I move: "That the Bill be now read a Second Time."
The purpose of this Bill is to establish the National Training Fund. The fund will support a range of training initiatives aimed at the employed and those seeking to enter or return to employment. The establishment of the fund is part of a wider strategy for the promotion of human resource development in response to the social and competitiveness challenges now facing us.
We are living in the midst of a period of unprecedented economic growth. We are experiencing the positive effects of reformed public finances, increased competition, a pro-enterprise environment, a successful and focused industrial policy, low taxation, and long run investment in initial education and vocational training.
Globally, we have experienced growing and increasingly diverse trade and a dispersal of the factors of production. We have seen the growth of the knowledge economy and the shift from "bricks to clicks", as it has been called. We have witnessed the growth and consolidation of the European Union as a trading bloc. In Ireland we have been fortunate to experience the confluence of these two rivers of change, national and global. The steps we have taken to put our own house in order have allowed us to gain enormously from globalisation and the knowledge economy. This is why we attract 27% of all US green field investment in Europe. It is why we are the largest exporter of software globally and it is why young dynamic Irish companies are now beginning to penetrate the technology powerhouse of the US.
Change has fostered prosperity but that very prosperity and the change which has fuelled it brings new challenges and new uncertainties. We are now at the point of full employment when viewed in classical economic terms. We are also on the cusp of a significant change in demographics, where the numbers of new entrants to the labour force will fall from 27,000 this year to under 12,000 by 2008. Concurrently, we will be faced with significant labour and skills requirements to service the expanding economy and address infrastructural deficits.
These changes place the spotlight firmly on the issue of productivity. Traditionally, productivity has been thought about in simple efficiency terms. However, as Professor Michael Porter points out, at the national level productivity has a much more strategic meaning. It reflects the way in which we use our national resources, the quality of our people, the opportunities facing them and their ability to innovate and move to higher levels of economic advantage. Productivity has traditionally been seen as being the province of manufacturing where the number of hypotheti cal "widgets" produced by each worker can be easily measured but productivity, especially when seen from a broader perspective, is equally applicable to the services sector. Higher quality services can command a higher price and thus support higher living standards among those employed in the services sector.
It is a cliché that Ireland needs to move up the value chain but it is one which bears repeating and expansion. Put at its simplest, Ireland cannot sustain developed economy wage levels with a developing country's base of goods and services outputs. This poses an enormous challenge for us. We have made it into the premier division but now we need to stay there. We need to consolidate our position in an era of increasing competition and external pressures such as rising oil prices.
I said that we have reached what would be described as full employment in terms of classical economics but we need to treat this concept of "full employment" very cautiously. It has some validity in that levels of unemployment below 4% send unequivocal signals that the labour market is becoming very tight. It tells us that there are attendant potential pressures on wages and competitiveness and that we cannot be complacent. However, it categorically does not tell us that we have solved the unemployment problem, nor does it tell us anything about the levels of employment which we have the potential to achieve.
As far as unemployment and underemployment is concerned, we still have 52,000 people who are short-term unemployed and 28,000 people who are long-term unemployed. In addition to these people who indicate that they are unemployed in response to the Labour Force survey, we also have a significant group of some 80,000 people who are "marginally attached" to the workforce. In all, this represents a number of people who could benefit from work.
Many people find themselves in unemployment because of structural changes in the economy which devalue their existing skills set. People who left the education system early with marginal skills in the first place are demonstrably the most vulnerable in times of economic downturn. Also, one consequence of moving up the value chain is that even the highly skilled of one era can become the unemployed of the next. In all cases, the evidence shows that the longer one remains unemployed, the less likely one is to find and secure a job. The quality of the training programmes we offer can be a critical determining factor in helping people back into employment.
Those services themselves have to respond to labour market conditions. Given our low levels of unemployment, we are now in a position to more precisely identify and target the training needs of unemployed people. In many cases these can encompass quite basic skills such as literacy and numeracy, as well as a need to provide entirely new skills to people whose existing skills set is no longer marketable. The National Training Fund will support this approach.
As well as people who are unemployed, we also have a large number of women who remain outside the labour force. By comparison with the best performers among our EU counterparts – Denmark, for example – our female employment rate of 51.4% is lagging behind. It is also notable that our employment rate for females in the 45 to 64 year age group lags behind the EU best performers by a very significant margin. Work in the home has given women many marketable skills and interpersonal qualities, as is demonstrated by the growing numbers of women who are returning to or taking up work. However, in many cases, women need to equip themselves with specific skills in order to find jobs. Here again, training is the key.
I said earlier that we should not become excessively starry-eyed about technology. Technological development in our economy is a major driving force but we can only achieve that development and leverage for greater advantage if we have the necessary backup infrastructure in place. Craft skills are part of that backup. The national development plan involves £23 billion of investment in infrastructural projects. Having the necessary levels of craft skills and crafts persons is a key success factor underpinning that plan. The apprenticeship system plays an essential role here and will be an important component of the national training fund.
Apprenticeship and return to work training are essential elements of the Government's strategy to grow our employment rate and ensure that work opportunities are available for all who seek them. This strategy must be complemented by a greater focus on training and enterprises. Going forward, enterprises will be increasingly dependent on the existing work force and its ability to adapt to technological and competitive changes. This is an inevitable consequence of our high employment environment and demographic change factors.
It is a positive sign that enterprises are already recognising that. The 1997 White Paper on Human Resource Development indicated that the spend on training by Irish firms was 1.5% of payroll. A recent survey of firms conducted by IBEC suggests that this has increased to 3%. While this survey of 1,292 firms may not be entirely representative, it provides many useful insights into the training activities of firms. For example, 45% of the companies surveyed had a specific budget for training and the average number of training days was five per annum. As against this, 40% of companies did not have a specific training budget, suggesting that training was pursued on an ad hoc basis. The remaining 5% of companies identified no spending on training at all.
Both IBEC and the expert group on future skills needs have undertaken research on the reasons for and barriers to training identified by firms. The main reasons cited for training are competitiveness; productivity improvement; staff motivation and retention; and regulatory compliance. The main barriers identified by firms are time, or, more precisely, the lack of it, and cost in terms of downtime while staff are on training and access, which is an issue particularly for firms in regional locations where qualified trainers may not be readily accessible. Firms also believe that there is insufficient information available to allow them to make informed choices about the appropriate trainer, and this can also lead to unnecessary costs if the training provided does not meet their needs. Price is also cited as an issue, suggesting that there may be insufficient competition in the training market. Finally, some firms are beginning to identify low basic skills among new recruits as a factor which requires them to undertake increased induction training.
These data suggest that the picture on enterprise training is changing. There is increased commitment among firms, but there are still significant numbers of firms whose approach to training is ad hoc, and a smaller number of firms who simply do not train at all. It is also clear that firms find the costs of training too high and that the market in supply of training may not be sufficiently developed. Policy, and the structures through which it is delivered, needs to respond to these issues.
Today, almost 900,000 people work in the commercial services sector. This number has grown by almost 250,000 since 1990. Growth in international services has been particularly impressive, rising from 11,000 in 1990 to 49,000 by 1999.
Manufacturing remains critically important and is continuing to prosper. However, our manufacturing base is changing significantly. This can be seen by the fact that the high tech sector – chemicals, engineering and IT – grew by 42,123 jobs from 1990 to 1999. By contrast, lower technology sectors such as textiles, clothing and furniture lost almost 11,000 jobs.
In addition to these structural changes in the enterprise sector, we have also seen some significant shifts in industrial policy. In 1998, I came into this House to put in place a new statutory framework for the development of indigenous manufacturing and internationally trading companies under the Industrial Development Bill, 1998. I outlined then the need for a more focused approach to assisting companies, bringing all aspects of business support, including marketing, research and development and training, together under one agency – Enterprise Ireland.
More recently, my Department has worked with the social partners to develop a pilot programme in enterprise led training support. The Skillnets initiative gives enterprises an opportunity to collaborate in identifying and addressing their shared training needs. Moreover, by pooling resources and by group purchasing solutions to common training problems, the costs of accessing training can be reduced for individual network members. Skillnets has been enthusiastically wel comed and 60 projects are now in operation or getting under way.
In addition to these developments, the issue of lifelong learning is becoming an increasing concern. Under the ambit of the Programme for Prosperity and Fairness, my Department has convened a task force on lifelong learning to develop a strategic framework and address issues such as access, flexibility of provision and workplace upskilling. The task force will report to Government early next year and I expect that its work will have a significant effect on the development of policy in this area into the future. Set against these dramatic changes, much of our statutory framework for enterprise and apprentice training derives from the 1960s. When the Industrial Training Act, 1967, was introduced, Ireland was still trying to come to terms with the competitive effects of the Anglo-Irish Free Trade Agreement of 1964. Industry was seen solely in terms of manufacturing, with services being little more than an afterthought.
The framework of the 1967 Act is based on the concept of designating sectors, establishing statutory industrial training committees to oversee training in these sectors and imposing sectoral levies to fund that training. This framework is increasingly at odds with the developments I have just described. It is too rigid. It ignores intersectoral and value chain links which are increasingly important to competitiveness, and it creates an artificial distinction between firm specific and sector specific assistance. It is too focused on manufacturing to the detriment of the services sector. In terms of finance, the system of sectoral and apprenticeship levies reflects many of these flaws and does not provide an appropriate funding base for training.
I put it to the House, therefore, that it is clear that we need a new approach to training in and for employment. We need new funding mechanisms and new structures. Those structures must be flexible, responsive and client friendly. This Bill provides an essential statutory underpinning for this new approach.
I now propose to outline to the House the principal features of the Bill. The main purpose of the Bill is to establish the national training fund and consequent national training levy. The fund will finance a range of schemes aimed at raising the skills of those in employment and providing training to those who wish to acquire skills for the purposes of taking up employment.
The Bill provides for the payment by employers of a levy equivalent to 0.7% of the reckonable earnings of employees insured for the purposes of social welfare legislation under class A, with the exception of community employment participants, and class H employments. There will be no additional financial imposition on employers as the cost of the levy will be off-set by a comparable cut in employers' PRSI contributions. This cut will be effected by a ministerial order which will be brought forward by the Minister for Social, Community and Family Affairs to coincide with the introduction of the national training fund levy.
Section 2 provides for the establishment of the national training fund. The fund will operate a current account and an investment account. Any moneys which are not required to meet current expenditure will be transferred to the investment account and may be transferred back to the current account as required. The Bill will thus provide a ring-fenced source of funds for training. This section also provides for the Exchequer to make contributions to the fund if required.
Section 3 provides for the imposition of the national training fund levy on employers in respect of relevant employees.
Section 4 provides that the rate of the levy payable by the employer will be 0.7% of the reckonable earnings of relevant employees, subject to the ceilings which apply for payment of employers' PRSI contributions and certain exemptions.
The section also provides for the payment by the Minister for Social, Community and Family Affairs of a sum of £120 million from the social insurance fund to the Minister for Enterprise, Trade and Employment for the year 2000 to take account of the fact that those training schemes falling within the ambit of the fund's purposes have already been subvented by the State this year. The section also provides for funds from the former levy grant schemes, which are now held by FÁS, to be transferred to the national training fund.
Section 5 provides for the collection of the levy. The sums collected will be transferred to the social insurance fund in the first instance and, from there, to the national training fund.
Section 6 provides that the Revenue Commissioners may supply information regarding reckonable earnings of persons in respect of whom the levy is payable.
Section 7 sets out the basis for making payments from the fund. This section provides for payments to be made from the fund for schemes, the purpose of which are to raise the skills of those in employment, or to provide training to those who wish to acquire skills for the purpose of taking up employment. This section provides that a wide range of schemes may be subvented by the fund. As regards the selection of schemes to be funded, this will be determined by the Minister for Enterprise, Trade and Employment. Earlier I described a number of key areas such as apprenticeship, skills training for unemployed people and those outside the labour force, in-company training and lifelong learning which need concerted and sustained attention. All these areas will fall within the ambit of the national training fund. The moneys to be allocated to schemes will be determined with the consent of the Minister for Finance in tandem with the annual Estimates process. This is essential given that many of the organisations being subvented by the fund will also be in receipt of Exchequer funding.
Section 8 provides for penalties for specified offences under the Bill.
Section 9 provides for the repeal of certain sections of the Industrial Training Act, 1967, and the entire Industrial Training (Apprenticeship Levy) Act, 1994. The principal items covered are the repeal of the statutory provisions covering the former apprenticeship and sectoral levies which were suspended in 2000 in anticipation of the introduction of the national training fund levy and those providing for the establishment and operation of the statutory industrial training committees which were integrally linked to the sectoral levy grant schemes. The remaining sections of the Bill are standard provisions.
I am happy we have made significant strides in eliminating the "grant mentality" which has tended to characterise the relationship between firms and State agencies. However, we need to be constantly vigilant that grant aid provides value for money. In the training area, there has been a tendency to provide small incremental amounts of funding on a recurrent basis. There is a strong risk that such an approach can lead to an increase in rent seeking, where firms feel a historical entitlement to grant aid and where incremental funding fails to achieve any significant change in commitment to training.
This issue will be addressed in the context of the national training fund by applying the following criteria. Human resource development investment should be clearly linked to the articulated strategic plans of the enterprise or to assisting enterprises to develop such plans. Support should be designed to achieve a "step change" in the human resource development performance of the company, that is, it should make a significant improvement in the company's approach to training and development. Particular attention should be given to the achievement of recognised standards, such as Excellence Through People, or to certification of the skills acquired. Support should be degressive, that is, it should be directed to building self-sustaining capability within the firm. It should, therefore, decline over time or only be provided for major new step change initiatives.
The boundaries of the competitiveness game are now well established. Increasingly, the issue is not about whether we are in the right ball park, but rather how skilfully we play the game. Our "match fitness" depends on the quality of our human resources and the development opportunities we can offer our people, whether they are entering the labour market for the first time or seeking to return to work or to change career, or simply to advance within their chosen occupation.
We have made enormous strides at both the level of competitiveness and social inclusion. We have achieved this in large part through investing in skills, especially in the initial education and training area. We need to take a broader approach which looks to the future and ensures that the skills base we have built is maintained and upgraded to meet the challenges to come. The National Training Fund Bill and the policy approach I have outlined provide for precisely such an approach. I commend the Bill to the House.
