The Parliamentary Under-Secretary of State for Innovation, Universities and Skills (Mr. David Lammy): I beg to move,

The Chairman: With this it will be convenient to consider the draft Industrial Training Levy (Engineering Construction Industry Training Board) Order 2008.

Mr. Lammy: The orders seek the 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. The Committee will be interested to note that it is anticipated that these orders will be the last single-year orders to be brought before Parliament on this matter. As a consequence of amendments made to the Industrial Training Act 1982 by the Further Education and Training Act 2007, which are due to come into force on 2 March, future levy orders are likely to be of three years’ duration.

The importance of skills cannot be overstated. Britain can succeed in a rapidly changing world only if we develop the skills of our people to the fullest possible extent. Carrying out world-class research and scholarship is essential to that, along with an innovative and competitive economy. The creation in June last year of the Department for Innovation, Universities and Skills will drive forward the delivery of the Government’s long-term vision to make Britain one of the best places in the world for science, research and innovation, and will deliver the ambition of a world-class skills base.

Despite the progress that we have made since 1997, we still have a lot of work to do before our nation’s skills compare to those of our key competitor nations. Delivering our ambitions will require a significant increase in the number of people improving their skills and gaining new qualifications each year. In “World Class Skills”, the Government’s response to Sandy Leitch’s report, we set ourselves the targets of achieving, by 2020, 95 per cent. of adults with functional literacy and numeracy skills; more than 90 per cent. of adults qualified to level 2, with a commitment to achieve 95 per cent. as soon as possible; 68 per cent. of adults qualified to level 3; 50,000 apprenticeships a year in the UK; and more than 40 per cent. of adults qualified to level 4 and above.

The Government have made and continue to make major investments in training. This year, the Learning and Skills Council will fund further education and training to the value of more than £8.5 billion. 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 work force with the skills that employers need. In 2002, we established a network of sector skills councils to ensure that employers have a strong, clear voice to influence the provision of education and training.

Recognising the important contribution made already by sector skills councils and the potential for them to make an even greater impact, we have backed Lord Leitch’s call for them to be reformed, re-licensed and empowered. We have also backed his call for a new commission for employment and skills. That will be led by its chair, Sir Mike Rake, and its chief executive, Chris Humphries and will begin operating on 1 April. A key early task for the commission will be to manage the re-licensing of the sector skills councils, ensuring that every council is an authoritative and powerful advocate for skills in its sector.

In past manifestos, we promised that, where both sides of industry in a sector agree, we will help to set up a statutory framework for training. That commitment remains in place, and the recent order establishing the Film Industry Training Board for England and Wales is an example of our continued commitment to that principle. The two industrial training boards that we are considering the levy orders for are models of the successful application of such frameworks. They are non-departmental public bodies set up under the Industrial Training Act 1982. Their role is to ensure that the quantity and quality of training are adequate to meet the needs of the industries that they cover. They provide 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.

In fact, the CITB, in partnership with CITB Northern Ireland and the Construction Industry Council, operates as ConstructionSkills—the sector skills council for the construction industry. It developed one of the first sector skills agreements, which now underpins every facet of the CITB’s operation. During the past year, it has maintained its position at the forefront of developments, and launched an arm of its National Skills Academy on the site of the 2012 London Olympics to address skills issues arising from that important project.

The Engineering Construction Industry Training Board is not a sector skills council. However, I am pleased to say that it has worked closely with the Sector Skills Development Agency and will continue to work with the new Commission for Employment and Skills to scope out its future role with the Skills for Business network As I mentioned earlier, representatives from the film industry approached the Department to request the setting up of a statutory framework for training and, after consultation, an order was laid to establish the Film Industry Training Board in November last year that came into force on 7 December 2007.

The Industrial Training Act 1982 contains provisions that enable levies to be raised on employers to finance an ITB’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 for the industry that it covers, and it is for the Secretary of State to make an order giving effect to the proposals, which is the purpose of the orders. They give effect to proposals submitted to us for a levy to be collected by the CITB in 2008, and by the ECITB in 2009. Both involve the imposition of a levy that is estimated to be in excess of 1 per cent. of payroll for some classes of employer. The affirmative resolution procedure is required for both orders.

In each case, the levies are based on employers’ wage and financial matters, and their use of subcontract labour. For both boards, the proposals involve levy rates 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 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 are together likely to pay the majority of the levy. The proposals from both the CITB and the ECITB meet that condition.

The legislation requires ITBs to exclude small firms from the levy, but it does not set a minimum size threshold. Each proposal sets a level that the industry considers appropriate. Employers who fall below the threshold are not, however, precluded from benefiting from grant and other support from the board, which many of them do. Under the order, the CITB proposes that both its levy rates should stay the same as those approved by the House 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 £76,000 will not have to pay the levy. That is an increase from last year’s threshold of £73,000 to reflect wage inflation. The level equates to an employer who employs three people full time throughout the year, and 40 per cent. of employers come into that category. A further 25 per cent. of employers will not be assessed for the levy or will not pay it for other reasons, such as if they are in the first year of registration with the CITB or have ceased trading. That means that 65 per cent. of employers will not be required to pay the levy.

The reason for the higher levy rate on subcontract labour is that, according to the industry, the majority of training is carried out by those employers with a directly employed labour force. Employers who opt to use subcontractor labour tend to have a transitory arrangement with their subcontractors and are not usually involved in their training. It is encouraging to see that the large contractors, who use a significant amount of subcontract labour, are recognising their responsibility to contribute more than just cash to tackle skill shortages in the industry. Through the CITB-ConstructionSkills “Programme Led Pathways” initiative, large contractors 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. The rates will be, for sites, 1.5 per cent. of total payroll and net expenditure on subcontract labour, and contractors whose combined payroll and net expenditure on subcontract labour is £275,000 or less will not have to pay the levy. The levy is unchanged from last year, and equates to an employer who employs 15 to 20 people full time throughout the year. It is expected that 54 per cent. of sites will be exempted.

For head offices, the figure 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 around 40 people full time through out the year. It is expected that 73 per cent. of head offices will be exempted.

These proposals are expected to raise between £175 million and £180 million for the CITB, and between £14 million to £15 million for the ECITB, which obviously covers a much smaller industry. It is worth pointing out that the CITB currently returns £1.90 in direct and indirect training support for every £1 of levy that it receives. For the ECITB, the figure is £2.11.

The importance of these sectors of industry cannot be ignored. They contribute well over £200 billion to the UK economy, and over 9 per cent. of our gross domestic product. Between them, they employ more than 2.5 million people, many of them on a peripatetic, project-based basis. The nature of this employment can act as a disincentive to employers to train their people, and that is a major reason why both sectors chose to retain statutory training levies at a time when other sectors were encouraged to move away from them—in the 1980s and early 1990s—and why they still wish to maintain them today. That spreads the cost burden of the training across the whole industry, which benefits from training being carried out by employers who are committed to providing training; at the same time, it provides assistance to such employers. The existence of the bodies helps to address issues that affect the industry as a whole in a non-partisan way.

The Committee will know from our annual debates that the CITB and the ECITB exist because of the support that they receive from employers and employer interest groups in their sectors. As I indicated earlier, 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 my Department in 2003, which found that the principle of the levy is still strongly supported in each industry. The boards’ own annual employers’ surveys also demonstrate continued strong support for the principle of a levy system.

The ITBs’ successes have not occurred without the significant efforts of many people working for them. In particular, I would like to pay tribute to the leadership of the two boards. Led by Terry Lazenby and David Edwards, the ECITB published during the past year—a period of great change for the engineering and construction industry—“Bridging the Skills Gap”, a consultation paper that set out the potential scale of the skills shortages facing the industry and sought to establish a consensus on how the industry might move forward to address them. By that and other means, Terry Lazenby and David Edwards have continued to spearhead the industry’s drive to meet the challenges that it faces, and I wish to put on the record my appreciation for their hard work and commitment.

In addition, I must also thank Sir Michael Latham, the CITB chairman, and Peter Lobban, who recently announced that he will retire in August this year, after almost 10 extremely successful years as its chief executive. During this time, he has overcome the many challenges that had to be overcome to transform the CITB into a dynamic, strategically influential body and a key driver in addressing the skills issues in the construction industry. I wish him a long and happy retirement and reiterate my thanks to him.

The draft orders will enable the two boards to carry out their vital training responsibilities in 2008, and I believe that it is right for the Committee to approve them.

Mr. John Hayes (South Holland and The Deepings) (Con): What a pleasure it is, Dr. McCrea, to serve under your chairmanship for the first time on a Delegated Legislation Committee. The great festivals of Christmas and Easter, my own birthday and those of my wife and children, punctuate my year, as does consideration of these levies in Committee. It has become part of my calendar to go through this interesting business of reconsidering the levies. I do not claim to match the passion that the Minister displayed in exhorting the case for the levies but I will, however imperfectly, do my best.

The Committee will know that the Industrial Training Act 1982 established industrial training boards. Their purpose was to maintain the quantity and quality of training in the industries that they cover. It is perhaps worth saying that in those industries—construction and engineering—some of the exemplar training, which other sectors might do well to emulate, is to be found. I think in particular of level 3 apprenticeships, where excellent work is done in both the engineering and construction sectors. I was lucky enough on Monday evening to dine with a group of engineering manufacturers who emphasised their commitment to training and the significant contribution that they make to our nation’s economy.

That 1982 Act also required ITBs to demonstrate that their levy proposals—they are given the power to levy the industry to support training—are supported by organisations representing more than half the employers who are likely to contribute. Those representative organisations have traditionally taken the form of employer federations and trade unions, although this is increasingly a problem because a growing proportion of employers choose not to be members of those federations. The Further Education and Training Act 2007 allows support for levy proposals to be demonstrated by consulting more widely with employers, whether they are members of a representative organisation or not.

There is a slight risk in that in two respects. It is possible that that might weaken those representative organisations. I do not want to exaggerate this, but it is something we need to consider because if everyone is to be consulted there is perhaps less incentive for people to join these organisations. Secondly, because of the kind of organisations that are being consulted, it is perhaps harder to demonstrate definitively quite how much support there really is. It broadens the opportunities for consultation but it may also dilute them. I should be grateful if the Minister could say a word or two about that.

The provision for the levy on employers to finance an ITB’s activities and share the cost of training more evenly between companies and industry has enjoyed all-party support since 1982. I have spoken on this in Committee before as I mentioned at the outset. It is for the employer members of a board to make proposals for the rate of the levy for the industry. As we have seen today, it is for the Secretary of State to make an order giving effect to those proposals. The levy must have the support of organisations representing more than half of employers, as I have said, and the order must be made less than two years after the making of the formal levy order.

The 1982 Act requires ITBs to exclude—perhaps I should say except—a certain number of firms from the levy: very small businesses and very new ones. Interestingly, however, it does not stipulate a minimum threshold size. Will the Minister say a word or two about that? In my judgment it is right for very small companies, one-man bands, to be excluded from the levy, but it would be interesting to hear the Minister’s views on how those exceptions should work in practice, what size of company should be excluded and what other kinds of companies might be excepted from the levy.

There are a number of other points that I am sure the Minister will want to deal with. There are currently two ITBs covering the construction and engineering industry sectors, both of which provide a wide range of services and training initiatives. That includes setting occupational standards, developing vocational qualifications, delivering apprenticeships, as I mentioned earlier, and paying direct grants to employers who carry out training to improve standards. The Committee may be less familiar with the fact that, as the explanatory memorandum to the order makes clear, an order to establish an ITB covering the film industry came into force on 7 December 2007. That was a result of the work of the sector skills council in that field, and I would be interested to hear from the Minister what lessons can be learned from that success in building consent for a new, voluntary training levy. Are there other sectors that might follow suit? What successes has the film industry had so far, and how were employers engaged in a way that enthused them about the prospect of a training levy?

We have problems in sectors such as financial services and retail—which I was looking at this morning in terms of skills—in encouraging sufficient investment in training. We need to be imaginative and creative about the ways in which we can encourage that. Perhaps the film industry has established a precedent that others might emulate. The other questions that I wish to raise are about what impact the Further Education and Training Act 2007 will have on the way that industrial training boards consult to establish consent for levies in the future, and whether the extension of training levies will be considered when the Government review the impact of the skills pledge in 2010.

The Minister and his compatriots have told businesses that they must sign up to a pledge to invest more in skills and training. If they do not do so by 2010, they will be dealt with in a very draconian manner—perhaps by the introduction of more statutory levies or other penalties. Will the Minister say what Government thinking on that is and what he anticipates the situation in 2010 might be? What rate of acceleration has there been in signing up for the skills pledge? We need a regular update about how many people have signed up to it, and, mindful of that 2010 deadline, we must sense that it is a growing number.

My final point is an assertion rather than a question. In his brief introductory remarks, the Minister talked about the Government’s determination to press level 2 skills and he mentioned the Government’s targets in that regard. I wonder—I put this no more strongly than as a rhetorical question—whether the Government have become preoccupied with level 2 skills, and whether we should actually be looking at a greater concentration on level 3 and 4 skills. Similarly, I wonder whether the Government have put too much emphasis on train to gain, which, in my judgment, has significant flaws. Perhaps the Minister would say a word or two about those matters. With those few comments, I look forward to the Minister’s pithy response, which I hope will match his opening remarks.

Stephen Williams (Bristol, West) (LD): I am also very glad to serve under your chairmanship, Dr. McCrea, and it is a pleasure to be gathered together to consider the order. Rather like the hon. Member for South Holland and The Deepings, I was also in either this room or another to approve the order last year, although I gather from the Minister’s introductory remarks that we will not be called upon to approve a similar order until well after the next general election. The hon. Gentleman will therefore have to find some other occasions to break up his parliamentary year.

Recently, I had the pleasure of opening the office of Labour Ready. When I was invited to do so, I was rather sceptical about what it did, but when we checked it out, we found that it is an agency that supplies many workers to the construction industry. I opened its training suite, where a lot of the online and computer-based training now goes on to ensure that employee agency workers have a key understanding of safety on construction sites, which is vitally important.

Last week, during the constituency week recess, I visited the construction skills academy based at Filton college in Bristol, North-West and saw much of the work that is done there to train many young people to go forward in the construction and engineering sectors. One needs only to look at city centres in many parts of the country to see cranes puncturing the sky, taking part in a building boom that I am sure many of us are witnessing in our constituencies—it is certainly the case in Bristol and Cardiff, which I also visited last week. I hope that the current state of the economy does not mean that we are left with many empty offices in the near future.

The levy is relatively uncontroversial, so I do not propose to detain the Committee for long. As the Minister said, the levy will raise just short of £200 million, which will be invested in the training of more than 40,000 trainees. The new industry sector training scheme for the film industry has also been mentioned, and I wonder, like the hon. Member for South Holland and The Deepings, whether that model could be followed by other industrial sectors, because a central weakness highlighted by the Leitch report and the Government’s response to it is the reliance on voluntary commitments to training by employers: the so-called pledge that has to be met by 2010.

Indeed, the Minister, the Conservative spokesman and my colleagues are engaged in another Bill at the moment that will introduce compulsion on 16 and 17-year-olds and those who might employ them in that area, and I wonder whether the Government will now show some joined-up thinking and encourage more compulsion on employers in other sectors to ensure that the work force is adequately trained. As long as the Minister is able to give us the assurance that the continuance of the levy has majority support in the relevant sector, we are happy to support its continuance for another year.

Mr. Lammy: I begin by thanking the hon. Members for South Holland and The Deepings and for Bristol, West. I can indeed give the assurance to which the hon. Gentleman has just referred. I shall address some of the points raised by the hon. Member for South Holland and The Deepings. First, the point that he made on federations and group associations that have a bearing in the sector was well made. That is an issue that I have raised with the new commission for employment and skills, which is keen to ensure that such federations and associations are within the family of organisations that are consulted and spoken to as we move forward with sector skills councils, alongside the ECITB and others. In a sense, I have given them that challenge to ensure that we have coherence going forward, and as the voice of employers in communication with the new Department, I think that that must be right.

Angela Watkinson (Upminster) (Con): The explanatory notes for the draft instrument described the consultation that the CITB undertook formally to be with the industry’s main employer organisations, which represent over 50 per cent. of employers who are likely to be liable to pay that industrial levy. Those employers are likely to pay 66.46 per cent. of the total levy, in other words about two thirds. That means, does it not, that the other third will be paid by relatively small employers?

Looking at the small firms exemption, the sum of £76,000 was mentioned in relation to net labour-only payments. If it is a very small firm with, for example, three employees, and the owner’s own emolument is included in that, dividing by four leads to an income of less than £17,000, if national insurance contributions are taken into account. That is indeed very small. Would the Minister say whether he thinks the cut-off level for small firms is fair?

Mr. Lammy: I have now attended a number of events with the industry, and have met with the board chairman and chief executive. I have had no indication that there is an onerous burden on small employers. Just three and a half weeks ago I met a group of small construction providers in north London, and that was not a suggestion they were making. In fact, they said that they want to access more apprenticeships and more training for their individual bodies.

The hon. Lady is right to indicate that this is a sector with subcontractors with very small margins indeed, particularly in the south-east. Having said that, it is for the industry to come to a decision as to what “small” means for them, and in that sense I have certainly not received any information that this is an issue for small organisations within the family of construction industries. The point she makes is a good one, and one of which I am sure chairmen and chief executives are acutely aware as they represent the interests of the industry.

Mr. Hayes: Surely the point is that the 1982 Act, though it requires the ITBs to accept small firms, does not establish a threshold. The question I would pose, and which I hope the Minister might come to in relation the intervention of my hon. Friend the Member for Upminster, is at what point and in what way that threshold is determined.

Mr. Lammy: With respect, as the hon. Gentleman says, the Act leaves that open for the industry. It is not something prescribed by the Government or by us in Committee. That is a determination for the board itself to make as it assesses the size and number of organisations that fall within this remit. That will be a moving feast depending on circumstances. I hope that that addresses the hon. Gentleman’s point. It is the best I can do at the moment.

The hon. Gentleman rightly mentioned the new training levy for the film training board, and the work of Skillset, the sector skills council in that area, and asked whether this was perhaps indicative of a further direction of travel for other sector skills councils. The particular success of Skillset in the film industry is due to the nature of organisations within that sector. There are a lot of subcontractors, a lot of freelancers, organisations that are set up for the duration of a film, and particular components within that film whether it be in production or post-production. Actually, there are some parallels with the industries under discussion this afternoon. Perhaps for that reason, the consensus to have an overarching levy across that industry was welcomed on all sides.

In going forward, the hon. Gentleman raises the Government’s position in relation to a levy across the piece. What we have said is that we will review this in 2010-11. The hon. Gentleman quite rightly points to the skills pledge, but he is slightly wrong to claim that the Government have said that employers must sign up to the pledge. What the Government have said is that we encourage employers to take up the skills pledge because we believe that, with the establishment of the new Department, the subject of skills must really be a mission for employers large and small in this country.

The hon. Gentleman will know that we have dedicated more than £1 billion pounds in this comprehensive spending review period for Train to Gain, in order to incentivise that training. He will also know that there has been a debate around levels 2 and 3. The Government broadly accepted the recommendations of Lord Leitch. We believe that level 2 qualifications are an absolute priority. The hon. Gentleman, I know, is young, but he will remember the old divide of the O-level on the one hand and the CSE on the other. Many, many people in this country did not receive those level 2 qualifications and they are particularly the people who will be a disadvantage in the modern economy. That is why we prioritised that with a 100 per cent. subsidy and introduced more recent flexibilities in our Train to Gain plan for growth.

Mr. Hayes: For the record, I am surprisingly 49, although I look much younger. The intervention I want to make, however, is this: First, the Minister is right that the film and television industry is particularly suitable for the kind of approach that has been adopted through their sector skills council. But there must be other parallels to this—smaller industries, with a particularly easily identified set of employers, where this is being looked at. Could he confirm which industries are looking at this, which sector skills councils have had discussions with him to that effect?

Secondly, the Minister talks about the pledge, but will he let the Committee know if the Government might consider statutory levies, were the skills pledge not successful.

Mr. Lammy: The hon. Gentleman is tempting me to decide Government policy in 2011, and I will not be tempted. The skills pledge was set up only in July, and it is demonstrating real success, with not just all Whitehall Departments but FTSE 100 and 500 companies signing up and bringing their employees within the footprint. In so doing, they fulfil the obligation to see their employees equipped to level 2. It is also right to say, and the hon. Gentleman is right to say it—this is a subject that will arise in the coming days in the Education and Skills Bill Committee, on which we both serve—that we also have made a commitment to galvanise the system in relation to level 3 for 19 to 25-year-olds and there is also part-subsidy at level 3 going forward.

In the end, this must be a partnership between Government and employers. That is exemplified by the orders before us and our desire to see real progress in training and skills for the construction industry. The best example of this has been the national skills academies in the sector, and our real desire to ensure that when we have a big capital project like the Olympics, that is not just a wonderful event, but also an opportunity for local people in London and beyond to be skilled up to meet those challenges for the Olympics and then have jobs afterwards.

Angela Watkinson: Could the Minister tell the Committee how many firms have signed up to the skills pledge?

Mr. Lammy: I hope that the hon. Lady will forgive me—I do not have the figure in front of me. From recollection, the latest figure is more than 900 firms and organisations; it is certainly more than 900 and less than 1,000 for the whole country, but I cannot remember the exact figure. The footprint is just fewer than 3 million people; that is real progress in just the past six months or so. I am happy to let the hon. Lady have the exact figures, or to put a copy in the Library for all Members.

The proposals before the Committee, as I said, relate to the construction and engineering construction industries. Those industries are hugely important to the country’s economy, and I believe that it is not in dispute that we approve the orders and commend them to the Committee.

Question put and agreed to.

Resolved,

Resolved,

Co mmittee rose at twelve minutes past Three o ’ clock.