Industrial Training Levy (Construction Industry Training Board) Order 2015

Lord Young of Norwood Green Excerpts

Thursday 26th February 2015 Grand Committee

[Baroness Donaghy (Lab)]

My Lords, as the author of a report on the construction industry, in particular fatalities in the construction industry, I spent some time on the area of training and skills uplifting, and met people from the CITB. It is important to place on record how very important the levies are to the particular industries and how very pleased I am that there is cross-party acceptance of the continuation of the levies.

I see that there has been some mild redistribution, or that it will at least take effect in 2017. That is good news. One thing I found in my report was that although the CITB work was very good—that is the area that I know best, rather than the ECITB—there was very little redistribution of the income. It is all very well to say that small companies that are exempt from the levy can still apply for grants, but it is the sheer logistics of sparing members of their workforce to go away and train that causes one of the most difficult problems for small companies. We need to consider ways in which we can persuade companies to take on apprentices, but in the confidence that apprentices will be able to find employment afterwards. With or without the levy, I still think that we are falling down on guaranteeing jobs in some of these companies, even if it means an element of government subsidy for a year or so. I am making a plea for more redistribution.

The Minister referred to deficiency in skill levels. I agree entirely that it would be even worse than it is now if we did not have these levies. I do not think that we can be particularly proud—I am not making a party-political point; this is a problem that has spanned Governments—given the skills shortage in this country, which has been a major problem. The fact that we are importing bricks and bricklayers says quite a lot about the nature of construction in this country. That short-termism is highly damaging to our economy. The fact that we allow so many underskilled and unskilled people on to sites explains, I think, some of the lower levels of productivity that we have. We need to look at the deficiency in skill levels. Some very good work is being done here, but it really is not solving the problem in major areas in our construction industry.

I ought to finish on a positive note. I thoroughly welcome any continuation of the levies, any changes that make life better for the smaller companies and, incidentally, any changes that mean HMRC will have a closer eye on some of the activities in some of the subcontracting areas.

[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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The issue of the changing image of gender is definitely on the radar of both the CITB and the ECITB. We agree that it is right to attract a diverse range of new entrants. Women have been underrepresented in the engineering industry and the boards are actively trying to do something about that via their schools programmes. As I have mentioned, the new board of the CITB is more than 50% women. It is trying to change the leadership and image of these industries, which we agree is important.

[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.