Industrial Training Levy (Engineering Construction Industry Training Board) Order 2014

Viscount Younger of Leckie Excerpts

Monday 24th February 2014 Grand Committee

Moved by

[Viscount Younger of Leckie]

That the Grand Committee do consider the Industrial Training Levy (Engineering Construction Industry Training Board) Order 2014.

Relevant documents: 19th Report from the Joint Committee on Statutory Instruments.

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

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 2015, which will relate to an assessment of employers’ payroll in the 2013-2014 financial year.

It is worth spending a little time elaborating on the reasons why there is a statutory training levy in the engineering construction industry. The associated engineering construction industries construct and maintain the power and utilities infrastructure essential to the UK economy. The industries include coal and gas power, offshore oil and gas, chemical and pharmaceuticals, nuclear power and renewable energy. The construction and maintenance requirements for these industries require 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.

Skills are central to creating a strong, sustainable and balanced economy. The Government are committed to ensuring that skills provision meets the needs of employers and learners. 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 the training of the workforce and in supporting the industry to achieve sustainable growth. In doing this, the Government look to the ECITB to minimise bureaucracy and to ensure that support to employers is both relevant and accessible. The ECITB is employer 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.

Let us briefly reflect on what the levy has achieved. In 2013, the ECITB supported more than 2,500 apprentices at various stages of their apprenticeship programmes. Completion rates for apprenticeships in the industry are more than 90%, significantly higher than the national average. In each of the past two years, the ECITB has supported more than 30,000 learners in training programmes, including apprenticeships, skills and technical training and management and professional programmes.

The ECITB is a non-departmental public body that operates under the provisions of the Industrial Training Act 1982. The Government review all public organisations to ensure that they are delivering an effective service that offers value for money. The ECITB is currently being reviewed as part of this triennial review of industrial training boards. The review will report by the end of this summer.

The majority of 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 Industrial Training Act permits the ECITB to raise a levy on employers so that the costs of training are shared more evenly among companies in the industry. This order gives effect to proposals submitted to us for a levy to be collected by the ECITB in 2015. The proposal involves the imposition of a levy in excess of 1% of payroll on some classes of employer. The Industrial Training Act requires such an order to be approved by affirmative resolution of both Houses.

The levy order can only be made if the following three conditions are satisfied: first, that the amount of levy is appropriate to meet the current skills requirements of the industry; 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 can 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. 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 grant and other support from the ECITB, and many of them indeed do so.

The ECITB does not propose to make any changes to its levy rates or small firms exemption thresholds for this levy order. 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 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 off-site employees will not have to pay the levy. Of all the establishments that are considered to be leviable by 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 £29 million in levy income. The Committee will note that the ECITB order covers a one-year period, whereas the Industrial Training Act requires that levy orders should normally cover a three-year period. However, a one-year levy order can be made if, first, it is made within two years of an earlier levy order for which the ECITB obtained employer support and, secondly, the levy rate is being kept the same. For this order, the ECITB will be relying on the consensus established for the 2012 order, which had the support of 59% of employers, who were likely to pay 69% of the levy. Notwithstanding that, the ECITB also undertook a consultation with the industry last year, which showed that 68% of employers, likely to pay 76% of the levy, supported the proposal for the levy to continue. The ECITB has proposed a one-year levy order, at the request of the industry, to retain the flexibility to review the levels of levy required to meet future demand. Next year, the ECITB levy order will cover a three-year period, which will be coterminous with the Construction Industry Training Board three-year levy cycle from 2015 onwards and therefore allow the ECITB to develop longer-term plans.

The Committee will know from previous debates that the ECITB exists because of the support that it receives from employers and employer interest groups in their sectors. As I indicated earlier, there is a firm belief that without the ECITB there would be a deterioration in the quantity and quality of training in the industry, leading to a deficiency in skills levels. This draft order will enable the ECITB to continue to carry out its vital training responsibilities. I commend the order to the Committee.

[Lord Jones (Lab)]

My Lords, it is traditional to thank the Minister for his introductory remarks, and I do so most sincerely. I want to advance just a few points, which I hope that he will see as relevant. If he cannot answer them specifically today, he may do so by letter.

I agree that the aim should be to achieve a balanced economy, as the Minister has said, and I agree that, inevitably in today’s conditions, employers should be in the driving seat—without any shadow of a doubt. The third main point that he made in his introductory remarks was that we need the Engineering Construction Industry Training Board, which is central to Britain’s manufacturing future. It is good to know that Ministers are looking in some detail at how the board operates.

Is it possible that the Minister could tell us how much in grant is being paid, to the latest date that may be available, by Her Majesty’s Government to the Engineering Construction Industry Training Board? What amount was paid in the two years previous to the current financial year?

--- Later in debate ---

[Lord Young of Norwood Green]

My Lords, to continue, I was making the point that it was interesting to hear the Minister talking about threshold firms. One of the continuing problems with the construction industry, as I was saying, is still the problem of bogus self-employment, especially on large sites where it makes a difference. I know, for instance, that there are some more enlightened managers of some of the large projects who have been trying to encourage companies not to engage in this and, as they should do, to register people for PAYE who are in fact continuously being employed; this would obviously count towards the threshold for the training levy. It would be interesting to hear whether the Minister has any views on that and whether he agrees with me that this is a continuing problem.

With those questions and that slight reservation, I welcome the order.

[Viscount Younger of Leckie]

I thank the noble Lords, Lord Young and Lord Jones, for their contributions to this afternoon’s debate. I would like to address several questions that were raised and, if I may, start with the noble Lord, Lord Jones, who asked how much was paid by the Government in grant to the ECITB. I can reassure him that the funding for the ECITB is raised from the employer levy, so the ECITB does not receive any grant-in-aid funding from the Government. However, all funds are accountable to Parliament, which might give some further reassurance.

The noble Lord, Lord Jones, also raised the history of ITBs and the background to the closure of the ITBs back in the 1980s. It is nice for me to know that he thought that I might have been too young in the 1980s to understand, or to have been around for, the levy system, but it happens that I was employed by a major multinational textiles firm at the time and was working in human resources. I remember very clearly working with my superior to monitor and fill in the levy forms, which were pretty extensive, so I have some experience of that.

Bringing us forward to the modern day, I should say that the training boards continue with the support of employers, and the Government do not want to impose levies on industry but are responsive to employers who can benefit from such arrangements. That is the case for construction and engineering construction, which have mobile and flexible workforces. Who knows, other industries by sector may approach the Government for a similar regime. There are none so far, but the noble Lord makes a good point.

The noble Lord, Lord Jones, raised the issue of how the ECITB is monitored. The Minister in the other place has an annual meeting to review the performance of each ITB. The performance and accounts are for public record and are published annually. The Secretary of State for Business, Innovation and Skills appoints all the board members, and Government officials attend all the board meetings regularly to review performance with the boards.

The noble Lord, Lord Jones, asked about small businesses, with a particular focus on SMEs. It is very much a feature of the industry that the majority of employers are larger. I am happy to have a discussion with the noble Lord outside about my views about how small businesses are progressing.

On apprentices, the noble Lord may well know that we have managed to find 1.5 million apprenticeships since 2010. The noble Lord, Lord Young, also asked about apprenticeships and how many in the 16 to 18 year-old and 19 to 25 year-old bracket were involved in public procurement contracts. Although we do not have a breakdown of the numbers by age group or in public procurement contracts to hand, the nature of the engineering industry is likely to mean that the majority of apprentices will be aged 19 or over. I will certainly write to the noble Lord with any concrete figures that we can find to enlighten him.

The noble Lord, Lord Jones, asked who chairs the ECITB and who its CEO is. It is nice to be able to name names for once. The board is chaired and led by Andrew Collinson, who has extensive experience in the engineering construction industry, and the chief executive is David Edwards. The key feature of such boards is that they are employer led, and all the board members have experience of the industry and can speak on behalf of employers.

The noble Lord, Lord Young, raised the issue of bogus self-employment, to paraphrase his question. That is an issue in the construction industry. The orders cover not just PAYE but labour-only contracts. I agree that that matter needs further consideration, and I am grateful to the noble Lord for raising that point.

The proposal before the Committee relates to the engineering construction industry, and it continues to be the collective view of employers in the industry that training should be funded through a statutory levy system in order to secure a sufficient pool of skilled labour. I commend the order to the Committee.

[Lord Young of Norwood Green]

Before the noble Viscount sits down, I meant to ask this question during my contribution—I apologise to him. Were the figures he cited of 2,500 apprenticeships and 30,000 learners an increase on previous years? If he does not have the answer, obviously I understand.

[Viscount Younger of Leckie]

It may be appropriate for me to help the noble Lord by writing to him, but this might also be a moment to explain that the ECITB supports about 2,000 apprenticeships every year. I think I need to give a more precise and concise answer about the year-on-year figures, which I will endeavour to do.

Motion agreed.