Industrial Training Levy (Engineering Construction Industry Training Board) Order 2013

Viscount Younger of Leckie Excerpts

Monday 20th May 2013 Grand Committee

Moved By

[Viscount Younger of Leckie]

That the Grand Committee do report to the House that it has considered the Industrial Training Levy (Engineering Construction Industry Training Board) Order 2013.

Relevant document: 23rd Report from the Joint Committee on Statutory Instruments, Session 2012-13.

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Viscount Younger of Leckie)]

My Lords, the purpose of this order is to seek authority for the Engineering Construction Industry Training Board—the ECITB—to impose a levy on employers in its industry in 2014, and this will relate to an assessment of employers’ payroll in the 2012-13 financial year. The prime purpose is to meet the skills needs of the industry.

I believe that it is worth spending a little time elaborating on the reasons why there is a statutory training levy in the engineering construction industry. The engineering construction industries construct and maintain the power and utilities essential to the UK’s infrastructure. The industries include coal and gas power, offshore oil and gas, chemicals and pharmaceuticals, steel and metal smelting, nuclear power and renewable energy. The construction and maintenance requirements for these industries call for a mobile, flexible and highly skilled workforce. It is the employers in these industries who have, since 1991, come together to support collective action through the levy to develop the workforce, manage risks and address skills needs.

Similar statutory arrangements are in place for the wider construction industry, which operates under a separate levy order passed in Parliament in 2012. The Government have made, and continue to make, major investments in skills and training. However, while the Government have a role in setting the framework for success, employers need to be in the driving seat if we are to equip the workforce with the skills that employers need. The ECITB has a central role in training the workforce and supporting the industry to achieve sustainable growth. In doing this, the Government look to the ECITB to minimise bureaucracy and ensure that support to employers is relevant and accessible. The ECITB is employer-led, rather than government-led, and its role is to encourage the provision of adequate training of employees and prospective employees in its industry. It provides a wide range of services, including setting occupational standards, developing vocational qualifications and delivering apprenticeships, as well as paying direct grants to employers who carry out training to approved standards.

Employers in the engineering construction industry continue to support a statutory framework for training. The ECITB is a model of the successful application of such a framework, and the order that we are considering today will enable these statutory levy arrangements to continue. I welcome this order as evidence that employers in the engineering construction industry want to continue to invest in the skills of their workforce.

The ECITB operates under the provisions of the Industrial Training Act 1982. That Act permits the ECITB to raise a levy on employers so that the costs of training are shared more evenly between companies in the industry. This order gives effect to proposals submitted to us for a levy to be collected by the ECITB in 2014. It is a condition of the ITA that a levy order is made affirmative as a resolution in the House where it involves the imposition of a levy estimated to be in excess of 1% of emoluments—that is, essentially wage costs—for some employers.

The orders can be made only if the Secretary of State is satisfied, first, that the amount of levy is appropriate in the circumstances; secondly, that the proposals are necessary to encourage adequate training in the industry; and, thirdly, that the previous levy order received support from the majority of employers and the levy rates remain unchanged. I confirm that my right honourable friend in the other place, the Secretary of State for Business, Innovation and Skills, is satisfied that these conditions have been met.

The Act also requires the ECITB to include proposals for exempting small employers from the levy. This order therefore provides that small firms will be exempt if their expenditure on payroll and sub-contract labour is below a certain threshold that the industry considers to be appropriate, and I will come to the details of the thresholds in a moment. Those firms that are below the threshold and exempt from paying the levy are still able to benefit from grants and other support from the ECITB, and indeed many of them do so.

The ECITB does not propose to make any changes to its levy rates or small firms exemption thresholds. The rate for site employees will remain at 1.5% of total payroll, plus net expenditure on sub-contract labour. Employers who spend £275,000 or less on payroll costs for on-site employees will not have to pay the levy. The rate in respect of off-site employees—often referred to as “head office” employees—is 0.18% of total payroll, plus net expenditure on sub-contract labour. Employers who spend £1 million or less in respect of payroll costs for off-site employees will not have to pay the levy.

Of all the establishments which are considered to be leviable by the ECITB, it is expected that around 35% will be exempted from paying the levy. For the ECITB, the one-year proposal is expected to raise around £20 million in levy income. The Committee will note that the ECITB order covers a one-year period. The Industrial Training Act requires ITBs to submit proposals—and I quote—“from time to time”. These proposals may provide for levies to be imposed for a period of up to three years.

The ECITB has proposed a one-year levy order because, in view of the current economic conditions, employers considered that flexibility should be retained on the issue of future levy rates. It is anticipated that next year the ECITB levy order will also cover a one-year period, with the intention of realigning with the Construction Industry Training Board to a three-year levy cycle from 2015 onwards.

The Committee will know from previous debates that the ECITB exists because of the support it receives from employers and employer interest groups in its sectors. As I indicated earlier, there is a firm belief that without the ECITB there would be a serious deterioration of the quantity and quality of training in the industry, leading to a deficiency in skills levels. Consultation with the industry in 2012 demonstrated that there is strong support among employers for a levy system, with 71% of employers liable to pay a levy in 2014 supporting the levy arrangements. Only 2% of employers indicated that they opposed the levy. Those that did not express a view are not counted as supporting the levy. This draft order will enable the ECITB to continue to carry out its vital training responsibilities, and I commend it to the Committee.

[Lord Young of Norwood Green]

I thank the Minister for his comprehensive contribution. I must admit that I found it interesting because, by mentioning all the different industries, he stressed their importance. As he rightly said, this is a mobile, flexible and highly skilled workforce. Our one concern is the point that he raised near the end of his contribution: because of the somewhat fragile state of the economy, which is clearly impacting on these industries, they are going for only a one-year levy. I do not expect the Minister to have the answer to this but I should be interested to know what impact this will have on the number of apprenticeships that are likely to be offered. These are highly skilled industries and these apprenticeships are highly sought after, so it is a bit worrying that they have decided to go for only one year.

It was interesting as well that the Government are proposing an alignment with the ECITB in 2015, which is probably a step in the right direction. I could not help reflecting that, in looking at that level of support from the employers, a levy is perhaps one way of ensuring that all employers contribute to training in industry. It gets us away from the idea that so many employers have. They seem to think that they do not have to bother and can poach their skills from other employers. However, with those couple of questions and that slight caveat, we offer our support to this statutory instrument.

[Viscount Younger of Leckie]

I thank the noble Lord, Lord Young, for his general support for this order. I will indeed refer back to him in writing on the one-year levy and the impact that it has on apprenticeships. I should make the point that the support that the ECITB is giving for skills is over and above the other schemes and initiatives that this Government are taking, which the noble Lord will be aware of. I listened in briefly to the previous debate in this Committee concerning apprenticeships, and it is the case that the previous Government indeed started off much on the apprenticeship scheme. This will add to that. It is pleasing to note that apprenticeship numbers are holding up and, indeed, increasing. There were 849 apprentices recruited in 2012, a figure which I hope I can improve upon with an increase as time goes on.

The other point to make about apprenticeships is that they remain the prime route into the industry; the noble Lord raised this point. The ECITB supports and promotes apprenticeships to employers. That is a very important part of what it does. It also provides financial support and grants for apprenticeships. In 2012, demand for apprenticeships was much tighter than expected, indicating rising employer confidence and additional demand from employers—in particular, in the nuclear sector. I know that I could say more about apprenticeships but I am very pleased that there is overall support for this order. I commend it to the Committee.

Motion agreed.