Investment & Performance Board (IPB)
Date of meeting:
19 January 2016
Title of paper:
Update on Construction Skills in London
To be presented by:
Mark Kleinman, Assistant Director, Economic and
Business Policy
Cleared by:
Fiona Fletcher-Smith, Executive Director, Development,
Enterprise and Environment
Classification:
Public
1
Executive Summary
1.1
At its 20 November meeting, IPB requested an update on the GLA’s current
work with the construction sector.
1.2
This paper sets out an overview of London’s construction pipeline. It provides
summary evidence of construction skills shortages, and the barriers to tackling
these. It considers the structure of the construction sector and proposes what
more the GLA and the London Enterprise Panel (LEP) might do in order to help
tackle some of the issues.
2
Recommendation
2.1
That the Board note the update and potential further actions considered
(section 5).
3
Background on the construction sector
Construction UK
3.1
In 2014 the construction sector contributed £103 billion to the UK economy,
constituting 6.5% of the total across all sectors.1
3.2
There were 2.1 million jobs in the construction industry in Q2 2015, 6.2% of the
total. In the last ten years, the number of jobs in the construction industry has
been broadly steady (despite falling in 2009 and 2010). However, the number of
construction jobs as a proportion of all jobs as been declining from 7.0% in 2005
to the current figure of 6.2%.2
1
2
House of Commons Briefing Paper 01432 October 2015
House of Commons Briefing Paper 01432 October 2015
Construction pipeline in London
3.3
In its 2014 report Skilled to Build3, the London Chambers of Commerce and
Industry stated that £95.7 billion worth of construction output is currently in
planning in London and the south east. This output is due to occur in 2014-17
and is expected to be substantially higher as more projects come into the
system.
3.4
In December 2015, the Mayor launched the London Infrastructure Mapping
Application4, which is a publically available tool setting out over 9,000 housing,
transport and infrastructure projects in place between now and 2050.
3.5
There are record levels of housing being built. National House-Building Council
figures show that 2014 saw a 10% increase in new housing registrations in
London to 28,733 from 2013’s record figure of 26,230. Scheme starts
containing over 40,000 residential units were recorded by the GLA during
2013/14, the highest level since 2007.
3.6
The stock of homes with planning permission but not yet built also grew from
215,000 to 240,000 in 2013/14.
Evidence of construction skills shortages
3.7
The United Kingdom Commission for Employment and Skills (UKCES) reported
in 2012 that whilst vacancy levels across the Construction, Building Services,
Engineering and Planning (CBSE&P) sector are comparable to other sectors it
has an above average share of both Hard to Fill Vacancies (HtFVs) (40 per cent
of vacancies as compared to 23 percent for the whole economy) and Skillshortage Vacancies as a percentage of all vacancies (26 percent as compare to
16 per cent for the whole economy). The greatest proportion of these vacancies
within the construction sector was experienced in management and machine
operative occupations.
3.8
The Commission’s 2012 Skill Assessment 5 reported that this suggests there is a
supply-side issue in terms of the availability of adequately skilled individuals in
the available labour pool and / or those coming out of full-time education and
training.
In many respects this seems counter-intuitive in respect of the large number of
individuals that have left the sector since the start of the recession, although
the assumption is that most employers will have tried to retain their most skilled
staff for as long as possible. This view is supported by the finding that the
majority of CBSE&P employers report that HtFVs result from a lack of skills,
experience or qualifications of those applying to work in the sector.
Significant opportunities also exist to improve the skills and competence of the
existing workforce, to increase productivity, reduce reliance on lower skilled or
migrant workers, and support the uptake of new technologies and methods. In
addition to experiencing skill deficiencies within the external workforce,
3
http://www.londonchamber.co.uk/DocImages/12960.pdf
http://maps.london.gov.uk/ima/
5
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/306384/briefingpaper-ssa12-construction-building-services.pdf
4
employers in the sector also encounter skills issues within their internal
workforce, which are manifested as skills gaps.
3.9
The Government’s National Infrastructure Plan for Skills6, further highlights the
issue of needing more workers in the sector.
With the growth in infrastructure investment, the pipeline creates a demand for
over 250,000 construction and over 150,000 engineering construction workers
by 2020, driving a need to recruit and train nearly 100,000 additional workers
by the end of the decade.
The required skills blend to deliver the investment plans will change over time
leading to a need to retrain and up-skill around 250,000 of the existing
workforce over the next decade in addition to the need to recruit new workers.
A lack of detail on demand and supply – particularly within regions – coupled
with fragmented approaches to skills planning and high levels of bespoke
training limit the effectiveness and efficiency of labour market mobility. This
makes it harder for skilled workers to move easily between sectors and projects,
exacerbating key skills shortages for key projects and programmes.
3.10
At a London level, the consultancy SQW, citing UKCES Working Futures data in
its LEP commissioned research reported that 90,000 skilled workers are
expected to retire from their construction jobs in London between 2012 and
2022 and that total demand for new skilled workers in the capital will reach
133,000 during this period.
3.11
CITB in its annual Construction Skills Network 7report, identified increased
recruitment needs for London in a range of occupations across the sector
between 2016 and 2020, most significantly in building envelope specialist
occupation.8
See table below:
6
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/464354/NIP_for_skil
ls_final_web.pdf
7
http://www.citb.co.uk/documents/research/csn%20outputs/blueprint-uk-construction-skills-20122016.pdf
8
The building envelope is all of the elements of the outer shell that maintain a dry, heated, or cooled
indoor environment and facilitate its climate control.
Annual average recruitment requirement, 2016-2020
Greater London
Senior, executive, and business process managers
350
Construction project managers
-
Other construction process managers
Non-construction professional, technical, IT, and other office-based staff
-
Construction trades supervisors
-
Wood trades and interior fit-out
420
Bricklayers
Building envelope specialists
1,210
Painters and decorators
30
Plasterers
160
Roofers
-
Floorers
200
Glaziers
480
Specialist building operatives nec*
Scaffolders
Plant operatives
120
Plant mechanics/fitters
-
Steel erectors/structural fabrication
-
Labourers nec*
-
Electrical trades and installation
-
Plumbing and HVAC Trades
Logistics
Civil engineering operatives nec*
Civil engineers
Other construction professionals and technical staff
Architects
Surveyors
Total (SIC 41-43, 71.1 & 74.9 )
200
480
3,650
*nec ― not elsewhere classified
Structure of the construction sector
3.12
The construction sector is characterised by a fragmented structure with few
large direct employers. Much work is subcontracted and labour sourced from
SMEs and labour agencies. The short-term nature of contracts is cited by many
employers as a reason for not being able to employ labour in the form of
apprentices because of the minimum employment duration required for an
apprenticeship (12 months, however in practice many will take place over two or
three years). Therefore there is an issue of under-investment in training in the
sector, which goes beyond just the issue of apprentices alone.
Construction apprentices in London
3.13
The number of Londoners starting on an apprenticeship in construction has
begun to increase - in line with the national trend - following the decline during
the recession and a number of changes to the definition of apprenticeships, as
well as cessation by government in 2011/12 of support for programme-led
apprenticeships, a method of delivery used extensively in the construction
sector. The proportion of 16-18 year olds starting an apprenticeship in sector
subject area (SSA) 5 (construction and the built environment) is 35% of all
starts in that sector. That is 13 percentage points above the overall proportion
of apprentices in London who are under 19 (i.e. 22% of London starts in 14/15
were under 19). You will note in the following table of all apprenticeship starts
that the total apprenticeship starts delivered through the construction SSA
represent around 3% of the total starts delivered in London and 7% of the total
construction apprenticeship starts in England.
3.14
Given the significant amount of large infrastructure projects currently planned
and underway in the capital, the above data would suggest there is scope to
increase the number of construction apprenticeship starts in London.
3.15
The planned introduction of a levy on large employers should, in theory, ensure
that the larger construction businesses create more apprenticeship opportunities
in order to ‘recoup’ their contribution. However, meaningful growth in
construction apprenticeships starts is also dependent on London’s numerous
SMEs engaging more fully with apprenticeship activity.
Barriers to addressing skills shortages
3.16
A number of misconceptions exist regarding apprenticeship and the construction
sector. These views are often perceived as barriers and cited as reasons for
construction employers not to employ apprentices. Examples include that it is
illegal to employ young apprentices on a construction site or the educational
entry requirements prevent the employment of young people as apprentices in
construction.
3.17
The construction apprenticeship frameworks do not in themselves preclude
young people aged 19 and under from starting an apprenticeship.
3.18
Entry requirements are set by individual employers and the training providers
and not by the training framework, other than the candidate having the aptitude
and ability to undertake the training.
3.19
Employers are not legally prevented from employing young people onsite.
However, the existing requirements for health and safely and safeguarding do
apply along with the need for a Construction Skills Certification Scheme (CSCS)
card.
3.20
It is also recognised that employers may in themselves face increased insurance
for the employment of apprentices. The cost of the CSCS card is expected to be
met by an employer or the individual themselves, rather than by a training
provider.
3.21
The Federation of Master Builders (FMB) in their report ‘Defusing the skills time
bomb; Boosting apprenticeship training through construction SMEs9’ conducted
research to ascertain what the barriers were to the wider participation of
construction SMEs in apprenticeship creation activity. SMEs that had not
previously recruited apprentices cited the following reasons:





3.22
9
complexity and bureaucracy of the process;
cost of employing and training an apprentice;
uncertainty of future workloads;
concerns over the ability to retain apprentices once trained; and
quality of candidates.
The above perceptions are largely common to SMEs across all sectors which are
reluctant to appoint apprentices. The Government’s ‘English Apprenticeships:
Our 2020 Vision10’ document includes information on how smaller employers
(i.e. those that fall out of scope of the levy) will access support via the proposed
Digital Apprenticeship Service, which is designed to simplify the process of
recruiting an apprentice.
http://resources.fmb.org.uk/docs/FMBDefusingTheSkillsTimeBomb.pdf
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/484209/BIS-15651-english-apprenticeships-our-2020-vision-executive-summary.pdf
10
3.23
Furthermore the document also states that the Government will extend the
Apprenticeship Grant for Employers (AGE), offering an incentive of £1,500 to
employers who take on an apprentice until the end of the 2016/17 academic
year.
3.24
The concern around an employer’s ability to retain apprentices once trained is
particularly pertinent to London, given the extent of the large infrastructure
projects in the capital which presents significant scope for trained individuals to
secure alternative employment.
3.25
Concerns over the quality of candidates could in part be alleviated over time
through greater uptake of traineeships, which provide opportunity for those
furthest from the work place, to gain the skills and qualifications they need to
be job ready.
3.26
To date, remedies that can seek to address uncertainty of future workloads
barriers have been addressed by the use of Apprenticeship Training Agencies
(ATAs) and CITB’s Shared Apprenticeship Scheme.
Apprenticeship Training Agencies
3.27
Apprenticeship Training Agencies (ATAs) regulated by the Skills Funding
Agency provide one solution to overcoming the short term / contract based
work and transfers the risk of finding employment for the apprentice to a third
party. In London there are a number of ATAs which operate in the sector in
addition to the Shared Apprenticeship Scheme, which is operated through CITB
(see below).
3.28
Sometimes ATAs are criticised for not paying a fair wage to apprentices. This
criticism is often due to the lack of understanding of the business model. ATAs
in their purest form earn their revenue / profit from the additional charge they
place on the hourly charge out rate to the employer. ATAs are in effect a ‘high
volume / low margin’ business as they need sufficient apprentices in continued
employment but at a rate the market will bear before it becomes more cost
effective to employ direct. ATAs as employers of apprentices have to pay at
least the apprentice minimum wage and will encourage employers taking
apprentices to pay the best rate to attract (and retain) the best candidates.
3.29
ATAs are currently being reviewed and a report is expected to be published by
SFA /BIS in February. Vision 2020, the government’s strategy for
apprenticeships sees a clear role for ATAs (and Group Training Agencies11) going
forward in supporting the expansion of apprenticeships particularly for SMEs.
11
The key characteristics of Group Training Agencies (GTAs) are that they support a support a specific group of employers
with shared needs, often in niche provision or where without the group it would not be viable for one training provider to
deliver.. Generally GTAs do not directly employ apprentices but provide the organization and support for Apprenticeship
delivery.
Shared Apprenticeship Scheme
3.30
The CITB Shared Apprenticeship Scheme (SAS) allows employers to enjoy all the
benefits of having an apprentice, without the direct employment responsibility
as this is taken up by the scheme. There are similarities between ATAs and the
SAS as it aims to provide a solution to employers involved in the procurement
process so they can make a commitment to a young person, even though their
contract on site may only be for a short period. Procurement is pooled within a
region and the apprentice rotated from one contractor to another, until they
have completed their full Apprenticeship framework at Level 2 or 3. An
apprentice who completes the full three-year Apprenticeship will gain an NVQ
Level 3 in their chosen trade. Currently, around 90% of apprentices who
completed the three years have secured full time employment in their chosen
trade.
3.31
The constitution of the SAS is made up of key regional stakeholders including
local authorities, frameworks, housing associations and representatives from
major contractors and the SME sector. Its partner employers are recharged for
wage costs, only for the time the apprentice is on placement. The SAS differs to
ATAs in that it is able to access CITB grants in addition to the training funding,
thereby reducing the costs for partner employers to engage.
4
What the GLA / LEP has done
LEP Construction Skills Advisory Group
4.1
The LEP’s Construction Skills Advisory Group was set up in early 2015, following
the publication of a number of reports highlighting mismatches in the supply of
and demand for construction skills in London. The Group was chaired by Harvey
McGrath and comprised the following members: Tideway, Laing O’Rourke, BAM
Nuttall, UKPN, Crofton, Land Securities, SECB/Constructing Excellence,
BeOnsite, Construction Youth Trust, Prospects, Skills Funding Agency, CITB,
DWP, AoC, LCCI, LB Wandsworth, LB Newham, LB Lambeth, City of
Westminster, LLDC, and Crossrail.
4.2
The group met three times and in September 2015 agreed an Action Plan with
the following proposals:



Skills offered by providers: Government-led area review of skills
training in London to take account of the needs of construction
employers;
Image of the sector: London Ambitions Careers Offer to promote
career opportunities with the construction sector among potential
recruits in schools and colleges; and
Skills forecasting: 2050 Infrastructure Mapping tool to be used to
develop a better understanding of the geography and nature of future
skills needs in the construction sector in London.
LEP/CITB Joint Initiative
4.3
The LEP/CITB joint investment programme (value £2 million) which started in
2015 is delivering a programme of activities to support the construction sector
London. The programme targets are 500 unemployed construction workers into
training, 150 work placements, 700 SME construction business support
interventions and work experience opportunities for up to 100 young people not
in education employment or training. Some underperformance issues have
necessitated the review of profiles/risks and following the termination of one
contract profiles are now adjusted across the other providers to ensure pan
London geographical reach is maintained. As part of the performance review
and in light of provider feedback, the steering group has changed the eligibility
criteria on the business support projects to improve take up of graduate
placements and to provide support for non-CITB registered construction firms
which were formerly out of scope.
4.4
CITB will present progress on the joint initiative to the February meeting of the
Skills and Employment Working Group.
Infrastructure Mapping Application
4.5
The Infrastructure Mapping Application was launched by the Mayor in
December 2015 and contains over 9,000 housing, transport and infrastructure
projects due to take place between now 2050. Over time, new projects will be
added to create a ‘one-stop-shop’ of London’s infrastructure plan for the
coming years.
4.6
Through collaboration with CITB in the use of its Labour Forecasting Tool, the
application, which is aimed at developers, builders and training providers, maps
the skills needed to deliver new infrastructure. This will ensure those involved in
education and training are best prepared to ready the workforce to respond to
London’s needs.
4.7
For an overview of the map and registration visit www.london.gov.uk/ima
5
What more could be done by the LEP / GLA
Recommendations
5.1
12
It is important to recognise that skills shortages and barriers to increasing
training in the sector remain national issues despite various initiatives both by
Government and the sector itself. The construction sector presents a number of
specific challenges in terms both of the image of the sector and the high degree
of cyclical variation in activity. It is also important to recognise that migrant
labour is an important source of flexibility in the sector, although migration
should be seen as a complement, not a substitute to training UK citizens12.
http://www.ciob.org/sites/default/files/CIOB%20research%20%20No%20More%20Lost%20Generations%20February%202014.pdf
5.2
13
In that context, there are a number of potential actions the GLA and LEP could
consider:
 Ensure that construction employers are able to articulate their future skills
needs through local authorities as part of the Government-led area review of
skills training in London. This work will promote a vocation curriculum in the
further education (FE) sector that reflects the current and emerging needs
of construction employers, including SMEs.

Promote use of the Shared Apprenticeship Scheme, which attracts CITB
grant funding, thereby reducing some of the cost of employing apprentices
that is passed on to host construction firms.

Develop a new construction sector-specific round of the Mayor’s Employer
Led Apprenticeship Creation Scheme, to increase apprenticeship take up
among SMEs. This would require additional programme funding.

Convene a roundtable to discuss the implications of the Apprenticeships
Levy and other national changes to the delivery of apprenticeships for the
Construction Sector. GLA officials have been asked by the LEP to arrange a
general roundtable on this issue and a construction-focussed event could
form part of this.

Identify a clear role for the LEP in encouraging local authorities to employ
more flexible definitions of local labour when setting Section 106
requirements. This would mean allowing employed apprentices to move
across boroughs as construction projects cease and new projects begin, in or
to allow them to remain in work, to complete their training and then seek to
progression opportunities.

Through the London Ambitions Careers Offer work with CITB’s Go
Construct13 initiative to promote career opportunities within the construction
sector among potential recruits in schools and colleges.

Convene a developer forum to capture and disseminate best practice
through industry initiatives already underway, such as Lend Lease Be
Onsite14, Land Securities London Employment Strategy15 and Wilmott Dixon
Foundation16 to name but a few.

Encourage private-sector led interventions to overcome recruitment issues
by targeting construction sector skills gaps with project-linked or site-based
schemes such as the one currently being developed by Lloyds Banking
Group, supported by the Mayor of London. A number of large developers
have approached City Hall with similar proposals.
https://www.goconstruct.org/
http://www.beonsite.org.uk/
15
http://www.landsecurities.com/sustainability/news-case-studies/sustainability-case-studies?id=81
16
http://www.willmottdixon.co.uk/how-we-do-it/the-willmott-dixon-foundation
14
6.
Meeting with Prime Minister’s Apprenticeships Advisor
6.1
Sir Edward Lister, Chief of Staff, and Fiona Fletcher-Smith, Executive Director,
Development, Enterprise and Environment, met Nadhim Zahawi MP, the Prime
Minister’s Apprenticeship Adviser on 12 January 2016 to discuss apprenticeships
in the construction industry.
We believe Government could help in the following ways:
Investment in marketing
6.2
It is clear that a number of information failures in respect to apprenticeships
persist; young Londoners and their parents lack an understanding of the
availability of apprenticeship opportunities and substantially underestimate the
potential benefits that an apprenticeship affords, including progression to
higher level learning and earning.
6.3
Furthermore, the Holt review found that a significant barrier SMEs experienced
to taking on an apprentice is that they often underestimate the benefits that an
apprentice could provide; i.e. the extent to which they might raise productivity,
save costs and increase profitability. Additionally, many SMEs were found to
perceive that recruiting an apprentice is a costly and time consuming process.
6.4
If London is to generate growth in the creation of apprenticeship
opportunities, Government investment in marketing activity over a sustained
period is required to address these information failures.
Apprenticeship Levy
6.5
As London is home to a significant amount of large employers, it is certain that
London will be required to make a significant contribution to the levy. However,
without a significant increase in apprenticeship formation rates, it will be
difficult for London to derive a proportionate benefit from its levy contribution.
6.6
It is considered that an increase in formation rates will require a significant
increase in market penetration (i.e. the number of firms engaged). This will only
be achieved by engaging London’s SMEs - especially smaller companies, often
with fewer apprentices - rather than relying on fewer, larger companies
employing many apprentices.
6.7
Consequently, we would restate the position made as part of the London LEP’s
Skills Devolution proposition, and request that London’s levy contribution is
top-sliced and the funding devolved locally so that it can be used to address
London’s specific requirements. For example:

Capacity building activity for London’s SMEs including development
and delivery of a London-based Small Business Service, to include
the provision of additional support for the recruitment of
apprenticeships. This will include a focus on creating higher-level
apprenticeship opportunities to meet London’s future higher-level
skills requirements.

Interventions focused on pre-apprenticeship support of prospective
apprenticeship candidates furthest from the workplace and not
eligible for traineeships.

To subsidise apprenticeship training and ‘uplift’ funding for SMEs
taking on apprentices, recognising the higher cost of training in
London.
Greater promotion of CITB’s Shared Apprenticeship Scheme
6.8
The CITB Shared Apprenticeship Scheme (SAS) would appear to offer a solution
to the project-based nature of the construction industry, whereby some
employers cannot guarantee there will be sufficient work to employ an
apprentice for the duration of their apprenticeship.
6.9
Given how the SAS differs to ATAs in that it is able to access CITB grants in
addition to the training funding, it thereby can reduce the costs of employing an
apprentice that are passed on to partner employers who engage.
6.10
As the changes to the apprenticeship system begin to take shape in 2017, there
needs to be greater promotion across planned public as well as private sector
developments of the benefit of recruiting apprentices through the CITB SAS
scheme.
Flexible definitions of local labour when setting Section 106
requirements
6.11
The LEP supports the recommendation in the KPMG/LCCI report Skilled to
Build17 that local authorities should employ more flexible definitions of local
labour when setting section 106 requirements.
6.12
This would mean allowing employed apprentices to move across boroughs as
construction projects cease and new projects begin, in order to allow individuals
to remain in work, to complete their training and then seek to progression
opportunities.
6.13
The Department for Communities and Local Government should be highlighting
the wider social benefits of sustained employment that can be achieved by local
authorities that employ more flexible definitions of local labour when setting
Section 106 requirements.
7
Key Risks and Issues
7.1
Not applicable.
17
http://www.kpmg.com/UK/en/IssuesAndInsights/ArticlesPublications/Documents/PDF/Market%20Sec
tor/Building%20and%20Construction/skills-to-build-report.pdf
8
Financial comments of the Executive Director Resources
8.1
In the case that the interventions recommended in this report are approved,
where required, resources will need to be identified by the LEP to support these
as there is currently no budget in place for this.
9
Legal Comments
9.1
Not applicable.
10
Next steps
10.1
The next steps following consideration/in-principle approval by IPB are
summarised below:
Activity
Timeline
Paper to be presented to January IPB.
19 January 2016
Officers to take forward recommendations adopted by the January/February
Investment and Performance Board
2016
Appendices
Appendix 1 – Supporting Information