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We will need to wait until the Budget to see what fiscal drag is doing to whatever else is available to the Chancellor, because fiscal drag brings in more and more money in a surreptitious way by more people falling into higher rates of tax, year in, year out. However, the point made by the noble Lord, Lord Skelmersdale, in the context of an earlier order, is apposite, but perhaps not in terms of the National Pensioners Convention. I hope the Minister will take the trouble to go to the next convention. They are usually held in Blackpool and are very congenial events, but not for government Ministers. I have been and survived, but only just, and I am only a Liberal Democrat—I am sounding slightly facetious. One would think that there is an embarras de richesse in the National Insurance Fund. Of course these are big numbers and things can happen, but what advice does the Government Actuary give? Does he not tap Ministers on the shoulder and say that it is getting a bit out of hand?

To a lay person—certainly to the pensioners mentioned by the noble Lord, Lord Skelmersdale—

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these figures look like gross. Taken together with the fiscal drag that we will see in the Budget, it will be very difficult to understand when a Minister explains it at Blackpool. What serious discussions are taking place between the GAD, the Treasury and the DWP about how these provisions, which are accumulating in a way that is very difficult to describe to hard-pressed pensioner households, are going to be dealt with in future?

Lord Jones: The noble Lord has pinpointed a problem of success. Perhaps the explanation is that it is the Prime Minister’s very good friend Prudence.

Lord Kirkwood of Kirkhope: I am sure that Prudence has a part to play in all this. I am not saying that it would be better if we had to be looking for Treasury grants. My noble friend, if I can call him that, and I were in the House of Commons at a time of big Treasury grants, not under this Administration but in times gone by. I do not want to get tempted into this issue because it is too late in the afternoon, but big Treasury grants were often required in the past to make this balance. This is a happy circumstance and I am grateful to Prudence, but she has some explaining to do at the National Pensioners Convention at Blackpool as well and the Minister had better take her with him when he goes.

Lord Skelmersdale: I am all for the noble Lord, Lord Kirkwood, putting flesh on my bones, but I hope he does not overdo it, because otherwise I shall have to go on a diet and stop thinking for a bit, which would probably be a good thing for the House but a bad thing for me.

The order is rather different in amount from the uprating order that we have just discussed. It is also different in scope. The House as a whole must surely believe, as I do, that Ministers in the department have behaved disgracefully. The Committee will remember that on the last Pensions Bill, the noble Baroness, Lady Hollis, withdrew an amendment about allowing women, in particular, to buy extra years of class 3 contributions to augment their often lamentable state pensions on the basis of the promise that Ministers would find some way of achieving her aims, although not necessarily through buying more class 3 contributions. The noble Baroness asked an Oral Question on 17 December last about what progress the review was making. The noble Lord, Lord McKenzie of Luton, gave her the dismal answer that progress could not be made. He claimed that pensioners had been well served by the Government and pointed out that with the reduction in qualifying years from 44 to 30, by 2010 three-quarters of women would get their full state pension and 90 per cent would qualify by 2025. That is in col. 468 on 17 December 2007.

I have been pondering this a little and wonder whether the Minister could give us a little clarity. Will a woman retiring on 1 June 2011, in a little over three years from now, get the full state pension of £90.70, at the 2008-09 rate, having paid only 30 years’ contributions? I have no idea exactly what the rate

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will be by then and neither does the Minister, so I have to use the figures that we know and are beginning, as a result of this afternoon’s debates, to understand. A person retiring only one day before 5 April 2010 will need 44 years’ contributions, whereas, if the answer to my question is, as I expect, in the affirmative, he or she will have had to pay only 30 years’ contributions if they retire after that date. How many people are we talking about? What does 25 per cent or 90 per cent represent?

5.15 pm

When the order was debated in another place, the Financial Secretary to the Treasury said of uprating of the class 2 and 3 contributions, the small earnings exception and the lower profits limit:

“Broadly in line” is a very elastic term that I do not expect to hear from DWP Ministers. Inflation is 3.9 per cent—or it was in October, when such things are fixed for the following year—whereas, as my honourable friend Mr Gauke pointed out, class 2 contributions are to increase by 4.5 per cent. With the best will in the world, I cannot describe that as broadly in line. I realise that rounding must happen to the nearest 5p, but I do not understand how the increase from £2.20 to £2.30 was arrived at.

Another feature of the order is the very large increase in the upper earnings limit, from £34,840 to £40,000, which I calculate to be 19 per cent, as near as damn it. My suspicion is that, since the reason given is to align this figure with the 40 per cent income tax starting point, the Government are about to do something that has been resisted by all Governments since the inception of the National Insurance Fund: to combine NI contributions with tax, possibly even going so far as to do away with the UEL. Am I being too suspicious? There is certainly logic in my suspicion. It would harm the economy and infuriate business and the City. No doubt my noble friend Lady Noakes, who is expected to be fit enough to return to the House tomorrow, will pursue that when the National Insurance Contributions Bill hits us. As I understand it, the Minister will not be participating on that Bill, but I might well do so—we shall see.

I have no more to add and I shall not, of course, object to the order.

Lord McKenzie of Luton: I thank noble Lords for their contributions. I shall start with the National Insurance Fund, which we touched on in our last debate. My noble friend Lord Jones is right. Where we are is a product of a successful economy, with many more people in employment and fewer people claiming unemployment benefit. Of course that will have an impact on the National Insurance Fund. The Government Actuary is independent. He is responsible for advising on whether the changes to social security are affordable.

The noble Lord encourages me to go to the National Pensioners Convention in Blackpool. I am pretty certain that I have a prior engagement, although I am not quite sure when it is. I did turn up

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to a regional event recently. We tucked into the sandwiches while they marched on the town hall. It was an interesting experience.

The noble Lord, Lord Skelmersdale, raised the issue of class 3 contributions. The challenge we faced in trying to accommodate the thrust of the amendment tabled by my noble friend Lady Hollis was to see that it was appropriately targeted. At the tail end of the Pensions Bill last year we set out how we would do that, specifying clearly the criteria of fairness, affordability and simplicity. I made it clear in your Lordships’ House, and my honourable friend Mike O’Brien made it clear in the other place, that there was no guarantee. We would use our best endeavours to achieve what my noble friend was seeking, but it could not be guaranteed. A lot of work was done in considering various options. At the end of the day, we come back to the issue of trying to ensure that something is properly targeted. That component is missing from this. It is potentially hugely expensive. It depends what assumptions you make about take-up, and we circulated some numbers in response to some Parliamentary Questions from my noble friend showing a range of costs and the range of people who might benefit.

The other issue is that, whichever way we analyse it, it is much more likely that the people who will take advantage of the extra buy-back will be those who are better able to afford it. It will do nothing to help people who have paid the reduced rate stamp, and it will do nothing to help people who are heading for pension credit—the very poorest pensioners. It simply will not deliver what we want. It will help only a relatively small percentage of the number of people who might be retiring. The number of people reaching state pension age in 2008 will be something like 700,000. Some 390,000 will be women, and something like 250,000 will have less than a full basic state pension on their own record. My noble friend’s proposal, at the level at which she suggested that there might be take-up, would at best cover only a fraction of the number of people who do not get a full basic state pension. I stress that, in our view, it is not well targeted.

My noble friend talked about the changes to the upper earnings level or upper profits level. Of course, that was part of an overall package. Given the hour, I will not go through all the components of it, but you cannot pick this out and say that it is an effective tax increase and ignore all the other things on which there was extra government spending. That package had a price tag of something like £2.2 billion, so, overall, there was a relaxation of the fiscal system arising from that.

I look forward to welcoming the noble Baroness, Lady Noakes, back to the House. I am sure that I will be participating in some quite fierce debates with her and that things will be as lively as ever on the National Insurance Contributions Bill. We will have the chance to get into these things in more details.

I will answer the specific question that the noble Lord raised. Somebody retiring on 1 June 2011 with 30 years’ contribution would get a full basic state pension; somebody retiring on 4 April 2010 with

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30 years would not. It depends on their HRP—home responsibilities protection—which could reduce the number of years, so one cannot generalise. However, the number of qualifying years needed otherwise is 39 for a woman and 44 for a man. That is why the improvements that we made to the system last year will transform the pensions outcome for women. That is the right way to address what has been a long-standing grievance and an inequity in the system that has persisted for too long.

Lord Skelmersdale: The cost to the individual of the reduction from 44 years to 30 is, of course, nil, even though they will have to continue paying a stamp while they are in employment. That is readily understandable; in that case, the cost to the individual is, apparently, nil. On the other hand, there will be income into the fund when people buy the extra class 3 stamps—for want of a better word. The Minister needs to explain the thinking more fully. I am sure that he will write in due course, and I do not want to pursue the matter at this hour of the night.

Lord McKenzie of Luton: I shall comment briefly but, if the noble Lord will forgive me, I shall not write as we shall pick up these matters in the National Insurance Contributions Bill, but if we do not, I shall write further.

If somebody pays class 3 contributions, that will add to the fund, but if we look at the long-tail effect of that in terms of the increased costs of pensions over a longer period, that will not compensate for that. The issue is that class 3 contributions are a really good deal. If we look at the full actuarial equivalent of a class 3 contribution—at what the cost should be—it is a multiple of four, or even six times, possibly even with the uprating. The noble Lord is right that for the individual going from 39 or 44 years to 30, there is no cost, but these things are dealt with collectively on a pay-as-you-go basis, so collectively there is a cost for fewer years’ contributions and the relinking with earnings. Having said that, in view of the hour, I ask the Committee to support the Motion.

On Question, Motion agreed to.

Industrial Training Levy (Engineering Construction Industry Training Board) Order 2008

5.26 pm

The Parliamentary Under-Secretary of State, Department for Innovation, Universities and Skills (Baroness Morgan of Drefelin) rose to move, That the Grand Committee do report to the House that it has considered the Industrial Training Levy (Engineering Construction Industry Training Board) Order 2008.

The noble Baroness said: These orders seek authority for the Construction Industry Training Board and the Engineering Construction Industry Training Board to impose a levy on employers in the industries they cover. I have a fairly lengthy speaking note, which I have tried to minimise, but I hope noble

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Lords will bear with me as I go through some detail. Noble Lords will be interested to note that it is anticipated that these orders will be the last single-year orders to be brought before Parliament. 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 2008, future levy orders are likely to be three years in 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, carry out world-class research and scholarship and apply both knowledge and skills to create an innovative and competitive economy. The creation in June last year of the Department for Innovation, Universities and Skills will drive forward 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 to deliver the ambition of a world-class skills base. However, despite the real progress 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.

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, but 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 workforce with the skills that employers need. Recognising the important contribution made by sector skills councils since 2002 and the potential for them to make an even greater impact, we have backed the call made by the noble Lord, Lord Leitch, for sector skills councils to be reformed, relicensed and empowered. We have also backed his call for a new commission for employment and skills. It will begin its operations from 1 April. A key early task for the commission will be to manage the relicensing of the sector skills councils, making sure that every sector skills 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. This commitment remains in place, and the recent order establishing the Film Industry Training Board for England and Wales, which came into effect last December, is an example of our continued commitment to this principle.

The two industrial training boards whose levy orders we are considering 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 they cover. They provide a wide range of services including setting occupational standards and developing vocational qualifications, delivering apprenticeships and paying direct grants to employers who carry out training to approved standards.

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In fact the Construction Industry Training Board, in partnership with the Construction Industry Training Board Northern Ireland and the Construction Industry Council, operate 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 Construction Industry Training Board’s operations. Last year it maintained its position at the forefront of developments and launched an arm of the National Skills Academy on the site of the 2012 London Olympics, to address skills issues arising from this important project.

The Engineering Construction Industry Training Board is not a sector skills council. I am pleased to say, however, 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 within the Skills for Business Network.

The Industrial Training Act 1982contains provisions which enable levies to be raised on employers to finance an industry training board’s activities and to share the cost of training more evenly between companies in an industry. It is for the employer members of a board to make proposals for the rate of levy 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.Theygive effect to proposals submitted to us for a levy to be collected by the Construction Industry Training Board in 2008 and the Engineering Construction Industry Training Board in 2009. The proposals from the Construction Industry Training Board and the Engineering Construction Industry Training Board have the support of organisations representing more than half the employers who together are likely to pay the majority of the levy. The Secretary of State is satisfied that the levies are necessary to encourage adequate training in the industry.

The Act requires industry training boards to exclude small firms from the levy, but does not set a minimum size threshold. Each of these proposals sets a level that the industry considers to be appropriate. Employers who fall below the threshold are not however precluded from benefiting from grant and other support from the boards, and many of them do so.

In the orderbefore us the Construction Industry Training Board proposes that both its levy rates should stay the sameas 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. This 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. 40 per cent of employers come into this category.

A further 25 per cent of employers will not be assessed for or will not pay the levy for other reasons; for example, they are in their first year of registration

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with the Construction Industry Training Board or will have ceased trading. This means that around 65 per cent of employers will not actually be required to pay the levy.

The higher levy rate on subcontract labour is because, according to the industry, the vast 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 normally involved in their training.

It is encouraging to see that the large contractors, who use significant amounts of subcontract labour, are recognising their responsibility to contribute more than just cash to tackle the skill shortages in the industry. Through Construction Industry Training Board-ConstructionSkills’ programme-led apprenticeships initiative, large contractors have initiated action to encourage firms in their supply chains to recruit and train apprentices.

The Engineering Construction Industry Training Board also proposes to make no changes to last year’s rates. The rates for sites will be 1.5 per cent of total payroll 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 54 per cent of sites will be exempted. For head offices, it 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 persons full time throughout the year. It is expected that 73 per cent of head offices will be exempted.

These proposals are expected to raise £175 million to £180 million for the Construction Industry Training Board and £14 million to £15 million for the Engineering Construction Industry Training Board, which 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 levy received. For the ECITB the figure is £2.11.

The Committee will know from our annual debates that the CITB and the ECITB exist because of the support 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. This 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 employer surveys also demonstrate continued strong support for the principle of a levy system.

The industry training boards’ successes have not occurred without the significant efforts of the many people working for them. In particular, I pay tribute to the leadership of the two boards. For the ECITB,

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Terry Lazenby and David Edwards have continued to spearhead the industry’s drive to meet the challenge facing it. The same is true of Sir Michael Latham and Peter Lobban, who will retire in August from the CITB. I thank them all and wish Peter Lobban a long and happy retirement.

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

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