Industrial Training Levy (Engineering Construction Industry Training Board) Order 2007

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 2007. 8th Report from the Statutory Instruments Committee. The noble Lord said: With the leave of the Committee, I shall speak to the Industrial Training Levy (Construction Industry Training Board) Order 2007 at the same time. The orders, which are broadly familiar to the Committee from previous years, seek authority for the Construction Industry Training Board and the Engineering Construction Industry Training Board to impose a levy on employers in the industries that they cover. First, I will set out the wider context. In 2002, we established the Skills for Business Network of 25 sector skills councils to ensure that employers have a strong voice to influence the provision of education and training in their respective sectors. The network is beginning to deliver real benefits, initially through the development of sector skills agreements and now by the establishment of national skills academies and the development of specialised diplomas for 14 to 19 year-olds. Recognising this, the recent report by the noble Lord, Lord Leitch, recommends the establishment of a new Commission for Employment and Skills, which will re-license and empower sector skills councils, giving them an enhanced role in driving up employer demand and investment, alongside a new universal adult careers service. We have already promised that where both sides of the industry in a sector agree, we will help to set up a statutory framework for training that applies in that industry. The two industrial training boards, set up under the Industrial Training Act 1982, are models for the successful application of such frameworks. 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. The Construction Industry Training Board, in partnership with the 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 operations. During the past year, it has maintained its position at the forefront of training developments by developing and launching one of the first three national skills academies. The engineering construction industry does not meet the minimum-size criteria for becoming a sector skills council. I am pleased to say, however, that it has received funding from the Sector Skills Development Agency to scope out its future role in the Skills for Business Network, and discussions on the nature of the ECITB’s future relationship with the Skills for Business Network are continuing. The board’s status as a valuable sector body was further recognised in 2005, when it won an award from Sector Skills Alliance Scotland as, "““the most effective Sector Skills Council or Sector Skills Body in Scotland””." That is an excellent example of what can be achieved by a levy-funded body. The Industrial Training Act contains provision for a levy on employers to finance a training board’s activities and to share the cost of training more evenly between companies across an industry. It is for the employer members of a board to make proposals for the rate of the levy for the industry that 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 this evening. They give effect to proposals submitted to us for a levy to be collected by the CITB in 2007 and the ECITB in 2008. Both orders involve the imposition of a levy in excess of 1 per cent of payroll on some classes of employer. The Industrial Training Act requires such orders to be approved by the affirmative procedure of both Houses. In each case, the levies are based on employers’ payrolls and their use of sub-contract 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 if one of three conditions is satisfied. The first condition is that the proposals have the support of organisations representing more than half the employers, who together are likely to pay the majority of the levy. The proposals from the CITB meet that condition. The ECITB proposals are supported by the industry’s employer organisations. However, those organisations currently represent slightly fewer than half the employers, although together those employers are likely to pay the vast majority of the levy. The first condition has therefore not been met fully in the case of the ECITB. In this case, an order can be made only if one of the other two conditions is satisfied. The second condition is that the order is made less than two years after the making of a former levy order giving effect to proposals in respect of which the first condition was satisfied. There is also a third condition, which is that a Minister considers that the levy is necessary to encourage training in the industry. However, it has not been necessary to invoke this third condition, as an order was made in 2006 that had the support of the employer associations, and at that time, they represented more than half the employers. Those employers also paid the majority of the levy. That means that for the current proposals, the second condition is satisfied in respect of the ECITB. The Act requires the industrial training boards to exclude small firms from the levy but does not set a minimum size threshold. Each of the proposals sets a level that the industry considers to be appropriate. However, employers who fall below the threshold are not precluded from benefiting from grants and other support from the boards, and many of them do so. In the order before the Committee, 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 sub-contract labour. Employers whose combined payroll and net expenditure on sub-contract labour is less than £73,000 will not have to pay the levy. That is an increase from last year’s threshold of £69,000, to reflect wage inflation. The level equates to an employer who employs three people full time throughout the year, and 43 per cent of employers come into that category. A further 22 per cent of employers will not be assessed for, or will not pay, the levy for other reasons, for example, if they are in their first year of registration with the CITB, or if they have ceased trading. That means that around 65 per cent of employers will not actually be required to pay the levy. The higher levy rate on sub-contract labour is because, according to the industry, the vast majority of training is carried out by employers with a directly employed labour force. Employers who opt to use sub-contract labour tend to have a transitory arrangement with their sub-contractors and are not normally involved in their training. It is encouraging to see that large contractors, who use significant amounts of sub-contract labour, are recognising their responsibility to contribute more than just cash to tackle the skill shortages in the industry. Through the CITB’s 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. For sites, the rate will be 1.5 per cent of total payroll and net expenditure on sub-contract labour. Contractors whose combined payroll and net expenditure on sub-contract labour is £275,000 or less will not have to pay the levy. The level is unchanged from last year, and it equates to an employer who employs 15 to 20 persons full time throughout the year. It is expected that 40 per cent of sites will be exempted. For head offices, the rate will be 0.18 per cent of the total of payroll and net expenditure on sub-contract labour. Head offices whose combined payroll and net expenditure on sub-contract labour is £1 million or less will not have to pay the levy. This level is also unchanged from last year, and it equates to an employer who employs around 40 persons full time throughout the year. It is expected that 76 per cent of head offices will be exempted. The proposals are expected to raise between £160 million and £165 million for the CITB and between £12 million and £13 million for the ECITB, which covers a much smaller industry. It is worth pointing out that the CITB currently returns £1.88 in direct and indirect training support for every £1 levy received. For the ECITB, the figure is £2.19. I hope that I have adequately explained the orders. 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. There is a firm belief that without them there would be a serious deterioration in the quantity and quality of training in these vital 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 both industries. The boards’ own annual employer surveys also demonstrate continued strong support for the principle of a levy system. The orders that we are considering will enable the two boards to carry out their vital training responsibilities in 2007. It is in that spirit that I warmly commend the orders to the Committee. Moved, That the Grand Committee do report to the House that it has considered the Industrial Training Levy (Engineering Construction Industry Training Board) Order 2007. 8th Report from the Statutory Instruments Committee.—(Lord Adonis.)