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Session 2005 - 06
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Standing Committee Debates

Fourth Standing Committee on Delegated Legislation




 
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Fourth Standing Committee on Delegated Legislation

The Committee consisted of the following Members:

Chairman:

Mrs. Janet Dean

Bellingham, Mr. Henry (North-West Norfolk) (Con)
†Brooke, Annette (Mid-Dorset and North Poole) (LD)
†Cawsey, Mr. Ian (Brigg and Goole) (Lab)
Davey, Mr. Edward (Kingston and Surbiton) (LD)
Dorries, Mrs. Nadine (Mid-Bedfordshire) (Con)
†Evennett, Mr. David (Bexleyheath and Crayford) (Con)
†Hall, Patrick (Bedford) (Lab)
†Hesford, Stephen (Wirral, West) (Lab)
†Hope, Phil (Parliamentary Under-Secretary of State for Education and Skills)
†Keeley, Ms Barbara (Worsley) (Lab)
†Love, Mr. Andrew (Edmonton) (Lab/Co-op)
†Lucas, Ian (Wrexham) (Lab)
†Marsden, Mr. Gordon (Blackpool, South) (Lab)
Murphy, Mr. Denis (Wansbeck) (Lab)
†O’Brien, Mr. Stephen (Eddisbury) (Con)
†Wilson, Mr. Rob (Reading, East) (Con)
Frank Cranmer, Committee Clerk

† attended the Committee


 
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Monday 11 July 2005

[Mrs. Janet Dean in the Chair]

Draft Industrial Training Levy (Engineering Construction Board) Order 2005

4.30 pm

The Parliamentary Under-Secretary of State for Education and Skills (Phil Hope): I beg to move,

    That the Committee has considered the draft Industrial Training Levy (Engineering Construction Board) Order 2005.

I am delighted, Mrs. Dean, to have the opportunity to appear before you on what I think is the second occasion on which you have chaired this Committee. I hope that the new Members of Parliament on the Committee will have an opportunity to see how we can take forward an important area of policy on which I think there is consensus on both sides of the House.

The order seeks authority for the Engineering Construction Industry Training Board to impose a levy on employers in the engineering construction industry. As we both know, Mrs. Dean, skills are vital to succeeding in an increasingly competitive economy. We have made, and continue to make, major investments in training. This year, the Learning and Skills Council will support further education and training to the value of £6.5 billion. We have established a network of 21 sector skills councils to ensure that a strong clear voice from employers informs the provision of education and training. The engineering construction industry does not meet the minimum size criteria for having an SSC, but I am pleased to say that a memorandum of understanding has been agreed with the Sector Skills Development Agency that will position the ECITB clearly within the skills for business network.

We recently published our adult skills and work force development White Paper, setting out our vision for lifelong learning in the future. We will ensure that employers have the right skills to support the success of their businesses, which still lag behind those of many of our key competitors. We will also help individuals to gain the skills that they need to be employable and personally fulfilled.

We have promised that when both sides of industry in a sector agree, we will help to set up a statutory framework for training. The ECITB is a model of such a framework. It is a non-departmental public body set up under the Industrial Training Act 1982. Its role is to ensure that the quantity and quality of training are adequate to meet the needs of the engineering construction industry. It provides a wide range of services, including setting occupational standards, developing vocational qualifications, delivering apprenticeships and paying direct grants to employers who carry out training to approved standards.


 
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The Industrial Training Act provides for a levy on employers to finance an industrial training board’s activities and to share the cost of training more evenly between companies in an industry. It is for the employer members of a board to make proposals for the rate of levy and for the Secretary of State to make an order giving effect to the proposals.

This order gives effect to proposals submitted to us for a levy to be collected by the ECITB in 2006. The levy is based on employers’ payrolls and their use of subcontract labour. We are talking about the imposition of a levy in excess of 1 per cent. of payroll on some classes of employer. The Industrial Training Act requires such orders to be approved by an affirmative resolution of both Houses. The proposals involve a levy rate in excess of 0.2 per cent. with no exemption other than for small firms.

In such cases, a levy order can be made only if the proposals are necessary to encourage adequate training in the industry and if one of three conditions is satisfied. The first condition is that the proposals have the support of organisations representing more than half the employers who together are likely to pay the majority of the levy. I am delighted to say that the ECITB’s proposals meet that condition. The Act also requires industry training boards to exclude small firms from the levy, but does not set a minimum size threshold. The ECITB’s proposals set exclusion levels that the industry considers appropriate.

In the order, the ECITB proposes to impose on site contractors the same rate as was imposed last year: 1.5 per cent. of total payroll and net expenditure on subcontract labour. However, contractors whose combined payroll and net expenditure on subcontract labour is £275,000 or less will not have to pay the levy. That equates to an employer who employs 15 to 20 persons full-time throughout the year. It is estimated that that will exempt about 48 per cent. of sites.

Last year, the board decided to concentrate on activities at the craft, supervisory and first-line management levels and no levy was raised on head offices. In these proposals, the board will reintroduce the head office levy at the same rates as in the 2003 order: that is 0.18 per cent. of the total of payroll and net expenditure on subcontract labour for head offices. However, head offices whose combined payroll and net expenditure on subcontract labour is £1 million or less will not have to pay the levy. That equates to an employer who employs around 40 persons full-time throughout the year. It is estimated that 80 per cent. of head offices will be exempted.

The Government recognise the vital need for employers to develop their work forces in a manner that meets their current and future skill needs. I want to congratulate the ECITB on recognising the need to secure increased employer engagement at all levels of its activities. It is taking action to achieve this by restructuring its own management and operations to become more regionally focused. The benefits of this are already becoming apparent and I have no doubt that it will result in a step change in the commitment to training from employers throughout the industry.


 
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I should like to take this opportunity to pay tribute to the leadership of the ECITB by Jim Rowland, who is in his last year as its chairman, and David Edwards, the board’s chief executive. During the past year, they have continued to drive forward a challenging agenda. Without their strong and focused leadership, the progress that has been made would not have been possible. I want to put on record the Government’s appreciation of their hard work.

These proposals are expected to raise between £9 million and £10 million. It is worth pointing out that, in 2004, the ECITB returned to the industry £1.45 in direct and indirect training support for every £1 levy received. The Committee will know from our annual debates that the ECITB exists because of wide support from employers and employer interest groups in the sector. There is a firm belief that without it there would be a serious deterioration of training in the industry, leading to a real fear that its skill needs would not be met. This was confirmed by a review of the board carried out by the Department in 2003, which found that the principle of the levy is still strongly supported. The board’s own annual employer surveys demonstrate equally strong support for the principle of a levy system.

The draft order will enable the board to carry out its vital training responsibilities in 2006, and I believe it is right that the Committee should agree to approve it.

4.38 pm

Mr. Stephen O’Brien (Eddisbury) (Con): This is my first opportunity to serve under your chairmanship, Mrs Dean, and I look forward to a good exchange. The Minister perhaps optimistically described the approach that is likely to be taken today as broadly consensual, and I can immediately confirm that it will be.

The training levy for the engineering construction industry sits in tandem with the construction industry training levy, which has already been considered. I should perhaps declare a past interest in that I come from that sector and I can place on record just how valuable the sector regards the ability to sustain and boost the skills required by those businesses that are taking the risk to deliver our built environment with the ever-changing technologies and demands of clients. The announcement that the Olympics will be held in London in 2012 makes it all the more important that we have the capacity to deliver the engineering and construction skills on behalf of our constituents and our country.

The Industrial Training Act 1982 was the progenitor of all this, establishing the industrial training boards to ensure that the quantity and quality of training were adequate to meet the needs of the industries for which they were established. It is form of finance that effectively is a levy on employers at their suggestion. It is a most unusual statutory approach but, as is always pointed out when these orders come up for renewal, it is done with the consent of and at the request of the industry concerned on the basis that the statutory foundation provides a greater degree of confidence as well as fairness to the participants. However, most
 
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importantly, the proposals do not come forward, save in exceptional circumstances, unless they have the support organisations representing more than half the employers, and the order must be made, as we know, less than two years after the making of the former levy order. That means that there is both continuity and support.

It would be helpful if the Minister could give us an outline of the evidence that the support of more than half the employers has been secured on this occasion, and that he is not using his reserve powers to override the 1982 Act to impose levies on industry, even if they do not fulfil those criteria. Likewise, although he mentioned in his opening comments that there is, under the statutory provisions, the ability to exclude small firms from the levy and that a minimum threshold size has not been set, it would be helpful to have the updated figures on where that minimum threshold stands in practice today. If I read previous orders correctly, it is something in the region of £64,000. It would be useful to see where, if at all, that figure has moved.

The context of this order is the enormous skills demand in our country: about 135,000 vacancies remain unfilled because of skills shortages. The British Chambers of Commerce found that about 43 per cent. of businesses surveyed report that they experience difficulties when attempting to recruit skilled workers compared with 29 per cent. in 1994. In particular, the national employers skills survey in 2003 suggested that although there are about 250,000 job vacancies at any one time, the number of those that are hard to fill because of skills shortages is about 135,000. It is also interesting to note that the combined CBI and BCC report published a couple of years ago suggested that basic skills problems are estimated to cost UK employers about £10 billion per annum, and that we have about 194,000 16 to 18-year-olds who are known, in the current jargon, as “NEETs”—not in education, employment or training. That is why we must have dynamic, demand-led, skills training, and why it is important to renew this order. It is also important that the sector has come together to ensure that it is sustained and renewed.

The demand in engineering construction is even more graphic. In addition to the technical details of the order, which have been highlighted already, the recent study entitled “The Skills Profile of the Engineering Construction Industry” by the ECITB, about which we are setting the levy today, sets out the five priority concerns of industries with a stake in engineering construction. It says:

    “The client industries served by the UK engineering construction sector represent at least 9 per cent. of the UK economy and probably nearer 20 per cent.”

Those are, from my own experience, somewhat fluid figures, because anything to do with construction generally claims to be representative of about one in five, if not one in four, of our gross domestic product. That was something that I was happy to proselytise about when I was in the sector, but it obviously has a major relative effect on our economy, if not a direct one. The report continues:


 
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    “If these industries cannot source the right level of expertise and labour in the UK then they will move operations overseas causing significant damage to the UK economy. Meeting their requirements for far greater overall productivity is a challenge to all with a stake in engineering construction.”

The key demands of clients that emerged from the consultation were for, first, a greater focus on client business objective by contractors; secondly, a supply of better work-ready and highly skilled people—which is what we are focusing on here; thirdly, a new approach to and incentives for multi-skilling; fourthly, an equitable sharing of the risk and rewards that the order demonstrates are found within the sector; and fifthly, a greater investment in the work force. All of us would support and agree with all that. It is particularly important, given those demands, that universities and other colleges continue to offer and to attract students of sufficient calibre to make use of our enormous engineering research capacity and the teaching resources in engineering at our further and higher education colleges and deliver qualified engineers, particularly in construction. With the technologies of ever-increasing modality, for the cost efficiency, particularly for environmental concerns, there is a real need for engineering skills that can help to boost the environmental efficiency of our built environment.

New figures that were published in answer to a question that I tabled on 5 July, Official Report, column 272W, found that, contrary to the Government’s stated ambition, the number of school leavers choosing to pursue vocational qualifications in engineering is declining markedly. Again, that is all the more reason for us to support the measure, given that it has been prompted by the sector.

Most importantly, the engineering construction industry training levy must be set against the construction industry training levy, which the House agreed in a renewed order and which raises between £126 million and £130 million compared with the £9.5 million to £10 million for engineering. However much I want costs to all businesses to be kept under the greatest scrutiny and control, that disparity bears examination, given the potentially much greater value of engineering skills.

Although this might not be the time to consider the definition of terms, we should do so within the next two years when we reconsider the order, and particularly within the next 12 months when the other construction industry training levy order will, as usual, be brought back for renewal, to ensure that the very costly requirements for training engineering skills are properly resourced and supported, especially as the levy is currently funded from two separate pots of money.

I note that the order does not extend to Northern Ireland. Given that Northern Ireland is a critical part of our economy and that its people hope to prosper from the more peaceful conditions there, it would be useful to have similar arrangements under what are no longer devolved powers but direct powers for Northern Ireland, for its citizens and for construction and engineering-related businesses.


 
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The levy has worked reasonably harmoniously in the past but, given the rapidly changing equity and contract penetration of our construction and construction-related industries by firms under foreign ownership in this country, does that affect the way in which the levy operates, particularly in relation to joint ventures, to consortiums and to the calculations made in order to exercise the levy? Further to the response that I note was given in previous discussions on the order, will consideration be given to the possibility of enabling a construction establishment that disengages from the sector to recoup moneys paid for the levy? However, that could of course make the development of the programmes with the sector uncertain.

It is also most important to examine the use of the money. The unusual regulatory impact assessment basically says that the order both imposes a regulation and has an impact, but that that is at the request of the sector, so my usual arguments on regulatory impact assessments rather fall away. Appendix A helpfully sets out how the money is used, and although it might be beyond the scope of this sitting—subject to your guidance, Mrs. Dean, and given this parliamentary oversight— an account should be given of the way the intended use of the money has flowed through in practice so that we have some account of the result of this levy and can ensure that the money is being most effectively and efficiently used to meet future demands that are important for our citizens, their skills, and our country’s gross domestic product.

4.49 pm

Annette Brooke (Mid-Dorset and North Poole) (LD): I, too, am pleased to serve under your chairmanship for the first time, Mrs. Dean. I thank the Minister for his very clear exposition of the order. I know that this is an annual event, but it is my first attendance, so I found his comments extremely helpful.

As this is all new to me, I looked at a few statistics to get a feel for the importance of the industry to our economy. I see that it has an annual turnover of £16 billion and accounts for 1.5 per cent. of GDP, a pretty large direct contribution. With all the supporting industries, it forms a large proportion of our economy.

It is clear that, as with all industries in the manufacturing sector, many changes are upon us. There are particular challenges: economic migrant workers are expected to enter the sector, for which particular training will be required; and, as the hon. Member for Eddisbury (Mr. O’Brien) said, larger companies are inevitably outsourcing their operations to lower cost bases in India and the far east.

I have visited companies and it seemed that, if a great deal of work were being outsourced, the main challenge would be to keep hold of our intellectual capacity, skills, particularly design, and other contributions. I would be interested to know whether the Minister has analysed the input required to respond to those particular changes. There is consensus about the order, and we wholeheartedly
 
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support it. The quantity and quality of training in any industry is important. It is particularly important given the significance of the industry under discussion.

As the Minister said, the revenues from the levy are used by the industry to provide a range of training, including the all-important apprenticeships, of which we hear time and again that we want more. It is particularly laudable to share the costs of training more evenly between companies in the industry via the levy and the subsequent grants. The quality control—the paying of grants to employers who carry out training to improve standards—must be welcomed, too.

The Minister made the point that the policy has come from the industry itself. There has been consultation, and the requirement has been met that the majority of firms agree what is happening. That is the sensible way forward. We often criticise the Government for being too top-down, and it is good to welcome an order that is the other way around. We support the order.

4.52 pm

Phil Hope: This has been a useful short debate about the future of training.

The hon. Member for Mid-Dorset and North Poole (Annette Brooke) made the point that training plays a significant part in our economy. She is absolutely right. The point made by the hon. Member for Eddisbury about the Olympics gives us even more reason to ensure that we have the skills and the labour force to respond to that challenge. He mentioned skills shortages. Between now and 2012 when the Olympics are held, the challenges are to ensure that the industry is equipped and able to respond positively to achieve a magnificent outcome for London and for the whole country.

The hon. Gentleman made a couple of points. First, I shall emphasise the nature of the support that the industry provides. Leading up to the ECITB’s recommendation to the Government, formal consultation took place with the industry’s main employer organisations. Those organisations represent 52.8 per cent. of employers, and together the employers are likely to pay 87 per cent. of the levy. They fully support the proposals. The ECITB also consulted individually all companies that do not belong to an employer organisation. There are about 200 of them, and only one dissenting reply was received. That demonstrates the support and consent within the industry.

The hon. Gentleman’s second point was about the threshold level. It is determined by members of the industry through the ECITB. The previous levy was £72,000. The figure that he quoted was from the construction industry training board. Originally, £75,000 was the threshold for that size of company. That was set in 1992, so the increase to £275,000 is probably long overdue. The new threshold better reflects the current wage structure and size of company in the sector.


 
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The hon. Gentleman raised a wider point, as did the hon. Lady, about skills generally. On the forecast skills shortages and what we will have to respond to, a review is under way by Lord Leitch. He is considering the demand for skills in the economy and taking a long-term view.

What will the demand be in 2020 and how do we respond to that? I have said many times in other forums that we are now considering the most important part of our agenda—raising the skill levels of our country. We have low unemployment and low inflation. We have a successful, thriving, prosperous economy, but we will not stay that way unless we invest in skills and put them at the top of the political agenda. That is the path that we have travelled and we have now arrived at this point. Lord Leitch’s analysis of the future path and how the Government, employers, individuals and taxpayers respond to that challenge is a critical part of the future. The board, the levy and the way in which training is developed in the industry are an important part of a much wider agenda for the future of skills as a whole.

The hon. Member for Eddisbury will know that we have put in place the new sector skills councils. There are 21 in place and we hope to have all 25 up and running before long, each conducting its own assessment in its sector of the skills gap and what the partnership between the private and public sectors can do to meet that gap for the separate industries through the new sector skills agreements. We have four of those in place at the moment.

I was lucky enough to launch the film industry sector skills agreement last week. Skillset is the name of the relevant sector skills council. I hope to be at the launch of the creative and cultural skills sector agreement tomorrow evening. We are making a lot of progress on the architecture that we need to put in place. I think that the hon. Lady mentioned the importance of employer-led analysis of skills gaps and partnerships between the private and public sectors to make arrangements to fill the gaps. It is critical that the work is demand-led.

The hon. Gentleman mentioned the relationship between further education and higher education with regard to qualified engineers. He is right. We need to do more and better on the relationship between FE and HE, on the pathways for training from school into FE and HE and, indeed, on the relationship between HE and private sector organisations. We have good examples of that around the country, but there is always room to do better.

That is the top end—the level 4 achievements—but apprenticeships have also been a huge success. We are talking about an increase from some 75,000 a year in 1997 to some 255,000 this year, and the figure is rising to 300,000 per year. The hon. Gentleman has heard me say this before but, during the recent election, when we were all knocking on doors, people would often say, “We know what you should do. You should bring back apprenticeships.” Well, they are back, but we do not have public recognition of what has been the huge success story of young people gaining highly valued vocational qualifications that give them job-related
 
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training and learning. They do that for their own benefit and for the benefit of the companies that take them on. I know how much companies are working with local colleges to try to develop those apprenticeships, and we must give them all the backing that we can.

The hon. Gentleman asked what happens if someone ceases to be able to pay the levy. What are the consequences if a company goes into liquidation or bankruptcy? The liability to the levy ceases at the moment at which the company stops trading. If an employer ceases to trade in the levy period, a pro-rata arrangement applies, which is set out in article 10 of the order. That assessment is based on the number of days between the start of the levy period and the date on which the employer ceases to trade. It is calculated as a proportion of the total number of days in the levy period. If an employer stops trading before the start of the levy period, clearly there is no liability. That is what happens with the scheme in practice.

Mr. O’Brien: If there is a cessation of trading, bearing in mind the balance between the other creditors and, indeed, the sustainability of the training programmes that are funded by the levy, does the call to the levy rank in any particular order in relation to the creditors? I dare say the Minister will also take the opportunity before he sits down to deal with my points about joint ventures and consortiums point.

Phil Hope: On the first point, it is for the company that has gone into liquidation to sort out its own affairs. Certainly, as one of the creditors, the board would have a call on that company. I do not think that in law it is possible to put the levy from the ECITB higher up or lower down than any other call upon the company that has gone into liquidation. The important point is not to have too many companies going bankrupt and creating the dilemmas that would reduce the board’s income. It has not proved to be a serious problem, but the hon. Gentleman is right to be concerned. We must monitor the situation and ensure that the arrangements in place do not put the ECITB and therefore all the other employers relying on that training at risk.


 
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The hon. Gentleman also asked about joint ventures and consortiums. The levy includes a fairly straightforward but detailed formula for its calculation. We must avoid double counting. If a member of staff is being levied and receiving training, he must not be counted twice by a subcontractor. The levy has an equation to ensure that that does not happen. Subcontracted labour is deducted from the total assessment of the payroll, so that the ECITB does not levy twice for the same person. Does that answer the hon. Gentleman’s question?

Mr. O’Brien: It could be unfair to press for a complete answer at this stage, but it might help the Committee to have a fuller explanation. The examples in the explanatory memorandum were helpful from the point of view of a thriving business. However, when I looked at the calculation of 1.5 per cent. of (AC) and 0.18 per cent. of (DF, ) I could not work out where the inter-relationship with IR35 for single workers who are incorporated fits in terms of subcontracting. Some updating of the definition is needed in relation to the Revenue’s practice. I was wearing my former shadow Treasury Minister’s hat when I asked about joint ventures.

Phil Hope: The hon. Gentleman makes a good point. I will write to him with a detailed explanation. I do not think that there is a problem because of the way in which the calculations are made to deduct subcontracted labour, which may come about through a joint venture, from the overall assessment of the payroll. I understand his point, but it is probably better if I write to him with a full explanation of why that does not happen. I am glad that he has raised the matter but I am pretty sure that the system in place and the levy prevent it.

I have tried to cover all the points that hon. Members have raised this afternoon. I am pleased that it continues to be the collective view of employers in the industry that training should be funded through a levy in a special way to secure a sufficient pool of skilled labour. It appears that we have consensus. I commend the order the Committee.

Question put and agreed to.

Resolved,

    That the Committee has considered the draft Industrial Training Levy (Engineering Construction Board) Order 2005.

Committee rose at four minutes past Five o’clock.

                                                                                           
 
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