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Lord Hunt of Kings Heath: My Lords, I thank the noble Baroness, Lady Blatch, and the noble Lord, Lord Tope, for their comments and for their broad welcome for these proposals. Perhaps I may also take this opportunity to commend the noble Baroness, Lady Blatch, on what I can only describe as the extraordinary athletic prowess she showed in running down the principal corridor during the recent television programme about your Lordships' House. It was a very good example to us all.

The noble Baroness raised the question of 100 per cent. delegation and expressed a little scepticism about the ability of local education authorities to push as much money downwards towards the schools. The 100 per cent. delegation was put forward as an attempt to achieve a major increase in delegation on the basis of a sharper distinction between those functions and services for which central funding is essential and those for which it is not. It is on that basis that the 100 per cent. delegation model was described. Taken as a whole, with the transparency that is being brought into the system, with the ability of individual schools to be closely involved in consultation with the LEA about how the individual school budget is to be allocated and with the reserve of the potential intervention by the Secretary of State, this will be enough to ensure that local education authorities act in accordance with the broad principles that we wish to see introduced. We wish to see as much resource as possible delegated to school level. I am convinced that this will enable all schools to give the kind of leadership and take the kind of responsibility which is so essential to improving what they do. I am also convinced that, by giving a much sharper focus to the strategic responsibility of the LEA, we will be able to enhance the LEA's performance. It must be in the best interests of individual LEAs to adopt not just the rules but the actual broad principles which we wish to see take place.

The noble Baroness referred to the response of the Minister in another place. Concerns were expressed in the debate in another place and what one might describe as worst case scenarios were presented. The reality is that many LEAs have shown the ability to operate the LMS scheme well. They are on their mettle to show that they can handle the new delegated powers. However, we will keep these matters under review and they can be addressed in the future if concerns arise. The LEAs' funding formula will be subject to year-on-year review by the schools within their districts.

The noble Baroness referred to the parental leave directive. I cannot say much at this stage, but we will keep under review what needs to happen when the time comes. The noble Baroness asked about the transitional funding for grant-maintained schools and asked in particular whether this transitional funding would continue after next year. At this stage we have taken no such decision. We wish to see how the arrangements for next year bed down before any such decisions are made.

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The noble Baroness asked whether some schools would receive more than the 80 per cent. on pupil numbers and some would receive less. The answer is yes. The requirement is that 80 per cent. of the total primary and secondary funding is allocated on pupil numbers, including the categories listed in regulation 22. That means 80 per cent. across the LEA, but it could mean different levels in individual schools. For instance, large secondary schools could attract higher levels of pupil-led funding and small primary schools less than that.

The noble Baroness asked about library and museum services. The regulations allow hold-back by LEAs in 1999-2000 for centrally funded services. From 2000, the regulations will change to make them devolve funding on an earmarked basis. Such funding must include expenditure on services applicable to school pupils--

Baroness Blatch: My Lords, I am grateful to the Minister for giving way. I wish to ask a question about 80 per cent. funding. As I read the regulations, it is conceivable that of two schools with exactly the same number of pupils one could receive greater than 80 per cent. delegation and the other less than its share of 80 per cent. simply because the LEA deemed a number of places for nursery, special and another category of schools. It is possible that schools with exactly the same number--not just a large secondary school versus a small primary school--could be treated differently.

Lord Hunt of Kings Heath: My Lords, because of the way in which pupil numbers are weighted, there could be differences between schools with the same number of pupils. However, if it is argued that this is a point of concern, we shall need to review these matters when we see what comes out of the first allocation to schools.

The noble Baroness asked about the role of LEAs regarding computers. It covers the network infrastructure but not the computers in individual schools which are plugged into it. There are good reasons for the central infrastructure to be funded centrally, but we shall be alive to any suggestions that LEAs are using central funding to fund items which ought to be left at school level.

The noble Lord, Lord Tope, asked about supply cover. As he will know, supply cover for circumstances such as trade union duties, jury service, staff undertaking public duties as councillors and magistrates, and Territorial Army service, is at present funded centrally by most LEAs. In many cases a statutory right to time off is involved. Total expenditure is modest but its distribution as between schools is often uneven and unpredictable. There may be ways of delegating funding while protecting individual schools from excessively large bills, but we consider that those arrangements could be very artificial. In the light of the consultation, we thought it best to let LEAs retain the funding if they wished.

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The noble Lord, Lord Tope, asked about advisory and inspection services, particularly in relation to school improvement, the whole area of educational development plans and the role of the LEA. The position is that LEAs will undoubtedly need to retain money for some advisory and inspection services in order to promote school improvement. However, I am clear that education development plans are not a licence for expanding centrally funded services. We shall be scrutinising those plans carefully to ensure that LEAs hold back only sufficient funds to support activities which are clearly needed to raise standards in their area. Any advisory services which are not covered by the educational development plan and are not required to enable LEAs to carry out essential functions, such as in relation to special educational needs, should be funded from school budgets on a buy-back basis and not by top slicing.

The noble Baroness, Lady Blatch, raised the issue of Regulation 23, dealing with additional arrangements approved by the Secretary of State. That power is intended to allow a local education authority to meet an emergency situation where the authority may not have sufficient time to produce an allocation formula in accordance with the regulations; for example, if a group of schools in one area needed special treatment due to, let us say, abrupt population loss.

The noble Lord, Lord Tope, referred to the words, "simple, measurable and clear". I thought that they must have caused amusement to parliamentary draftsmen at the time. However, we should remember that these regulations are replacing very detailed matters. I have seen a number of documents produced by LEAs in an attempt to explain the implications of the regulations to individual schools in their areas which are then used in the consultation process. I have been impressed by the way in which they have been able to do that. I hope that, despite the occasional difficulties of understanding parliamentary language, we shall, at LEA and school level, produce a document that is clear to those who must operate the provisions. My experience in the health service in terms of funding formulae is that, while we all started with the aim of simple, easily understandable formulae, we then completely destroyed them by producing arguments for slight changes in sensitivities. It is very difficult to arrive at an exact balance.

The noble Lord, Lord Tope, raised an interesting point about the funding of permanent exclusions. He suggested that a school that undertakes the permanent exclusion of a pupil should have to pay the costs. I am not in a position to respond directly to that point now. It is a matter to which we should wish to give some thought.

Having thanked noble Lords for their general support for the proposals, I commend the regulations to the House.

On Question, Motion agreed to.

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Industrial Training Levy (Engineering Construction Board) Order 1999

8.2 p.m.

Lord Hunt of Kings Heath rose to move, That the draft order laid before the House on 1st December be approved [3rd Report from the Joint Committee].

The noble Lord said: My Lords, it may be for the convenience of the House if I speak to this order and the following order together.

The proposals before your Lordships this evening seek authority for the Construction Industry Training Board and the Engineering Construction Industry Training Board to impose a levy on the employers in their industries to finance their training activities, including grants schemes, and to fund the operating costs of the boards. Provision for this is contained in the Industrial Training Act 1982 and the orders before your Lordships would give effect to proposals submitted by the two boards.

The proposals from each board include provision to raise a levy in excess of 1 per cent. of an employer's payroll. The Industrial Training Act 1982 requires that in such cases the proposals must be approved by affirmative resolution of both Houses. In each case the proposals are based on employers' payrolls and their use of sub-contract labour.

As required by the Industrial Training Act, both boards have provided for the exemption of small firms from the levy. The level at which this exemption takes effect is unchanged from last year and aims to strike the right balance between helping small firms to grow and giving them unfair commercial advantage. However, the boards are committed to supporting the training efforts of small firms, whether or not they pay levy. All companies need a skilled, competent workforce if they are to be competitive and small firms in these sectors are encouraged to take advantage of the services offered by the boards and to provide opportunities for trainees and apprentices.

In the case of the Engineering Construction Industry Training Board, the proposals are different from those approved by your Lordships last year in that the higher rate on net payments made by employers for labour-only services has been removed. That is because the rationale for the different rates was questioned in the last independent review of the board and the board was recommended to move to a single rate. Additionally, the rate for off-site establishments is reduced.

The Engineering Construction Industry Training Board treats off-site establishments and construction sites separately and proposes to raise a two-part levy. For off-site employers the rate is reduced from 0.4 per cent. to 0.18 per cent. of the total of payroll and net expenditure on labour-only sub-contracting. Those off-site employers employing 40 or fewer employees are exempt from paying the levy. The rate for site employers is 1.5 per cent. of the total of payroll and net expenditure on labour-only sub-contracting. There is exemption for site employers with combined payroll and net labour-only payments of £75,000 or less.

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The CITB proposes to raise a two-part levy: 0.38 per cent. of payroll and 2.28 per cent. of net expenditure by employers on labour-only sub-contracting; employers with combined payroll and labour-only payments of less than £61,000 are exempt from paying the levy.

These rates represent an increase for directly employed labour--the previous rate was 0.29 per cent. The board states that the increase is necessary for two reasons. First, there are continuing changes in employment practices in the industry which significantly affect levy arrangements. Employers are still moving from labour-only sub-contracting towards direct employment and, because the levy on labour-only sub-contracting is at a higher rate, this has led to a reduction in the board's income.

At the same time, the greater numbers of direct employees is expected to lead to an increase in the amount of training being carried out and a corresponding increase in grant and other support provided by the board.

The last independent review of the board also questioned the rationale for the different rates and the board was recommended to move towards a single rate. Subject to further consultation with the industry it is planned that this will be phased in over the next four years.

For both boards the proposals involve levy rates in excess of 0.2 per cent. with no provision for exempting employers who make their own training arrangements. In such cases the Industrial Training Act 1982 requires boards to demonstrate that the proposals have the support of the employers in the industry. I am satisfied that each board has obtained that support.

These proposals are expected to raise nearly £61 million for the CITB and around £10 million for the ECITB. Both boards will use the money to fund a range of training activities including grant and initiative schemes, new entrant training and operating costs.

Your Lordships will know from previous debates that the CITB and the ECITB are the only two statutory industry training boards. The last review of the boards looked at the need for their continuance and included a survey of the views of employers in each sector. The reviews concluded that both boards were widely supported by employers and sectoral interest groups and that, without them, there would be a deterioration in training in their sectors.

Each board has now developed detailed action plans which address the specific objectives and recommendations of the review. These are already starting to increase their effectiveness and further develop their capabilities, especially at the strategic level.

I am also pleased to tell your Lordships that each of the boards has successfully completed its first year as a government recognised national training organisation for its sector. It is an important development for them because it places them very firmly within the national

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network of sector-level training organisations, which is now largely complete, and puts a new emphasis on strategic activities and partnerships.

This is helping the boards to contribute even further to the National Skills Strategy. For example, both boards have developed nationally recognised labour market assessment systems, which will contribute to the important work of the Regional Development Agencies and the National Skills Task Force. Each has also set up New Deal initiatives.

The draft orders before the House will enable the two boards to carry out their training responsibilities in 1999, and I believe it is right that the House should agree to approve them. I commend them to the House. I beg to move.

Moved, That the draft order laid before the House on 1st December be approved [3rd Report from the Joint Committee].--(Lord Hunt of Kings Heath.)

8.8 p.m.

Baroness Seccombe: My Lords, I apologise for my voice, which is disappearing fast, but I hope to be audible. I am grateful to the Minister for the clear explanation of the orders. The two training boards referred to in the orders operate with the general support of firms in the construction and engineering construction industries. With that in mind, we see no reason to object to the raising of the levy in principle.

We on this side of the House, however, have a number of legitimate concerns which arise out of the arrangements. There are three areas which I wish to question. First, there is the question of the effects of the rebalancing of the rates. I recognise that there are valid arguments for the board's decision to increase the payroll rate on labour-only sub-contracting from 0.29 per cent. to 0.38 per cent. It seems a small increase, but in practice it could seriously affect some of the larger firms in the industry. To give but one example, an employer with 1,000 employees and a payroll of £20 million a year currently pays a levy to the CITB of around £58,000. Under the new arrangements, this contribution would increase to nearly £77,000. With the construction industry facing a recession, it seems a most inopportune moment to introduce the changes which effectively will put yet more burdens on industry. What estimate has the noble Lord made of the effects on employment in the industry of these rate changes?

We on these Benches recognise the contribution made to the economy by small firms. We are anxious to ensure that any arrangements will not hamper their development. But, while I recognise that there is a need for fairness and clarity, the question arises of how the Government intend to handle the problem of the status of smaller firms. The call for the lowering of the threshold for entry to the scheme is a result of the reduced income of the board, which in turn is the result of developments in the industry which are beyond the Government's control. There are a number of smaller firms which would rather not pay any levy but would still hope to gain the benefits of a better-trained workforce. Are the Government considering mandatory

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registration of firms? If the Government decide to introduce mandatory registration, will it be done next year under the order or will it be done under the interim period?

There are also questions about the way in which the Government's New Deal programmes interact with the existing grants systems. How will the orders relate to training for 18 to 24 year-olds under the New Deal? Will there be separate funding arrangements? If that is the case, will employers be able to draw on both sources of funding to finance training for 18 to 24 year-olds?

With those questions, which I hope the noble Lord will address this evening, I return to where I began. We accept that many firms in the industry welcome the scheme. We do not, therefore, object in principle to their continuation.

8.14 p.m.

Lord Hunt of Kings Heath: My Lords, first I thank the noble Baroness, Lady Seccombe, for her warm support for the proposals. She raised a number of points to which I shall endeavour to respond. The issue of the effect of the additional levy on large construction companies depends on the individual circumstances of an individual employer, particularly the mix of directly-employed and sub-contract labour that it has. The Construction Federation, the largest grouping of employers' organisations in the industry, has said that the movement towards a single unified rate of 0.87 per cent. in 2003 would have a fairly marginal effect for its members, who currently pay an average rate of 0.79 per cent. It is an average; some companies will be affected more than others. But it is important that we recognise that this is a phased introduction of change. Looking at the first year or two, we believe the relative change is modest, to allow companies to adapt to new circumstances.

In answer to the noble Baroness's point about the impact of this on the economy generally, it might be worth me saying that overall construction activities continue to grow in the sector, although there are signs of a slow-down. Contract prices appear to be rising faster than inflation, although the export of building

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materials continues to slow down. Experience of the economy over many years suggests that, even in a situation where the economy may be tight, the need for training is ever more essential. For that reason alone, we wish to support the activities of the two boards.

The noble Baroness asked why small firms are excluded when most employers' federations believe that all firms within the industry should pay. There is no doubt that in the last review there are views within the industry both for and against. But the Industrial Training Act 1982 states that a levy order should not be approved unless it provides for the exclusion of small firms. It is important to note that, if small firms were brought into the levy system, the possibility is that a great bureaucracy would come into operation without bringing any substantial increase in income.

The noble Baroness raised the issue of mandatory registration. It is not the intention of the primary legislation that the onus would be on the employer to register with the boards, but the training board raised the issue. It has been told that a change to primary legislation would be considered if a convincing case could be made, taking full account of the costs and the resulting benefits of such a change, as well as giving full consideration to the administrative and bureaucratic implications.

The work of these boards is important and deserves our support. I commend the orders.

On Question, Motion agreed to.

Industrial Training Levy (Construction Board) Order 1999

8.15 p.m.

Lord Hunt of Kings Heath: My Lords, I beg to move formally.

Moved, That the draft order laid before the House on 1st December be approved [2nd Report from the Joint Committee].--(Lord Hunt of Kings Heath.)

On Question, Motion agreed to.

        House adjourned at sixteen minutes past eight o'clock.

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