge? It is a big challenge and it is a very important one. Is the levy being used innovatively; for example, to go into schools to encourage young people, especially girls, to study things such as GCSE physics? The levy might often be used for people who are entering the industry at the age of 18, 19 or 20 but is it being used more innovatively to ensure that we encourage people to go into these sectors at an early enough age?

Those are the general questions that we have. We support the principle of the levy and the way it is being restructured but we have concerns about the construction industry and the engineering construction industry being able to meet the challenge of skills demand in these important sectors.

[Lord Ashton of Hyde]

My Lords, I thank both noble Lords for their supportive comments—albeit not exclusively supportive, as they have a number of concerns that in many ways we all share. I agree with the noble Baroness that this is not necessarily a party-political point. Skills and training are very important in all industries, but particularly these industries, which are largely project-based and have subcontracted workforces, and it is very easy for firms not to have the strong incentive to train if their workforces are subcontracted. Skills are also essential to increasing the productivity of this country, which is a problem.

I will move to some of the specific points made by noble Lords; I now have them in the wrong order. The noble Baroness mentioned the deficiencies in skill levels. I agree that there are challenges in increasing the capacity of the workforce, particularly to meet the demand for homebuilding and infrastructure projects. However, as part of the Government’s industrial strategy, we are working in partnership with the construction sector to address the skills shortages and help people gain the skills required. We and the CITB recognise the challenges to increasing the capacity of the workforce. The important thing about doing it through the CITB is that it is industry-led. The Government have a role to play, but the CITB is run by the industry and has the pretty weighty and strong support of the industry to do those things; for example, health and safety is an important area that the CITB can look at and manage to increase.

The noble Lord, Lord Young, mentioned the triennial review, which is currently under consideration by the Government. I recognise that there is some frustration about the time it has taken—I think it is about 19 months since it was first announced in July 2013. It is important that we give consideration to that, and the review has consulted with employers and stakeholders. The findings of the review will be published in due course, but I will be quite honest with the noble Lord: I do not think that will be before the election.

The noble Lord made a point about the shortage of skills at less than the most advanced level; for example, bricks and bricklayers, which, as I mentioned, are important in the housebuilding industry. Of course, those skills fluctuate more sharply in construction than in other industries. It is a priority for the new board and the CITB Council to look at the skills demands and react accordingly. The new board of eight members, five of whom are women—which is substantially smaller than the previous board of, I think, 20 members—is designed to have a more focused approach to delivery than the previous one. However, it is accountable to the council, which has a larger number of employer representatives on board.

On the point about umbrella organisations and labour agencies in construction—and if this does not answer the noble Lord’s question, I will be happy to write to him—subcontracting is a feature of these industries, and a main reason for having a levy. The changes we are making to the Construction Industry Training Board levy in 2017 will mean that the levy covers labour agencies. If companies are wholly or mainly engaged in the activities of the industries, they are then liable to the levy, and this applies to all companies. We will be introducing them in 2017 to give companies time to prepare, and of course the CITB is providing guidance.

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[Lord Young of Norwood Green]

I welcome some of the points that the noble Lord has made. However, my experience from participating in the Lords outreach programme and talking to 15, 16 and 17 year-olds is that schools are still focused on pushing everyone into the academic stream. That is the route. When you ask young people what they know about apprenticeships, you are lucky if even one of them puts their hand up. Schools that I have been to have admitted that they have been deficient. Under the legislation, schools are supposed to give comprehensive careers guidance, which embraces vocational aspects as well as academic ones. In many cases, they are not meeting that requirement. Again, I welcome what the CITB is doing but it needs to up its game on that. There really should not be a school in the country that does not experience the CITB’s roadshow. It ought to have a comprehensive programme.

My final point is one that I have made on many occasions but which I think is still relevant. We should reflect on what we managed to do in two key projects, the Olympic Games and Crossrail. For those contracts, we insisted that employers had to show what they were doing on training and the number of apprentices they would be prepared to take on. In a way, I think that Crossrail is the best example. Although the Olympics were quite good in that they generated around 300 apprenticeships, Crossrail has made sure that nearly all of the subcontractors in the supply chain also employ apprentices over a wide range of different skills, whether in administration, accountancy or the more normal engineering skills. It would be very welcome if the Minister would respond to those points.

[Lord Ashton of Hyde]

I completely agree that apprenticeships are key. They are, in fact, at the heart of the CITB’s business. It acts as a managing agency for the delivery of a large proportion of apprenticeships in construction. Currently, there are about 18,000 young people on CITB-supported apprenticeship programmes. As noble Lords will know, it has been a feature of the Government’s programme to concentrate on apprenticeships, and not just in construction. The CITB also develops specialist apprenticeship programmes through the National Construction College.

As far as engineering construction is concerned, the apprenticeship programme recruits young people to the industry and supports employers and accredited training providers to provide training to young people. It supports about 3,000 apprentices every year. There are 60 engineering apprentices on site in the construction industry per thousand employees, compared to the average in England of 20 per thousand. Basically, I agree with the noble Lord. The CITB is focusing on that and will continue to do so.

The proposals before the Committee relate to the construction and the engineering construction industries. It continues to be the collective view of employers in each of these industries that training should be funded through a statutory levy system in order to secure a sufficient pool of skilled labour. In summary, these levies are particularly appropriate for an industry that involves a lot of project work with subcontracted labour. They have the support of the industry and do not cost the taxpayer a penny. I commend these orders to the Committee.

Motion agreed.