Industrial Training Levy (Construction Industry Training Board) Order 2025

Considered in Grand Committee

17:34:00

Moved by

That the Grand Committee do consider the Industrial Training Levy (Construction Industry Training Board) Order 2025. Relevant document: 18th Report from the Secondary Legislation Scrutiny Committee

My Lords, I thank the Secondary Legislation Scrutiny Committee and the Joint Committee on Statutory Instruments for the scrutiny they have provided to this order. This statutory instrument, laid in draft on 5 February, will allow the Construction Industry Training Board to raise one more year of levy on the construction sector to fund training. In particular, I welcome the £40 million from levy funds that the CITB is investing in homebuilding skills hubs to support the Government in reaching our 1.5 million homebuilding target. The CITB’s latest figures state that the construction sector contributes £186 billion to our economy and employs 2.1 million workers—unquestionably a significant part of the UK economy. However, the sector’s reliance on subcontracting and self-employment means that investment in workforce skills is too frequently left to others to prioritise. This levy order reflects the key role that industry plays alongside government in making its workforce safe, competent and increasingly productive. Established in 1964 with a remit across England, Scotland and Wales, the CITB’s legal purpose is to encourage the provision of construction training. It is a purpose that, some 60 years on, the independent 2023 ITB review found is still needed, due to what the lead reviewer, Mark Farmer, identified as “ongoing market failure”. His report accepts that the current ITB model, a statutory levy system for construction employers, remains the best way to fund such training. The CITB also remains a key partner with government and is an important player in our plan for change. It will work closely with Skills England when it emerges from the passage of legislation through these Houses. Over the last three years, the CITB has used levy funding to support almost 69,000 apprentices, given grants to over 44,000 businesses and delivered masterclass courses in areas including roofing and bricklaying. This order is the vehicle to bring in just under £224 million of focused funding from the construction sector for the CITB to deliver training and skills activity to support our missions. I trust that noble Lords will continue to support this approach of levy funding training within the construction industry. Before I outline the details of the SI, I will address the duration of this order. The primary legislation permits a one-year levy order without consensus, the process of consulting with industry, as long as certain criteria are met. The CITB wanted to give industry time to consider the impact of the ITB review before debating its support for three years of levy payments through the usual consensus process. With the delayed ITB review publication truncating the available time before current levy income runs out, the CITB provided me with levy proposals for one financial year. With the ITB review now published, the CITB will start consensus next week on proposals for a 2026 three-year levy order and will listen and respond to industry views in earnest on that. I turn to the details of the SI. This one-year order retains the levy assessment rates prescribed by the three-year 2022 order: 0.35% of the earnings paid by employers to directly employed workers and 1.25% of the contract payments paid to indirectly employed workers. The levy order exemption threshold means that employers with an annual wage bill of below £135,000 are exempt from paying any levy at all. The CITB estimates that 69% of in-scope employers fall into that category. The levy order reduction threshold provides a 50% reduction for employers who pay a wage bill between £135,000 and £449,999. A further 15% of employers are in scope of this provision and would pay reduced contributions. Both thresholds have been increased from the 2022 order to prevent employers who have increased employee wages exceeding the limit and facing new or increased levy rates. Employers who are exempt or pay reduced levy rates are still eligible to claim CITB support. The large volume of eligible employers is counterbalanced by the amount of levy paid by larger employers, enabling the few to support the many for the wider benefit of the construction industry. In lieu of the typical consensus process, the CITB sought views on the one-year proposal from its 14 prescribed organisations, sector federations representing around 30% of all levy-paying employers and the nation councils for England, Scotland and Wales. The vast majority were supportive, and subsequent industry engagement via CITB comms channels and engagement with trade media has not attracted any dissent over a one-year approach. With the ITB review and the CITB’s strategic plan now published, industry is in a much stronger position to enter consensus for the 2026 proposals and make informed decisions. In conclusion, I have confidence that your Lordships’ Committee will have suitably scrutinised the impact assessment that was laid with the levy documentation; this articulates how the CITB proposes to spend the levy raised by this order. This spend is focused on activities that support the Government’s ambitions to deliver on the plan for change, especially in commitments to build 1.5 million homes in this Parliament and to drive growth for the good of the nation. This order will enable the CITB to continue carrying out these vital training responsibilities. I beg to move.

My Lords, I always remember how the late Lord Andrew Stunell, who was a spokesperson at one stage for the construction industry, used to rage at us about the huge shortages in every branch of construction. He said, “Just imagine, if we were able to fill these vacancies, how we would be able really to boost the economy and opportunities for young people”. With an estimated 250,000 extra construction workers needed between now and 2028, it is vital to look at a wide range of ways in which to increase the number of new entrants to the recruitment pool, creating a more diverse workforce. One problem is the mismatch between supply and demand; individuals find it hard to find the right route into a role in construction, and it can be economically challenging for employers to invest in apprenticeships and new entrants. Better pathways need to be created into the industry. Construction needs to grow apprenticeship starts, which are the main source of industry recruitment at entry level. In addition, around 30% of further education learners need to be able to progress to an apprenticeship or job in construction by assuring employers that they have the skills and experience they need. Another problem is retention. Better retention of trainees and current workers in construction can significantly reduce skill shortages. Nearly 60,000 new entrants leave the industry each year. We need to retain the current workforce—many leave due to preventable reasons, such as poor workforce culture or limited career progression. Developing a training and skills system to meet the current and future needs, with CITB working with Skills England, will, I hope, start to reverse the problems we face. We very much welcome the levy.

17:45:00

My Lords, I rise to speak on this draft order, which, as the Minister set out, directly impacts the future development of the construction sector’s workforce. As we heard from the Minister, the CITB has been responsible, for the past 60 years or so, for ensuring that the sector has the skilled, diverse and competent workforce that it needs to meet both current and future challenges. However, as we heard, following the 2023 review of the industrial training boards led by Mark Farmer and published in January 2025, it is clear that we need some radical changes to the way that we address the structural skills shortages in the construction sector. So we are left with a one-year SI, which of course is far from ideal from the perspective of the sector, but we accept that it gives time to work out an alternative approach. I hope the Minister will be relieved to hear that I think there is little to debate in relation to this SI, which I imagine will mark the end of an era, but it gives us an opportunity to hear from the Government about how they plan to deliver on the recommendations of the Farmer review. I thank Mark Farmer, on behalf of these Benches, for his leadership of the review and his approach to analysing the challenges that the sector faces. His review does not mince its words, if that is the right phrase, by underlining the extent of the challenge facing the sector and the need for radical change in the way that skills are developed. We welcome his focus on the need for a “competent, productive and resilient” industry, with the capacity to deliver on the nation’s critical infrastructure projects while ensuring high standards of quality and safety, and “a ruthless focus on addressing the future workforce capacity, capability and resiliency challenges set out in this review”. His recommendations are clear in terms of merging the ITBs into a single workforce planning and development body for construction and construction engineering, supported by a statutory levy. The shortages in the workforce that employers face are shown starkly by the combination of wages rising far faster than the national average while productivity has fallen. In the words of his review, these are “crucial lead indicators of the industry’s future trajectory and represent a direct challenge to the effectiveness of the ITBs over the last 15-20 years”. The review highlights the continued reliance on labour intensity but, sadly, appears to conclude—if I have understood correctly—that there are still too few incentives for individual businesses to markedly review that reliance through capital deployment or production model reforms. Of course, one unintended consequence of the increases in employers’ national insurance contributions might be more capital investment, but surely this is a clear call to the Government to create exactly the incentives that are currently lacking if the productivity of the sector is going to see the kind of step-change improvement that it needs. I would be grateful if the Minister could comment on that. The review also argues for “a pivot in levy spend with a more forced redistribution for maximum industry impact”— I love that; it is so direct. The review argues for “more efficient industry drawdown and mobilisation of both ITB levy and apprenticeship levy”. How can the Minister reassure the Committee that this will happen in practice and within the next year? That leads me to the Government’s response to the review, which is where I began to worry. I reassure the Committee that, although my speech is longer than I had planned, it will not cover all 40 or so pages of the Government’s response. I absolutely know and believe that the Minister is very focused and cares a great deal about delivering on this area, but some of the responses left me very uneasy, and I would be grateful for her reassurance on this. As the Minister said in her opening remarks, recommendation 1.1 is that the ITB model should be retained in terms of its “basic statutory mandate”, but it goes on to say that “its strategic priorities, core capabilities and activity require wholesale transformation. This all needs to be ruthlessly focused on addressing the fundamental workforce resilience challenges facing the construction and engineering construction industries”. The DfE response is: “Meeting the skills needs of the next decade is central to delivering the government’s missions across all regions and nations. This government is committed to ensuring we have the highly trained and more productive workforce needed to deliver the national, regional and local skills needs of the next decade, aligned with the new Industrial Strategy and government infrastructure and built environment commitments. In this context, we agree that there is still a case to maintain the Industry Training Boards (ITB) in their basic form. The construction and engineering construction sectors recognise both ITBs service and that training levels would be negatively affected without the ITB model and are broadly convinced of each organisation’s value”. I do not know what the Minister thinks, but that does not feel to me like the “ruthlessly focused” tone of the recommendation. Recommendation 1.3 of the review is: “Proposals to implement the recommendations set out below should be developed quickly with agreed milestones to be monitored by DfE. If DfE”— I emphasise that— “is unsatisfied with progress it should reconsider the viability of the ITB model”. The department’s response says: “Department for Education (DfE) officials will update ministers on progress as part of the implementation plan, with a view to commenting on the ongoing viability of the ITB model. This assessment of progress will be undertaken in conjunction with wider reform of the skills landscape, focussing on the introduction of Skills England and the Growth and Skills Levy (in England)”. I had a couple of other examples, but I think my point rests. I would be grateful if the Minister could address the question raised by the Secondary Legislation Scrutiny Committee in its remarks on the SI in its report. It said that, “for the future period, agreement with the industry will be sought when there is little clarity about how the CITB will operate and, therefore, what the levy will be funding”. Finally, in its briefing for this debate, the CITB explains that £143 million—over 12%—of the funds raised from the levy over the life of the Parliament will be spent on “running the business, including grant and levy administration”. I work out that this is about £28 million a year. I wondered how that compared with the projected budget for Skills England and what the Minister thinks about this as a level of running costs. Can this money, together with that of the Engineering Construction Industry Training Board, be put to use in addressing the urgency and importance of the recommendations in the Farmer review? As the noble Baroness rightly said, the construction industry is vital for the future of our nation, and it is essential that we take an effective approach to its workforce needs. As the Official Opposition, we support the Government to ensure that the levy works effectively for the next year and hope very much that our concerns about the DfE’s response to the Farmer review prove to be unfounded, and that a year from now we will have a clear and compelling plan for the future of the sector and its workforce.

I thank noble Lords who have attended today for their contributions to this debate—we are of quality rather than quantity. I will endeavour to cover all of the questions raised; where I fail to, I will follow up in writing. The theme of both noble Lords’ contributions relates to our shared understanding of the challenge for the construction sector to be able to meet current requirements for construction skills and the construction skills necessary to deliver the Government’s plan for change, particularly to build the 1.5 million new homes that we have committed to. I wholly understand noble Lords’ concerns that we need to do more to fill the considerable gaps that exist there. That is why a much wider range of activity will be necessary, such as the important work that the CITB is doing, including the £40 million contribution to housebuilding hubs that I identified in my opening speech, which will make a considerable contribution to construction skills. A much broader approach is going to be necessary from the Government as well. Such an approach will encompass, as the noble Lord, Lord Storey, said, how we support our further education colleges to deliver the specific skills necessary, how we develop a broader and more flexible offer in the growth and skills levy than has been available up to this point, and how we ensure that the construction industry is making the most of the diversity of those who might be available to contribute to construction skills. The CITB’s analysis shows that just 7.4% of UK construction workers are from an ethnic-minority background and that only 15% of the workforce are female. We can see that there is much more work that the CITB and the industry need to do to ensure that we are developing a construction workforce that reflects the whole of our society and not just part of it. That in itself will enable us to go further in ensuring that people are coming into the industry. In particular, the CITB in its homebuilding hubs will support individuals to become employment-ready and site-ready. It will support all people wishing to enter the sector, including underrepresented groups, women, and those from black, Asian and other minority-ethnic backgrounds. The Into Work grant supports progression to employment from FE provision. The noble Lord, Lord Storey, identified what is sometimes a leaky pipeline from training into work. There, employers can receive £1,500 if they support work experience and then recruit someone from an FE construction course. That funding makes local employment opportunities in SMEs more viable for employers. In addition, the CITB is funding the training of industry construction ambassadors on fairness, inclusion and respect, to drive improvements in human resources practices and site experience. The CITB is already undertaking a range of activity. As part of the Government’s skills strategy, there is more that we will want to look at in relation to that pipeline, to support for employers and to the knowledge of employers, in order to take on those who have done training in the construction industry in our colleges so that they can take their place in the industry and maximise the contribution being made.

18:00:00

I have talked about the £40 million homebuilding hubs that the CITB is investing in. In addition to that, skills for retrofit will be crucial as the industry works towards national net-zero targets. The CITB’s work to forecast future skills demand, and create new standards where necessary, will be invaluable. Where there are supply gaps, such as in scaffolding and lightening protection, which it has previously addressed, the CITB will work with Skills England on workforce planning and commission training to address skills needs to plug these gaps.

Using a skills system based on competence at the core of its approach, the CITB will continue to provide pathways based on competence to be funded for new and existing workers with a more modular approach that covers the entire career journey, including reskilling and upskilling as the industry evolves. It will ensure that these pathways meet the workforce needs of the future by working with government—including Skills England—the Engineering Construction Industry Training Board and industry.

The CITB will continue to partner with departments across government, including the MHCLG, to define and deliver a pathfinder in the construction sector to help address teaching shortages in construction-related subjects in FE. It is also working with the DfE, through the dual professionalism model, on encouraging those working in the industry to help increase the number of trainers and assessors in our colleges with real-world experience of the skills being taught. All those things will also contribute to the broader work of the Government in helping to grow the construction skills workforce.

In relation to the points about the department’s response to the ITB review, I am sorry that the noble Baroness did not think it was as good a read as she had hoped it would be. That in no way reflects a lack of commitment from either the Government or the CITB in ensuring that we make a step change in enabling construction skills to be developed. We have accepted the majority of the review’s recommendations; where the department has partially accepted them or accepted them in principle, that is because they are complex and are likely to require additional scoping of form and function—and, in some cases, consultation with industry.

We must see a step change in construction skills delivery to achieve many of the ambitions, as noble Lords have said. Of the recommendations accepted in full, we are already focusing on the CITB’s delivery and impact. Over the next 12 months, we will work with the ITBs and other government departments, through a cross-departmental steering group, to scope the different ways of implementing the more complex recommendations. All of that will need to be carried out before final policy decisions can be made on whether to accept and implement the recommendations fully. As we see Skills England developing, and as the review outlines the requirement for closer working between the CITB and the ECITB, this is an important time to think about the most effective form for the contribution made by all those bodies to take in order to ensure that we maximise what we can do for the construction workforce.

The CITB’s running costs are currently at 15%— I think clarity was provided to the Secondary Legislation Scrutiny Committee about that—and this includes the cost of administering the levy, grants and funding schemes out to employers. The CITB’s underlying corporate costs, including HR, finance and other back-office services, are 10%, but the review outlines that there should be more transparency around the running costs of the ITBs. Their corporate service costs should be benchmarked against suitable comparators and, specifically, both ITBs should be looking to make 5% efficiency savings. In 2023-24, the CITB actually made efficiency savings of 11.3%. The Government agree with this recommendation and a steering group will be convened to monitor the implementation of the agreed review recommendations to ensure that those efficiencies are being made.

In general, the 2023 review concluded that, with reform and greater collaboration between the ITBs, the current model of ITBs with a statutory levy system is still the correct approach to take at this point. With the CITB’s informal consultation with industry prescribed organisations demonstrating support for the levy order proposals, this order allows that approach to continue. Without the levy, there would be a threat to the quality and quantity of training provision within the industry, particularly for our small and micro firms, which make up such a large part of this vital sector. As our construction industry rises to meet the challenge of building 1.5 million new homes and retrofitting up to 5 million houses under the warm homes plan, the support that the CITB brings will be as vital as ever. But we will work with the CITB, in the light of the Mark Farmer recommendations, to make sure that that is also as effective as it possibly can be. On that basis, I commend the order to the Committee.

Motion agreed.

Committee adjourned at 6.06 pm.