| Date | 20 June 2001 |
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| Judgment | Buildstone Limited -v-The Secretary of State for Education and Employment 30 November 2000. |
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| The Issue | Whether the training levy differential between self-employed and directly employed tradesmen is lawful. |
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| Implication |
Although the training levy differential is soon to be phased out, the current arrangements under the Industrial Training Levy (Construction Board) Order are perfectly lawful. |
printThe Industrial Training Act of 1982 was brought into force to encourage training in industry. Section 1 of the Act provides for the establishment of Industrial Training Boards for the purpose of making better provision for the training of persons in industry or commerce. Section 11 provides that Industrial Training Boards may from time to time submit to the Secretary of State proposals for the raising and collection of a levy to be imposed upon employers in the industry for the purpose of raising money towards meeting the Board's expenses. Section 11 goes on to state that the Secretary of State shall not make a levy order unless the amount which he estimates will be payable by any employer does not exceed 1% of the relevant "emoluments". The Secretary of State does however have a discretion to approve a levy in excess of 1% if it is considered to be appropriate in the circumstances. The relevant emoluments are taken to be amounts payable to tradesmen and assessable to income tax under Schedule E, that is to say PAYE payments. The Construction Industry Training Board derives its powers to make a levy on employers in the Construction Industry from the Act. From time to time in accordance with the Act, the CITB submits proposals for the raising and collection of the levy which in turn are confirmed by the Secretary of State by a statutory instrument entitled The Industrial Training Levy (Construction Board) Order. The latest such Order came into force on 6 April 2001. Over very many years the Order has distinguished between directly employed and self-employed tradesmen, such that the levy to be met by employers has been significantly higher in respect of self-employed labour only sub-contractors. The current levy is fixed at 0.5% for PAYE employees and 1.5% for labour only sub-contractors. This differential has however been as high as 10 times. Despite the long standing nature of these arrangements, in November of last year this levy differential was challenged by an application for judicial review in the case of Buildstone Limited -v- The Secretary of State of Education and Employment. Buildstone argued that the differential was unlawful and discriminatory. At the time of the case the levy to be paid by labour only sub-contractors in respect of self-employed tradesmen was some four and half times greater than the levy paid in respect of PAYE employees. Buildstone argued that this was unfair and put an employer who has more labour only sub-contract workers than its competitors at a disadvantage. It argued that there is no evidence that it costs more to train self-employed men than PAYE men. Counsel for Buildstone stated that it had not been demonstrated that by penalising employers of labour only sub-contractors, more training gets done. The only result, he said, was to reduce the opportunities for training. The effect of the differential was discriminatory and worked against the interests of the self-employed for no purpose which is spelled out by the Act. The Construction Industry Training Board, though not a party to these proceedings, clearly had an interest in the outcome. It sought and obtained an order from the Court that it should be treated as an interested party entitled to be heard. The CITB argued that the convention for the levy differential had been established for good cause. It was noted that the majority of training was done within the directly employed sector. This was because, according to the CITB, labour only sub-contract arrangements were often temporary and workers often transitory. Moreover, according to the CITB, labour only sub-contract employers were not motivated to provide much, if any, training. This was because their relationships with the self-employed workers engaged by them were sporadic and of uncertain duration. Left to themselves, labour only sub-contractors would not set aside funds for training which could be seen as a long-term investment in their workforce. The object of the levy differential was to overcome this. The employers of labour only sub-contract workers had the benefits of their skills and services but tended not to shoulder the burden of training. The higher levy rate for labour only sub-contract workers was seen therefore as a way of re-allocating the burden to the employers of those workers. Counsel for the Secretary of State further added that the training levy ordered was only ordered following extensive statutory consultation. After the consultation process is exhausted and once the Secretary of State has accepted the proposals, the Order giving effect to them is debated in draft before both Houses of Parliament before being approved. Sir Richard Tucker sitting as a Deputy High Court Judge concluded that the CITB was entitled to take the view that labour only sub-contract employers do not provide a fair share of training, and to make a levy differential on account of that. The purpose and effect of the levy was not in his view punitive, but to promote fairness in the burden of providing training. He was further satisfied that the Act expressly sanctioned different provisions in relation to different classes or description of employers. Section 12 of the Act was apt to cover differentiation between employers of PAYE workers and employers of labour only sub-contract workers. In conclusion the application for judicial review was refused. Although the differential is gradually being reduced, and it is intended that the differential will disappear within the next 3-4 years, the current arrangements were held to be entirely within the law.
CJ-0124
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