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Session 2005 - 06
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Standing Committee Debates

Draft Industrial Training Levy
(Construction Board) Order 2006

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Sixth Standing Committee
on Delegated Legislation

The Committee consisted of the following Members:


Mr. Bill Olner

†Balls, Ed (Normanton) (Lab)
†Cawsey, Mr. Ian (Brigg and Goole) (Lab)
†Clelland, Mr. David (Tyne Bridge) (Lab)
†Davey, Mr. Edward (Kingston and Surbiton) (LD)
†Evennett, Mr. David (Bexleyheath and Crayford) (Con)
†Farron, Tim (Westmorland and Lonsdale) (LD)
†Hayes, Mr. John (South Holland and The Deepings) (Con)
†Hope, Phil (Parliamentary Under-Secretary of State for Education and Skills)
†Lucas, Ian (Wrexham) (Lab)
†Mitchell, Mr. Austin (Great Grimsby) (Lab)
†Moffat, Anne (East Lothian) (Lab)
†Moran, Margaret (Luton, South) (Lab)
†Mullin, Mr. Chris (Sunderland, South) (Lab)
†Shepherd, Mr. Richard (Aldridge-Brownhills) (Con)
†Smith, Ms Angela C. (Sheffield, Hillsborough) (Lab)
Tredinnick, David (Bosworth) (Con)
Yeo, Mr. Tim (South Suffolk) (Con)
Emily Commander, Committee Clerk
† attended the Committee

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Wednesday 1 February 2006

[Mr. Bill Olner in the Chair]

Draft Industrial Training Levy
(Construction Board) Order 2006

2.30 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 (Construction Board) Order 2006.

The Chairman: With this it will be convenient to consider the draft Industrial Training Board (Engineering Construction Board) Order 2006.

Phil Hope: It is a pleasure to serve under your chairmanship, Mr. Olner.

This is an important area of policy and both orders are part of our skills strategy, so I hope that we can achieve consensus this afternoon. They seek authority for the Construction Industry Training Board and the Engineering Construction Industry Training Board to impose a levy on employers in the industries that they cover.

Skills are vital to success in the increasingly competitive and global economy and I am pleased to say that the Government have made, and continue to make, major investment in training. For example, this year the Learning and Skills Council will fund further education and training to the value of some £7.6 billion.

Last year, we published our White Paper, “Getting on in business, getting on at work”, which set out our plans for the next major phase of reform to make this country a world leader in skills. We want to ensure that employers have the right skills to support the success of their businesses and that individuals gain the skills that they need to be employable and personally fulfilled. The Committee will know that in support of that we have established a network of some 25 sector skills councils to ensure that employers have a strong and clear voice to influence the provision of education and training. We have also promised that when both sides of industry in a sector agree we will help to set up a statutory framework for training.

The two industrial training boards—ITBs—are models of the successful application of such frameworks. They are non-departmental public bodies set up under the Industrial Training Act 1982 with the role of ensuring that the quantity and quality of training are adequate to meet the needs of the industries they cover. They provide a wide range of services, which include setting occupational standards and developing vocational qualifications, delivering apprenticeships and paying direct grants to employers who carry out training to approved standards. In fact,
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the CITB, in partnership with CITB Northern Ireland and the Construction Industry Council, operates as construction skills the Sector Skills Council for the construction industry. I am pleased to say that it has developed one of the first sector skills agreements, and that now underpins every facet of the CITB’s operations.

The engineering construction industry does not meet the minimum size criteria for becoming a sector skills council, but we have a memorandum of understanding with the Sector Skills Development Agency that firmly locates the ECITB in the skills-for-business network. The board’s status as a valuable sector body was further recognised last year when it won an award from Sector Skills Alliance Scotland as

    “the most effective Sector Skills Council or Sector Skills Body in Scotland”.

That is an excellent example of what can be achieved by a levy-funded body.

The 1982 Act contains provision for a levy on employers to finance the ITB’s activities and to share the cost of training more evenly between companies within an industry. It is for the employer members of a board to make proposals for the rate of levy for the industry it covers and for the Secretary of State to make an order giving effect to the proposals. That is the purpose of the orders before us. They will give effect to proposals submitted to us for a levy to be collected by the CITB in 2006 and the ECITB in 2007. Both involve the imposition of a levy in excess of 1 per cent. of payroll on some classes of employer.

The 1982 Act requires such orders to be approved by affirmative resolution of both Houses. In each case the levies are based on employers’ payrolls and their use of subcontracted labour. For both boards the proposals involve levy rates in excess of 0.2 per cent., with no exemptions 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 most of the levy. I am pleased to say that the proposals from both boards meet that condition. The Act requires industrial training boards to exclude small firms from the levy, but it does not set a minimum size threshold, so each of the proposals sets a level that the industry considers appropriate. Employees who fall below the threshold are not, however, precluded from benefiting from grant and other support from the board, and many of them rightly do so.

The CITB proposes in the order that both its levy rates should stay the same as those approved by the House of Commons last year. The rates will be 0.5 per cent. of payroll for direct employees and 1.5 per cent. of net expenditure on subcontract labour. Employers whose combined payroll and net expenditure on subcontract labour is less than £69,000 will not have to pay the levy. That is an increase on last year’s threshold of £64,000, to reflect wage inflation. The level equates to an employer who employs three people full time throughout the year; about 41 per cent. of
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employers come into that category. A further 22 per cent. of employers will not be assessed for the levy or will not pay it for other reasons—for example, if they are in their first year of registration with the CITB or have ceased trading. Therefore, about 60 per cent. of employers will not be required to pay the levy.

The levy on subcontract labour is higher because, according to the industry, the majority of training is carried out by employers with a directly employed labour force. Employers who opt to use subcontract labour tend to have a transitory arrangement with their subcontractors and are not normally involved in their training. It is encouraging to see that large contractors, who use significant amounts of subcontract labour, recognise their responsibility to contribute more than just cash to tackle the skill shortages in the industry: they have initiated action to encourage firms in their supply chains to recruit and train apprentices.

The ECITB also proposes to make no changes to last year’s rates. Therefore, the rate will be 1.5 per cent. of total payroll for sites and net expenditure on subcontract labour. Contractors whose combined payroll and net expenditure on subcontract labour is £275,000 or less will not have to pay the levy. The level is unchanged from last year and equates to an employer who employs 15 to 20 persons full-time throughout the year. It is expected that about 62 per cent. of sites will be exempted.

For head offices, the rate will be 0.18 per cent. of the total of payroll and net expenditure on subcontract labour. Head offices whose combined payroll and net expenditure on subcontract labour is £1 million or less will not have to pay the levy. This level is also unchanged from last year and equates to an employer who employs about 40 persons full time throughout the year. It is expected that 80 per cent. of head offices will be exempted.

The proposals are expected to raise £145 million to £150 million for the CITB and £2.5 million to £11 million for the ECITB, which covers a much smaller industry. The CITB currently returns £1.74 in direct and indirect training support for every £1 of levy that is received. For the ECITB the equivalent figure is £1.45.

The Committee will know from our annual debates on this issue that the CITB and the ECITB exist because of the support that they receive from employers and employer interest groups in their sectors. There is a firm belief that, without them, there would be a serious deterioration in the quantity and quality of training in these industries, leading to a deficiency in skill levels. That was confirmed by reviews of both boards carried out by the Department in 2003, which found that each industry strongly supported the principle of the levy. The boards’ own annual employer surveys also demonstrate strong support for the principle of a levy system.

I close by paying tribute to the leadership of the CITB by Sir Michael Latham and Peter Logan and of the ECITB by Jim Rowland until his retirement last September, to Terry Lazenby, the board’s new chairman, and to David Edwards. During the past
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year, they have continued to drive forward a challenging agenda, and I put on record my appreciation of their hard work and commitment.

The draft orders will enable the two boards to carry out their vital training responsibilities in 2006, and it is right that the Committee should agree to approve them.

2.40 pm

Mr. John Hayes (South Holland and The Deepings) (Con): It is an immense pleasure to serve under your chairmanship, Mr. Olner. It is an honour to serve on this Committee, and a great pleasure to speak opposite the Minister for the first time in our respective roles. We crossed swords in earlier political lives, although neither of us was a cut-throat, so it was not a bloody affair.

This is an important if somewhat technical matter, which is worthy of consideration. The Minister has made an important case for the continuation of the levy, setting it in the context of the industry’s importance. As he said, the Industrial Training Act 1982 established industrial training bodies to ensure that the quantity and quality of training adequately met the needs of the industries for which it was established. The 1982 Act also contained provision for the levy on employers to finance ITB activities and share the cost of training more evenly between companies in the industry.

There are two ITBs covering the construction and drilling industries, as we can see from the orders before us, and we are taking those matters together. Both boards provide a wide range of services and training initiatives, including setting occupational standards, providing vocational qualifications, delivering apprenticeships and paying direct grants to employers who carry out training to approved standards.

Those matters are significant because of the context in which we are considering them. Members of the Committee will be familiar with the work of Kate Barker and her review of housing supply. We—the Minister and I, certainly—have had exchanges about the generality of that report, but regardless of what one may think about it, one problem that she identified on which we all agree is the paucity of skills in the industry. It will act as a bar to the delivery of the targets that her report established as necessary. Indeed, the Government, in their own policy, have endorsed those targets. Undoubtedly, we will be unable to build on the scale necessary without significant improvement in the quantity and quality of skills available to the construction industry.

On that subject, it is worth saying a word about the Barker review. Mrs. Barker warned:

    “The track record of the industry, in areas such as consumer satisfaction, skills, innovation and local acceptance, is not sufficiently strong to inspire confidence in policy makers that it can deliver.”

That is worrying indeed. In particular, Mrs. Barker warned:

    “The industry needs to address its weak record of innovation and remove barriers to the take-up of modern methods of construction and off-site manufacturing.

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    Investment in skills needs to increase to produce higher levels of output in the future and to bring the take-up of apprenticeships towards the levels of leading international comparators. In the short-term, Government should consider increasing support for skills in the construction sector alongside any increases in the industry-funded training levy.”

She refers specifically to the matter before us.

A report by the Adult Learning Inspectorate, published in May last year, found that the construction industry’s own research showed an acute shortage of skilled craftspeople. There are 300,000 fewer skilled craftspeople than the industry needs in terms of contracts already planned. During the 1970s, 100,000 people were being trained each year across a range of construction skills. By 2004, that figure had declined to fewer than 40,000.

The standard of training currently offered can make the situation only worse. Some 40 per cent. of those being trained in construction industry skills were found by the Adult Learning Inspectorate to be trained inadequately, and only 34 per cent. of trainees complete their apprenticeships. Those are worrying figures, and the Minister is right: they are worrying to all of us, regardless of party. It is not a matter of party difference. The Minister has committed himself, both today and previously, to the improvement of skills. I know that he is a man of some honour and will work to achieve that ambition with every endeavour, but it is a big mountain to climb given the figures that I have just read out.

I know that we are taking the orders together but I draw particular attention to the Construction Industry Training Board, the subject of the first of the orders. It is the largest provider of training in the building and crafts industries, with 10,000 learners, but only 25 per cent. of them will complete their qualification. Nick Perry, director of inspection at the Adult Learning Inspectorate, commented that the construction industry must face up

    “to the critical problems endemic in its training methods today.”

If the industry is to deliver the new houses that the Government have planned for—quite apart from the other buildings that emanate from such efforts—to a standard that our nation deserves, urgent action is needed to improve the provision of training in the construction industry.

My views on the subject, endorsed by the third parties I mentioned earlier, reflect the reasons for the industry’s warm welcome and support of the system that has been in place since 1982. The Minister said that there is support for the continuation of the levy at an appropriate level. That is vital: the level must be appropriate to deliver the sort of return that is needed. The Minister mentioned that support, and perhaps it is worth while to amplify his point by drawing the Committee’s attention to some figures: 72 per cent. of employers support the continuation of the CITB levy grant system and 73 per cent. believe that the amount of training in the industry would worsen in the absence of CITB construction skills.

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I shall draw two worries to the Minister’s attention and I hope that he will comment on them, at great length no doubt, later. Not that we want to delay the Committee unduly, Mr. Olner. There are Members with many important things to do, but what could be more important than this? My first worry is that during the past six years, the proportion of levy-paying employers who are members of the main employer federations has dropped from 58 per cent. to just over 50 per cent. That reflects a decline in the percentage of construction employers becoming federation members, rather than any diminution in support for the levy system in the industry.

I mentioned the high level of support, but as fewer people become members of the federation, there is a worry that the levy system will cease to have the necessary depth of support to facilitate the outcomes that we all want. If that were to be a trend—I am interested to hear whether the Minister thinks that it is a trend or a blip—we may encounter some difficulties when we meet at a later date because of the level of involvement and funds raised by this system.

My second worry concerns the apprenticeship framework. A major cause for the current low level of apprenticeship framework completions in the construction industry is the failure of further education colleges to find work experience opportunities for trainees who are enrolled on full-time courses. I know that the Minister does not have direct responsibility for FE, but on the Opposition Front Bench, I do have that responsibility. I know that he has a hotline to the Minister for Schools, the right hon. Member for Redditch (Jacqui Smith), and that he will be as concerned about the matter as I am.

This is one of the examples—there are others—of a gap between what we do in FE and what we do in industry. We need a greater synergy between the activities of FE colleges and the demands of a range of industries, including the construction industry. I wonder whether the Minister might comment on that in relation to the orders, notwithstanding the fact that it is not directly within his area of responsibility.

Ed Balls (Normanton) (Lab): To clarify an earlier remark made by the hon. Gentleman, he cited the Barker review in relation to the need for more training to meet the scale necessary, as set out in the report, and to deal with the large numbers of new houses that will be built. In supporting training initiatives to meet the large numbers of new houses, is he therefore endorsing the numbers set out in the Barker report and the need for new house building in Britain?

Mr. Hayes: The hon. Gentleman is a new Member of the House of Commons and perhaps I can help him. I will give him a break. I warn him—forgive me for doing so, Mr. Olner—that if I were to stray from the specific concerns of this instrument and he were to encourage me to do so, not only would I be out of order, but he would get the blame. My paternal advice is that when one is on statutory instrument Committees, one must be precise and targeted—
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focused, indeed—in one’s interventions and contributions. However, given your almost legendary generosity, Mr. Olner—

The Chairman: Order. If we are going to talk about housing problems, skilled workers will be needed for the construction.

Mr. Hayes: It is just as I anticipated. I was ready to try to deal with the matter and bring some light to the darkness of the hon. Member for Normanton (Ed Balls), but I know that you will not let me do so, Mr. Olner. Perhaps we could discuss the matter over dinner.

Ed Balls: I respect the guidance that you gave us, Mr. Olner. Does the hon. Gentleman think that the proposals that have been set out in this instance will be sufficient to enable the industry to train the correct number of people to build the substantial number of houses that Kate Barker recommends?

Mr. Hayes: I shall be brief, for the reason that you have given, Mr. Olner. There are two points, are there not? First, as I have illustrated by evidence that I have brought before the Committee, there is undoubtedly a significant problem with both the quantity and quality of skills in the construction industry—in the context not of implementing the Barker report, but of doing the job that needs doing at the moment. The skills gap is not about the necessary skills in the future. It is about meeting the needs of today. The evidence is clear that that is not happening. Secondly, the Barker report draws attention to that gap and recommends a large expansion of house building. The reason why Kate Barker does that—as the hon. Member for Normanton will know, because he has some understanding of economics—is because she believes that it is largely supply-side factors that drive up and hold up house prices. On many occasions, I have put the counter-thesis that it is demand-side factors, such as interest rates, the level of borrowing secured against housing equity, and net migration, that play a pivotal part in driving up and holding up house prices.

I do not share Kate Barker’s view about housing expansion, although it is certainly true, as the hon. Gentleman would be the first to acknowledge, that, given that the Government have slashed social house building to half the 1995 level, in that area alone we need the skills to satisfy the proper demand for social housing that has led to more than 100,000 people being trapped in temporary accommodation—victims of this Labour Government’s policies. But we will not go down that road.

Mr. Edward Davey (Kingston and Surbiton) (LD): I am tempted to comment on the hon. Gentleman’s thesis that there is a demand-side problem. If he came to my surgery and saw the number of homeless people and people living in overcrowded accommodation, I am sure that he would realise that there is a real demand that can be met only by an increase in supply. However, the issue is not simply the Barker review.

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The Chairman: Order. I have given a great deal of latitude. I have read both the orders, with great delight, and the name “Barker” does not appear in either.

Mr. Hayes: I think that the best thing would be to sum up and bring the matter to a speedy conclusion. The Minister and I came here expecting a friendly exchange and other Members, perfectly properly, have tried to encourage us to dig into other subjects.

I agree with the Minister that this is an important process. It is a well-established and well-supported method of helping to fund skills in the industry. The statutory instruments continue that consensual approach and the Minister can be assured that Members will treat them in that spirit, and that we will not divide the Committee.

2.55 pm

Tim Farron (Westmorland and Lonsdale) (LD): It is a privilege to serve on this Committee under your chairmanship, Mr. Olner. It is my first statutory instrument Committee, so I apologise for any errors that I make in respect of form. I am not entirely sure what the form is for such events. [Interruption.] Obviously, I have heard the form according to the hon. Member for South Holland and The Deepings (Mr. Hayes), who blessed us with a lengthy contribution. I shall disappoint you with a relatively short one, Mr. Olner.

It is important that there should be consensus, and my party is willing to support the orders. We recognise the industry support from the Construction Industry Training Board and the Engineering Construction Industry Training Board, and the importance of the levies and the impact that they have on training, not only for the current work force but in apprenticeships that will bring people into engineering and the wider sector.

It is worth pointing out the strengths in funding industry training in this way. Training is essential for the industry, and it is important that no one part of the industry gets a free ride. By having a levy across the sector, we enable all those in the federation who benefit to contribute, and that allows skills provision throughout the sector. Conversely, the levy also provides an incentive for those who have been levied to make use of the training that is available, and that is valuable in its own right.

The levy is needed to provide specific industry-wide training provision, but it is worth commenting on the need for training that is not industry specific and, indeed, training beyond the industry as well. I refer to what might be called soft skills, generic skills, skills relating to the industry and skills that contribute to bringing people into engineering and the industry in general. For example, the Foster review acknowledged the role of further education and promoted a greater role for FE colleges in equipping people with skills for business. We welcome that but are concerned about whether there is funding to enable such providers to do that in the way that they wish to.

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I also welcome statements from the Department about the funding gap between FE colleges and sixth-form colleges. They relate specifically to A-level funding, but also to the ability of colleges to provide a wider breadth of education and training.

The Chairman: Order. The hon. Member should not go down that route, as the Minister is not responsible for the things that he just mentioned.

Tim Farron: Thank you, Mr. Olner. I welcome the role of FE colleges in underpinning the wider training of people who are considering entering the industry, and in providing the umbrella of skills and training opportunities that will enable people to do so.

We spoke earlier about the skills gap and skills shortages in the industry. Perhaps the skills gap begins at school. There are concerns that the lack of breadth of provision at school and, dare I say it, the Government’s decision not to take on all the recommendations of the Tomlinson report, have ensured a failure to offer a wider range of choices. Perhaps the recent debate about the schools White Paper and structures in education rather the breadth—

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