Industrial Training Levy (Engineering Construction Industry Training Board) Order 2017

Viscount Younger of Leckie Excerpts

Tuesday 21st March 2017 Grand Committee

Moved by

[Viscount Younger of Leckie]

That the Grand Committee do consider the Industrial Training Levy (Engineering Construction Industry Training Board) Order 2017.

[Viscount Younger of Leckie (Con)]

My Lords, I start by setting the scene. The Government are committed to delivering a bold, long-term industry strategy. We start from a position of strength, as the fifth biggest economy in the world with an employment rate that has never been higher and world-leading industries, from car manufacturing and satellite engineering to financial services and the creative arts. Engineering construction is at the forefront of that industrial strategy. To support delivery of this industrial strategy we are building a high-quality technical education system to improve basic skills, address shortages in STEM skills and ensure that people have the skills that employers are looking for, now and in the future. It is integral that through this system we provide opportunities for lifelong technical education learning.

There are several ways in which we are doing this. The first is through the establishment of 48 university technical colleges, with a further six in the pipeline to provide high-quality technical education to 14 to 19 year-olds. Secondly, there is the implementation of the Sainsbury panel’s 15 new technical routes and wide-reaching reforms to improve the apprenticeship offer. We are committed to raising the prestige of further education and apprenticeships. Thirdly, the Engineering Construction Industry Training Board plays a key role in helping delivery of this programme. The engineering construction industry encompasses much of the nation’s key national infrastructure work. We must ensure that skills exist in the engineering construction workforce to deliver such critical new infrastructure projects as Hinkley Point C and HS2. Much like mainstream construction, engineering construction is characterised by significant levels of project working, where demand can be unpredictable. Workers in the sector are often highly skilled, and in high demand both domestically and internationally.

The Engineering Construction Industry Training Board works to help retain these vital skills within the UK economy and to drive innovative working practices within the industry, such as the development of drone technology. The order enables the ECITB to raise and collect a levy on employers in the engineering construction industry. The board has been providing vital industry support since its creation in 1991. Established under the Industrial Training Act, its core activity is to invest money that it receives by way of the levy in skills training for the engineering construction workforce. The board develops the skills of the existing workforce and new entrants into the industry through providing training grants and puts in place strategic initiatives that will benefit industry over the long term and secure a sustainable pipeline of skills. The ECITB is led by industry and has a central role in training the workforce in the engineering construction industry. It provides a wide range of services including setting occupational standards, developing vocational qualifications and offering direct grants to employers who carry out training. In doing all this, the Government look to the board to minimise bureaucracy and to ensure that support to employers is relevant and accessible.

The ECITB also has a key role in encouraging greater diversity across the engineering construction industry. Currently, only 7% of the engineering construction workforce are women. This lack of diversity needs addressing. The board is running extensive careers programmes in schools and promoting female engineering role models and will continue to support the department in its continued drive to increase the number of woman undertaking STEM qualifications. The Department for Education is also investing £20 million in business mentors, which will help disadvantaged and vulnerable young people to access the right information about a fulfilling education or training route that is right for them.

Industry support is fundamental to the success of the ECITB. The vast majority of employers in the engineering construction industry continue to support a statutory framework for training and the ECITB levy. The order will enable these statutory levy arrangements to continue.

I move on to how the levy is calculated. The Industrial Training Act allows an industrial training board to submit a proposal to the Secretary of State for raising and collecting a levy on employers to ensure the effective provision of skills in the industries that they serve. This order will give effect to a proposal submitted to us for a levy to be raised by the ECITB for levy periods ending 31 December 2017, 31 December 2018 and 31 December 2019.

Given the history of this levy and our wider reforms, the Committee may ask how the order interacts with the apprenticeship levy. Let me explain. After the introduction of the apprenticeship levy, the ECITB reviewed its levy arrangements and made the decision to reduce its rates as follows. The levy rate attributed to site employees will be reduced to 1.2% of total emoluments—and by emoluments I mean all salaries, fees, wages and any other earnings of an employee—plus net expenditure on subcontract labour. This is down from 1.5% of total emoluments in the 2015 order. The rate in respect of off-site employees, often referred to as head office employees, will be reduced to 0.14% of total emoluments, plus net expenditure on subcontract labour. This is down from 0.18% of total emoluments in the 2015 order.

The Industrial Training Act requires the ECITB to take reasonable steps to ascertain the views of persons who are likely to be liable to pay the levy as a consequence of the proposals. This involves ascertaining the views of the majority of employers who together are likely to pay the majority of the levy. The proposal for the levy obtained the support of the majority of employers in their respective industries. The three major employer federations in the industry, the ECIA, the OCA and BCECA, supported the levy. All levy-paying members of the employer associations, 84 in total, were deemed to be supportive. Of the 149 employers not represented by these federations, 41 did not respond and only 10 declined to provide their support. On that basis, 78% of levy-paying employers were supportive of ECITB’s proposal, and such employers are likely to pay 87% of the value of the levy.

The Industrial Training Act also requires that the board includes within its proposal a proposal for exempting small employers from the levy. This order therefore provides that small firms are exempt from the levy if their total emoluments are below a threshold that the industry considers to be appropriate. If the total gross emoluments and total gross payments are less than £275,000, no training levy will be payable in respect of site-based workers. If the total gross emoluments and total gross payments are less than £1 million, no training levy will be payable in respect of off-site based workers. Those employers who are exempt from paying the levy can and do continue to benefit from support from the board, including grants. The ECITB determines that 375 establishments are considered to be in the scope of the levy. Of that, 120 establishments are exempted due to their size, which means that 32% of establishments are exempted. This order is therefore expected to raise around £78 million for the ECITB in levy income over three years.

To conclude my opening remarks, this order will enable the ECITB to continue to carry out its vital training responsibilities alongside the introduction of the apprenticeship levy and, aligned to our wider skills reform programme, it will help the Government meet their industrial strategy goals. Accordingly, I commend it to the Committee. I beg to move.

[Lord Watson of Invergowrie (Lab)]

My Lords, I thank the Minister for his introduction to this order, which I think it fair to say is not particularly controversial and need not detain us for too long.

Preparing for this took me back some time. In a previous guise, I was the full-time official of a trade union in the engineering sector, and I well remember dealing with many industry training boards on a number of different issues. When the Department for Business, Innovation and Skills published its final report in December 2015 on the combined triennial review of the industry training boards, it mentioned the background to the industrial training levy itself, which was introduced as part of the Industrial Training Act 1964. That is of course where the industry training boards can be traced back to as well.

It is to be regretted that there are now only three industry training boards left. I certainly remember that there were more than 20 in the 1980s, and they were significantly reduced by the Industrial Training Act 1982. Apart from the film sector, only the Construction Industry Training Board and the Engineering Construction Industry Training Board are still in place today, both of which are of course accountable to Parliament. They raise most of their funds through training levies and various commercial activities. In 2016, the ECITB raised £32 million in levy and returned £28 million to the industry. It is interesting that the ECITB itself made the proposal to reduce the industrial training levy rate for employers, which appears to be a direct result of the impending introduction of the apprenticeship levy. That is reasonable and I understand the thinking behind it.

I made notes but if I read them out I would largely repeat what the noble Viscount said in his introduction, and I see little purpose in doing that. However, the listed exemptions seem reasonable and are set at reasonable levels with regard to the overall pay bill of establishments. I was interested to hear the noble Viscount say that a total of 275 establishments would qualify for the levy, with 120 exemptions. I will not mention the details of the exemptions, but they meet the needs of the industry. It is instructive that the consultation carried out by the ECITB found that 78% of levy payers were in favour of the proposals, and together they will pay a total of 87% of the value of the forecast levy. There is fairly broad support, therefore; I certainly have not been made aware of any opposition.

As the noble Viscount himself pointed out, and I thank him for doing so, less than 10% of the engineering workforce is female. Again, going back to my days as a trade union negotiator, I remember the attempts that were made to get more women into the union, particularly the predominantly engineering-based union that I looked after. It was very difficult, and I pay tribute to WISE—Women into Science and Engineering, which is backed by my union, Unite. We want as many women as possible to come forward and fill jobs in the manufacturing sector, particularly in engineering.

This issue goes back to the requirement for qualifications, particularly STEM qualifications, and will impact on what I am going to say about the next set of regulations for consideration. The pressure on schools to find enough teachers to make sure they can deliver teaching in these subjects cannot be ignored. A lot more work has to be done on that, because they provide the building blocks to get the initial qualifications to get women into university, or through the technical routes into engineering. It is important that the Minister highlighted that, and it is to be welcomed.

The order is not controversial and is to be welcomed. It has been welcomed in the industry, and on that basis I can only hope it will achieve what it sets out to achieve and assists the development of the industry.

[Viscount Younger of Leckie]

My Lords, I thank the noble Lord, Lord Watson, for his comments and for his contribution today. I was particularly interested to hear of his background, which I did not know about. I appreciate his general support for the order.

Before I make some very brief concluding remarks, I shall pick up on his very important point about the need to encourage more females into engineering. I am delighted that my noble friend Lord Nash is in Committee today because I am sure he agrees with me that this is a very important part of what the Department for Education is doing. It is starting from the very early years to encourage more women to study STEM subjects and then, through proper career guidance, to encourage them to take roles in science and engineering. It is one of the major priorities and major thrusts—the noble Lord is right about that.

Noble Lords will be aware from previous debates that the ECITB exists because of the support it receives from employers and employer interest groups in the sector. There is a firm belief that without this levy, there would be a serious deterioration in the quality and quantity of training in the engineering construction industry, leading to a deficiency in skill levels. It continues to be the collective view of employers in the engineering construction industry that training should be funded through the statutory levy system in order to secure a sufficient pool of skilled labour. I commend this order to the Committee.

Motion agreed.