Draft Industrial Training Levy (Engineering Construction Industry Training Board) Order 2013
The Committee consisted of the following Members:
† Bellingham, Mr Henry (North West Norfolk) (Con)
† Coffey, Dr Thérèse (Suffolk Coastal) (Con)
† Crabb, Stephen (Preseli Pembrokeshire) (Con)
† Dakin, Nic (Scunthorpe) (Lab)
† Davies, Geraint (Swansea West) (Lab/Co-op)
Dobson, Frank (Holborn and St Pancras) (Lab)
† Glindon, Mrs Mary (North Tyneside) (Lab)
† Gray, Mr James (North Wiltshire) (Con)
† Hancock, Matthew (Parliamentary Under-Secretary of State for Skills)
† Liddell-Grainger, Mr Ian (Bridgwater and West Somerset) (Con)
† Lloyd, Stephen (Eastbourne) (LD)
† Parish, Neil (Tiverton and Honiton) (Con)
Ruane, Chris (Vale of Clwyd) (Lab)
Simpson, David (Upper Bann) (DUP)
† Whittaker, Craig (Calder Valley) (Con)
† Wright, Mr Iain (Hartlepool) (Lab)
Neil Caulfield, Committee Clerk
† attended the Committee
Fourth Delegated Legislation Committee
Tuesday 21 May 2013
[Mr Christopher Chope in the Chair]
Draft Industrial Training Levy (Engineering Construction Industry Training Board) Order 2013
8.55 am
The Parliamentary Under-Secretary of State for Skills (Matthew Hancock): I beg to move,
That the Committee has considered the draft Industrial Training Levy (Engineering Construction Industry Training Board) Order 2013.
The purpose of the order is to seek authority for the Engineering Construction Industry Training Board, or the ECITB, to impose a levy on employers in its industry. I will spend a little time on the reasons for a statutory training levy in the engineering construction industry and hence the need for the draft order.
Engineering construction industries construct and maintain the power and utilities essential to the UK’s infrastructure, including coal and gas power, offshore oil and gas, chemicals and pharmaceuticals, steel and metal smelting, nuclear power and renewable energy. Construction and maintenance requirements for those industries call for a mobile, flexible and highly skilled work force. Employers in the industries have, since 1991, come together to support collective action through the levy to develop the work force, to manage risks, and to address skills needs. Similar statutory arrangements are in place for the construction industry, and operate under a levy order passed in Parliament in 2012. I shall touch on that, too.
The Government have made major investments in skills and training, but while they have a role in setting the framework, employers need to be in the driving seat to equip the work force with the skills that employers need. That is the main thrust of our skills policy. The ECITB has a central role in the training of the work force and in supporting the industry to achieve sustainable growth. To do that, the Government look to the ECITB to minimise bureaucracy and the cost of administration and to ensure that support to employers is relevant and accessible.
The ECITB is employer-led, rather than Government-led, and its role is to encourage the provision of adequate training of employees and prospective employees in its industry. To do so, it provides a wide range of services, including developing vocational qualifications and delivering apprenticeships, as well as funding employers to carry out training to approved standards. Employers in the engineering construction industry continue to support a statutory framework for training, and the draft order will enable the levy arrangements to continue. I welcome the order as evidence that employers in the industry want to continue to invest in the skills of their work force.
The Industrial Training Act 1982, under which the ECITB operates, allows a levy to be raised on employers, so that training costs are shared more evenly between companies in the industry. The draft order will give effect to proposals submitted to us for a levy to be collected by the ECITB in 2014, but a condition of the Industrial Training Act is that a levy order is made by affirmative resolution in the House when the imposition of a levy that is estimated to be in excess of 1% of emoluments—essentially, wage costs—for some employers is involved. Such orders may only be made if the Secretary of State is satisfied, first, that the amount of levy is appropriate in the circumstances; secondly, that the proposals are necessary to encourage adequate training in the industry; and, thirdly, that the previous levy order received support from the majority of employers and that levy rates remain unchanged. The Secretary of State is satisfied that those conditions have been met.
The Act also requires the ECITB to include proposals for exempting small employers from the levy. The draft order therefore provides that small firms are exempt if their expenditure on payroll and sub-contract labour is below a threshold that the industry considers appropriate. The firms below the threshold that are exempt from paying the levy can still benefit from grant and other support from the ECITB, and many of them continue to do so. The measure is supportive of small business. The ECITB does not propose to make any changes to its levy rates or to the small firms exemption.
Mr James Gray (North Wiltshire) (Con): Under the Act, the level at which small businesses are exempt is £275,000. That seems a rather small sum for businesses in the industrial engineering construction industry. Surely, it ought to be higher than that.
Matthew Hancock: The threshold is proposed by employers in the industry and, at £275,000, one third of ECITB businesses will be exempt. The smallest companies will be exempt from paying, but can receive benefits from the ECITB. The rate will remain at 1.5% of total payroll, plus net expenditure on sub-contracted labour.
The rate in respect of off-site employees, referred to as head office employees, is 0.18% of total payroll, plus net expenditure on sub-contracted labour. Employers who spend £1 million or less on off-site employees will not have to pay the levy, so there is a further threshold. For the ECITB, the one-year proposal is expected to raise around £20 million in levy income. Next year, the ECITB levy order will cover another one-year period, which will realign with the Construction Industry Training Board to a three-year levy cycle from 2015 onwards. I welcome the intention to align the period of the ECITB and the rather larger CITB. The draft order will enable the ECITB to continue to carry out its important training responsibilities, and I commend it to the Committee.
9.1 am
Mr Iain Wright (Hartlepool) (Lab): May I begin, Mr Chope, by saying what a pleasure it is to serve under your chairmanship again? I will not detain the Committee for long. We agree with the approach that has been taken, and the Minister has set out the position eloquently. As he said, the levy was set up under the 1982 Act with
the purpose of encouraging the provision of adequate training of employees and prospective employees in the industry.I have several brief questions for the Minister. He alluded to the fact that we last debated the matter in Committee on 19 March 2012, when we discussed the relevant order together with the industrial levy for the Construction Industry Training Board. As he said, the ECITB exercised its right for levies to be approved for a three-year period—2012, 2013 and 2014—which is why we are not discussing that today. Will the Minister confirm that the ECITB remains content with that three-year approach and does not want alteration in the levy rates for this year or next year? Has there been a request from the ECITB for greater flexibility as a result of annual levy setting?
I am aware—and I reiterate what the Minister said—that the order can be made only if the Secretary of State is satisfied three conditions have been met: that the amount of the levy is appropriate in the circumstances; that the proposals are necessary to encourage training in the industry; and that they have the support of more than half the employers who are likely to pay the majority of the levy. My question relates to the last criterion. Will the Minister take a little time to explain how he advanced the views of the industry employers to make sure that the levy was considered appropriate?
My next question is about the retention of skills. The Minister will be aware that the construction industry is suffering at the moment and that people in the engineering construction industry are suffering particularly badly. My constituency has a nuclear power station and a chemical industry, and I know that people are finding it difficult to retain work. How does he propose to work with the industry to ensure that we retain skills? When the economy improves and when we see greater certainty in energy policy with a series of nuclear power stations being built and energy infrastructure being realised, we will need a large uptake of skills in the industry. I am worried that there is a lag at present, so how does the Minister intend to work with the industry in conjunction with the levy to ensure that vital skills in my constituency and other constituencies are retained? How is he dealing with that? The hon. Member for Redcar will have similar worries.
Linked with that, we often hear about a lack of women in engineering and construction, and that problem needs to be tackled. How is the Minister working with the ECITB and the levy to ensure that we can recruit more women into the industry? I am concerned that once the economy improves and there is an upturn in the demand for skills in engineering, infrastructure and other sectors, those skills will not be in place. The ECITB says in its plan that the
“annual recruitment rate will be in excess of 5,000 people per year.”
It is finding it difficult to match that demand. How will the levy be used to build that additional capacity?
I speak from experience in my constituency. My constituents tell me that they often find the process cumbersome and bureaucratic in many respects. People in engineering construction trades find it difficult to secure training without jumping a number of hurdles. What work is the Minister doing with the industry to
streamline the system so that existing and prospective workers can access training and realise their ambitions within the sector?My final point is on the finances of the ECITB. Employment in the engineering and construction trade has fallen, as has the demand for work, so its finances are not as good as they were a couple of years ago. The organisation’s own figures suggest that a deficit of £3 million was planned in the 2012 budget. Its strategic plan said that
“thereafter deficits are planned to arise in each year of the plan”
from 2012 to 2017. Can the Minister say a little about the finances of the ECITB? Will he ensure that the imposed levies are not used to prop up the organisation? What work is he doing in conjunction with the board to ensure that it remains a viable organisation?
My final, final point is that the ECITB and the Construction Industry Training Board are the only training boards to opt for an industrial training levy, and it works very well. It is successful and it has the industry buy-in as well as Government support. The boards have been well served by the levy. What discussions have the Government had with employers in other sectors on the possibility of extending that approach?
Forgive me, Mr Chope, because I have thought of one more point. I promise the Committee that this is definitely the last point, until I remember the next point I want to mention. The Minister is keen to ensure that apprenticeships and vocational training are industry-led, and provided and shaped by the industry according to its requirements. In evidence to the Select Committee on Business, Innovation and Skills last year, the ECITB was critical of the existing approach to apprenticeships. It said that the current process is a “‘one-size-fits-all’ approach” and that many recommendations are wholly inappropriate for engineering construction.
What role does the Minister see for the ECITB and other industry training boards in promoting a more focused, sectoral, industry-led approach? I know, as the Minister responsible for apprenticeships, that he is particularly interested in that. That was my final point. I thank him for his remarks and I hope he will answer my questions.
9.8 am
Mr Henry Bellingham (North West Norfolk) (Con): It is a pleasure, Mr Chope, to serve under your chairmanship. I thank the Minister for his explanation of the order. I represent the national construction college in north-west Norfolk, which is a division of the Construction Industry Training Board and is based at Bircham Newton. It does an absolutely first-class job in my constituency in training youngsters and apprentices and in reskilling and upskilling people working in the construction industry.
I welcome the alignment between the two levy orders. It makes sense because the Construction Industry Training Board levy covers a much larger cohort across the entire construction industry. It is a large organisation with a major centre at Bircham. We are talking today about the sister board, but there is close overlap between the two. People with different specialist skills and under specialist subcontractors work not only with civil engineers but with the engineering construction companies that
the Minister has mentioned, particularly those connected with the energy infrastructure, both onshore and offshore, so the alignment makes sense.Incidentally, I hope that the Minister will come to Bircham Newton and visit the CITB, where he would be very welcome. I hope that he will not be put off by the fact that his mother-in-law lives in the next village. If he visits the CITB, he will see a world-class organisation in action and he will see a large number of women trainees, which is a point that the Opposition spokesman raised regarding the engineering construction sector. In the wider construction sector, I understand that there has been a big increase in the number of women applying for training posts and apprenticeships, which is most heartening.
I want to ask the Minister about the consultation that took place with the industry, which is mentioned in the explanatory memorandum. A significant number of companies opposed the levy; 38% stated that they would be unhappy with the arrangements, which is a much higher proportion than in the wider construction industry. Will the Minister comment on the reasons that those companies gave for opposing the levy? The companies that were in favour of the levy represent a far bigger proportion of the work force in the sector than those that opposed it, but it would be interesting if the Minister could throw a small amount of light on the matter.
It is important to have exemptions for smaller firms, and that is something that I have long advocated in the case of the CITB. Very small firms should be exempt. We want them to build up their work force and their turnover before they start to pay the levy, which goes towards training from which they will benefit in the long run. It makes a great deal of sense to try to lessen the burdens on smaller businesses, certainly in the early stages of their development.
The amount of money that will be raised—£20 million in 2014—is significant for a small sector. According to the explanatory notes, the ECITB calculates that for every £1 raised in the levy, £3.64 will be returned to the industry. It is easy to understand the direct grant that is paid to the industry, but can the Minister tell the Committee how the additional, indirect benefit to the industry of £2.89 was calculated? Will the Minister give us some examples in addition to those in the explanatory memorandum?
I welcome the order, and I believe that the proposed alignment is sensible. Bringing the two orders together provides clarity and it makes a lot of sense. Both sides of the industry, which are so important to the country’s recovery, will be able to work together even more closely.
9.13 am
Matthew Hancock: I am grateful for the support expressed by the hon. Member for Hartlepool and by my hon. Friend the Member for North West Norfolk. In the time available, I will answer as many of the detailed points that were raised as I can. Both hon. Members asked about the links between the ECITB and the CITB. The CITB is on a three-year cycle and there have been no requests for an annual setting, so the ECITB levy cycle will be brought back into line by
2015. I think that that is a good thing, because I agree with my hon. Friend the Member for North West Norfolk about the need for closer alignment, not least where costs can be reduced by the two boards working together, which will allow the money that is raised in the levy to be spent on the front line training people—precisely what it is meant to be spent on—rather than on administration. In our consultation on the levy at the current rate, with the threshold for small businesses at the current level, 71% of employers liable to pay the levy in 2014 supported the proposed arrangements and only 2% expressed opposition to them.Mr Wright: I am grateful to the Minister for providing those figures. I think he said that 71% of employers liable to pay the levy in 2014 are in favour. How does that reconcile with the explanatory memorandum, in particular paragraph 8, which says that 62% of such employers are in favour? Are two separate consultation exercises being carried out?
Matthew Hancock: One is the 2012 consultation on the proposals when they were brought in and the second is the later consultation on the proposals as they exist. Since changes have not been made, the substance of the two is the same. Of those asked, 27% did not respond, so the 71% needs to be set against that.
An important question was asked about the ECITB saying that it will go into deficit in the near future. It is doing so because it is important to keep delivering on skills while the construction industry is in the doldrums to ensure that as and when the pick-up comes—there are some early signs of recovery, as we learned from the Office for Budget Responsibility only today—the skills training is already in place. If we took out all skills training while recruitment was not happening, we would end up with a skills shortage as the recovery starts. That is why the ECITB has chosen to go into deficit, but it has actively managed that choice and is using reserves now in order to keep training going and to prepare for the recovery.
Ian Swales (Redcar) (LD): Certainly, the engineering employers in my area are already complaining about a shortage and, above all, the leakage of skills. Has the Minister checked whether the arrangements are appropriate for today’s industry, in particular for new industries such as the offshore industry and new sectors and also bearing in mind that foreign companies might be winning contracts here and recruiting people trained by UK companies?
Matthew Hancock: The motivating factor in my job is the fact that we have youth unemployment and skills shortages not only in the same country, but often in the same town—I imagine that that is true in Redcar. The ECITB of course plays a role in tackling that, but its £20 million budget needs to be put in the context of the £3.5 billion budget for adult skills and indeed the £70-odd billion budget for training for under-18s, including in schools, colleges, apprenticeships and businesses. The ECITB is a small part of a much bigger skills system and we are changing the whole system to make it more responsive to employers’ needs, because the co-existence of youth unemployment, which, while falling, is still far too high, and skill shortages shows that the education
system for far too long has not been focused on employers’ needs. We are changing that to make it more rigorous and more focused on those needs. That was a long-term failing that will take time to put right, because it is a generational change involving people coming through the education system.On women in engineering, I strongly agree that if we have a skills shortage, excluding almost half the population from participating is a big mistake. We have, for example, an exciting project with Rolls-Royce, Network Rail, BAE and others to promote women engineers and to encourage girls to keep studying science, technology, engineering and maths in school when they find them interesting. The process starts a lot earlier than just in the adult skills system. Evidence shows that the dip in participation in and enthusiasm about STEM subjects among girls happens soon after they reach secondary school. Ensuring that girls are inspired to go into engineering, which is an exciting and cutting-edge industry, is vital, so we are putting a lot of effort and work into that.
The hon. Member for Hartlepool expressed concern that the ECITB scheme is bureaucratic. I am keen that it is as non-bureaucratic as possible and that its administration costs are kept as low as possible in order
to ensure that things are as easy as possible for employers, but also that the general costs are low. He linked that point to apprenticeships and I strongly agree that apprenticeships were not focused enough on employers’ needs in the past. The whole Richard reform process aims to raise the quality of apprenticeships and to focus them more on employers’ needs. I am glad that there is cross-party support for the proposals of the Richard review, and I am sure that the ECITB will play a part in delivering on that.I have had no discussions about extending the approach of the industry training board to other areas. The whole skills system is moving towards being more focused on employers and that is proceeding apace, but the specific proposal for debating statutory instruments for each industry in Parliament is not one that we propose to expand.
Having hopefully answered all the questions, I hope that Members on both sides of the Committee can agree that the approach is sensible and reasonable, and I commend the order the Committee.