Examination of Witnesses (Questions 398
- 419)
THURSDAY 23 JULY 1998
MR PETER
HAIN, MP, MR
DEREK JONES
AND MR
MICHAEL COCHLIN
Chairman
398. Minister, welcome to the Committee. Perhaps
you would begin by introducing your colleagues.
(Mr Hain) Thank you for inviting me here to answer
your questions on this matter. Derek Jones on my left is Director
of the Industry and Training Department in the Welsh Office. Michael
Cochlin on my right is Director of the Economic Development Group.
They are happy to respond as and when I ask them to do so or when
you want to put questions directly to them.
399. Can you begin by explaining the different
roles of the Welsh Office's Economic Development Group and the
Training Department? Is it helpful to have them separate? For
example, does it make sense to have European structural funds
administered by a different division from regional selective assistance?
(Mr Hain) The Economic Development Group is concerned
with just that—strategic economic development. That may
include projects such as the Eurofreight terminal in South Wales
which was recently negotiated and put together. Obviously, it
involves the monitoring and direction of the Welsh Development
Agency, the DBRW, Cardiff Bay Corporation, the Land Authority
for Wales and Wales Tourist Board. It involves regular co-ordination
with local authorities, the administration and oversight of the
Capital Challenge Scheme, Strategic Development Scheme and the
European Regional Development Fund. It is concerned with that
area of economic development. Derek's department, the Industry
and Training Department, is concerned with business support in
various forms: regional selective assistance grants and also monitoring
and directing the TECs. As to whether they should be merged, one
can always look at organisations afresh. As an incoming Minister
I certainly did that. But it seems to me that they perform their
functions pretty efficiently and work well together. They are
under a common Director of Economic Affairs. Both Michael and
Derek report to Jon Shortridge. I have not seen any overlap or
inefficiency; on the contrary, they seem to be working well together.
400. There are 155 people in the Industry and
Training Division and 64 in the Economic Development Group. You
have answered part of the question in terms of what they do. What
are their running costs?
(Mr Hain) The running costs of the Economic Development
Group is £1.635 million and for the Industry and Training
Group the cost is £4.5 million. What do they do? My impression
is that they are pretty busy. I say that as someone who came in
as a new Minister wanting to see that people were working efficiently.
It has been my impression over the past 15 months or so that the
whole of the Welsh Office is very overstretched. Those two departments
are among the most overstretched given the very major projects
and new initiatives which workaholic Ministers keep showering
on them. Whether it is liaison with the TECs on Derek's side or
support for individual business schemes and programmes, or driving
forward important PFI projects such as the Bute Avenue project
in Cardiff which Michael's department has overseen, I believe
that they have plenty to do.
(Mr Cochlin) I have three divisions within the group.
The European division has 27 staff, of whom 14 are concerned with
the financial management of programmes such as payments and budget
accountability to the European Commission; seven are concerned
with programme supervision and the negotiation of new programmes
with the Commission; and three are concerned with general European
co-ordination, which is effectively non-programme work that comes
up from time to time, for example the European Summit arrangements
this year. The regional development division has 22 staff. Effectively,
they form the sponsorship of the five economic development bodies
that we have at the moment. That is a regulatory function. It
is concerned with the corporate planning and business planning
process and discussion with all those bodies, acting as the link
between those bodies and Ministers. As the Minister has said,
they deal with one-off projects such as the Bute Avenue PFI scheme
in the bay, railfreight terminals and the like. The final division
is urban and rural development which has 15 staff. Those operate
programmes such as the Strategic Development Scheme and the Capital
Challenge Scheme. Effectively, both are financed by top-sliced
local authority money. Our interface there is almost entirely
with the local authority at both association and individual level.
(Mr Jones) The largest division within my group is
the Industrial Development Division which deals with the main
grant-support schemes. The next largest is probably the division
that manages the TEC contract. The other two are distinctly smaller.
As to how we get on, I do not think there is any inevitable logic
about how to organise functions in a multi-functional department
like the Welsh Office. Our current split works well in practice.
We report to the same director. It is also my impression that
we have been quite busy.
Mr Thomas
401. Referring to business support services,
many of the witnesses who have given evidence to the committee
have argued that that function should be transferred to the new
WDA. What do you say about that?
(Mr Hain) I have heard that argument. I would be extremely
wary about it. I am not closing the door to new ideas and any
views that you have will be of interest. But the WDA has very
clear functions. It is business-led and commercially driven; it
is able to operate in a world that is very distinct from government
and civil service. We finance the WDA in terms of its overall
budget and the grant funding for the different schemes that WDA
supervises, agrees and negotiates. It is important to keep a gap
of accountability between the operations of the WDA on the ground
and Ministers and officials who are able to scrutinise those and
make sure that they are getting best value and that they are being
pursued with full probity and prudence. In terms of grant-making
supervision, I do not want to see that gap disappear. It is my
impression that it works quite well although I know that the WDA
would like to have a bit more of the action. We had very big problems
with the WDA particularly in the late `eighties and early `nineties
which have strengthened my resolve to keep government oversight
of a department that is able to provide the backbone for that.
402. Would that argument apply also in relation
to the suggestion that the WDA should be more involved in the
allocation of grants?
(Mr Hain) In principle, yes, but we can always look
at exactly how the procedures can be streamlined and financed.
Particularly in terms of European support, there is also the question
of ERDF funding, to which Michael referred earlier. We are accountable
as a nation state, including the Welsh Office, to the European
Union. I do not think that that can simply and easily be transferred
across to the WDA without some very important questions and possibly
roadblocks being put before us.
Ms Morgan
403. Pathway to Prosperity states that
the Industry and Training Department of the Welsh Office will
be opening a new office in South West Wales in addition to that
which is already in Colwyn Bay. Why do we need these offices?
Why is it not possible to use WDA's regional offices? Is it not
more cost-effective to be in one place?
(Mr Hain) As you say, there is one in Colwyn Bay.
That office has been there for a number of years. It serves the
whole of North Wales. Given the gap between North and South Wales
geographically and in other ways it is important to have that
presence. As far as I can see, it works very well because it provides
on-the-spot liaison over RSA grants and business support which
cannot be serviced from Cardiff. As to our proposal to out-source
part of Derek's department into South West Wales, that is an important
signal that we are determined to get more investment westward.
It may well be that the unit involved will be sited with the WDA's
regional office. I certainly do not want a shiny new costly building,
and I am sure that you would hold me to account if that were the
proposal. We simply do not have the resources for it. We will
find the most cost-effective solution.
404. So, it may be located there?
(Mr Hain) It could well be. The Welsh Office has an
agricultural office in Carmarthen. That is another option. We
are just looking at what is the most cost-effective way of delivering
services. We are consulting with the South West Wales Economic
Forum and others to see what is the most appropriate solution.
405. If the Welsh Office has its own regional
offices should they reflect the same regional divisions as the
assembly, the WDA and the regional forums?
(Mr Hain) Not necessarily. Most RSA activity given
the nature of the Welsh economy, the populations involved and
dispersal of business activity has tended to be in either the
north or south with Mid-Wales being serviced from either end.
However, I do not have a closed-door attitude. If it is felt that
we can better provide frontline Welsh Office support within the
Mid-Wales region we will happily look at that, but in terms of
the South East Wales region we are already in Cardiff. I do not
think that there is a case for establishing another office because
that part of Wales is adequately served.
406. You have an open mind on the regions?
(Mr Hain) I have an open mind but it relates to the
wider picture. I am slightly allergic to institutionalitis and
organisational restructuring for its own sake. While it seems
appropriate to out-source more of Derek's staff to Mid-Wales and
that appears to be a cost-effective and efficient way of doing
things, fine; but we are in the middle of an enormous upheaval
as it is in terms of the Powerhouse and the TECs being restructured
and the national assembly coming on stream quite fast. I just
want to approach this with some care in order to maximise the
impact of our activity rather than just do things because it looks
good.
407. How do you try to spread prosperity more
evenly throughout Wales?
(Mr Hain) We do it by giving very clear targets to
the WDA and refocusing our energies, which is partly why we have
put forward proposals to out-source into South West Wales part
of the Welsh Office Industry and Training Department. That is
a clear statement that people on the front line will be more focused
in ensuring that as much investment as possible can go westward
in terms of both South Wales and North Wales. There is now a clear
east/west divide in Wales. I do not want to overstate it. I am
aware that you are a Cardiff MP. That does not mean that everything
in the east half of Wales is hunky-dory. There are pockets of
enormous poverty and high unemployment. I do not want to see our
strategy neglect the eastern part of Wales, whether it be South
East or North East; I want to see some of the benefits of investments
that have come to those two regions being driven westwards rather
than taken away from those areas, such that we "up"
our game in the west in order to drive forward greater prosperity
there.
408. What would be the estimated impact in Wales
if one moved the assisted area map from the South East Wales/M4
corridor to Cardiff? What would happen to big inward investment
developments like the LG and ACER? Would they go elsewhere in
Wales or would we lose them?
(Mr Hain) That is a very pertinent question and it
is one with which we have wrestled over a number of months. My
stance is that it is most important to get investment in Wales.
In the case of ACER, which was a very important inward investment
secured over the past year resulting in 1,000 jobs which eventually
located at Wentloog, we tried our best to locate it at Penllergaer.
We took them there and did a fairly strong "persuasion job"
to get them to locate there. But they were impervious to it; they
had fixed in their priorities the need to be not less than one
and three-quarter hours from Heathrow. We took them up to Oakdale
and tried to interest them in that. They would not even get out
of the car. The problems of locating large inward investors further
westward are considerable but we shall continue to try. That is
why the regional reorganisation of the Welsh Development Agency
and the targets that it has been given are to focus their own
personnel much more on securing that. But we have to study the
assisted areas map configuration very carefully. I am alive to
that issue. If Objective 1 funding is secured for West Wales assisted
area status will automatically accrue. We do not want to find
those investment hot spots of South East Wales suffer as a result
and then lose inward investors to other parts of Europe. For example,
ACER was interested in Holland.
409. So, the distinction was between Cardiff
and Holland, not between South West Wales and Cardiff?
(Mr Hain) Yes, absolutely. In looking at inward investment
decisions we should guard against parochialism, which we know
never happens in Wales. It is a real achilles heel of decision-making.
We must go for the most appropriate decision to get the jobs.
The spin-off from investments like LG and ACER is considerable
for the valleys and surrounding areas. One is not talking about
just the immediately geographical economic benefits.
Mr Thomas
410. In referring to ACER you talked about the
strategic importance of the proximity of South East Wales to Heathrow
Airport. Do you think that North Wales has made enough of its
close geographical proximity to Manchester Airport which is a
very important airport in UK terms? Perhaps a fact that is not
always foremost in people's minds in South Wales is that most
parts of North Wales are easily within one and a half to two hours
of Manchester Airport?
(Mr Hain) That is a very important point. I am not
sure that we have done so. When I urged that the Wales Tourist
Board locate the European presidency tourist conference in North
Wales—because automatically the first thought was to locate
it in Cardiff—it was put into Llandudno. Regrettably perhaps
from the point of view of South East Wales, it was quicker for
a lot of European visitors to that conference to fly into Manchester
and drive down or come by train to Llandudno. The potential for
Manchester Airport must be given a much greater profile.
411. I am very pleased that you have answered
in that way. There is a perception that perhaps that degree of
proximity is not there. Do you agree that more needs to be done
in focusing attention on the geographical advantages of North
Wales vis a" vis that airport?
(Mr Hain) Yes—but not in competition with South
Wales, because I want to see Cardiff international airport developed
quickly. That airport has the potential to become one of the most
important airports in Britain because of the runway positioning.
I am told that the weather is the best in Europe. I do not want
it to be viewed as a competition between North and South; nor
did you suggest that. However, in terms of the economic potential
of North Wales, east and west, Manchester Airport's proximity
is crucial.
Mr Caton
412. You have spoken about the new Economic
Powerhouse. I want to ask about resourcing. Great expectations
are now being placed upon the new WDA but it is being asked to
begin by reducing its collective costs by £3 million. At
the same time, you have identified in Pathway to Prosperity
the need to create 200,000 new jobs in Wales. Is the WDA being
resourced properly to tackle that job?
(Mr Hain) Perhaps I may deal with resourcing in two
compartments. As to the staffing of WDA and the £3 million
required reduction in the cost of the new merged agency and the
programme, I made it very clear at a WDA board meeting—even
more so the Secretary of State—that when the Government
merged the DBRW with the WDA and Land Authority they did not want
one plus one plus one to equal three and a half, which is often
what happens when institutions are merged. It had to equal less
than three. There was scope for rationalising administration,
payroll and all the common services that these bodies have, as
well as property assets. We put in place a £3 million reduction
in the total budget of £25 million of the three organisations.
I do not think that that was an unreasonable request for an efficiency
saving of that kind. As to delivering a programme to meet a very
ambitious—some may say brutally honest—target of 200,000
extra jobs in the Welsh economy to bring it up to the required
prosperity levels, I do not doubt that the WDA will need extra
resources. We have already injected finance to meet the huge collapse
in receipts from which it has suffered under the previous government's
regime. In spite of that, its overall budget total has come down.
We will need to address that in the coming years.
413. We saw the WDA chairman last week. He told
us that he could do with another £50 million and still provide
good value per job. Do you agree with that?
(Mr Hain) I saw that figure. I would want to look
more closely—as you would expect from the Minister involved—at
exactly what it meant and what we would get for it. I do not doubt
that the WDA needs more resources. The Secretary of State is issuing
a consultation paper in September on the extra £2.2 billion
which will come into the Welsh block over the next three years
on the basis of the recent statement by the Chancellor. In that
consultation will be the question of the priority given to economic
and industrial developments. The WDA's budget will clearly be
a crucial part of that, but there are competing priorities in
all these things.
414. Under the new regime the power of the DBRW
to fund social development is being extended throughout Wales.
Concern has been expressed to us that unless there is an increasing
amount of funding the impact of what has been a valuable resource
in Mid-Wales will be lost or diluted at least?
(Mr Hain) I am aware of that. The advantage of the
social development powers that the DBRW has historically had being
transferred to the new agency is that it gives much greater flexibility.
If the WDA is concerned as it is with urban redevelopment or community
regeneration projects the ability as in the past with the DBRW
to fund, say, a sports centre with a small grant or playground
gives that flexibility. However, the Secretary of State for Wales
has given an assurance to the Wales Local Government Association
that there is no agenda to pull back the social development funding—I
believe that it was £2.4 million in the mid-1990s—from
local government. What the new agency needs to do—we are
consulting on its corporate and business plan in the coming months—is
address whether or not it needs any extra funding, not at the
expense of local government and in competition with its industrial
and business programmes as well.
415. That flexibility, which as you rightly
point out is very valuable, is there only if you have the resources?
(Mr Hain) Yes. We need a very careful examination
of what is needed and what will make a difference to make a project
really move forward effectively.
Mr Edwards
416. Would there be a proportionate increase
in social development funding to cover those areas that are not
currently covered by the DBRW area?
(Mr Hain) I am not sure that there would necessarily
be social development funding. I think that the point you make—which
I take—is the advantage of the DBRW's rural perspective,
which it develops efficiently and effectively, being transferred
to the whole of Wales. Areas like (dare I say it) Monmouth, the
Gower and Pembrokeshire which previously did not have that focus
will now get it as part of the new remit of the agency. The question
of resource allocation will clearly form part of that. But it
is not necessarily just a matter of social development funding,
though that may be part of the picture.
Mr Livsey
417. I am particularly interested in this because
I have seen the DBRW in action in Mid-Wales. As you rightly say,
these funds went to the local authorities about two or three years
ago. There is a feeling, which I strongly support, that it has
not been entirely effective in the distribution of resources as
the DBRW in focusing on specific projects for social enhancement
of various places. You were asked a question by the Member for
Monmouth about an increase in the social budget. You slightly
hedged about what happens to the money that is available today
in local government. Would not the position be clearer if one
had all the money in the DBRW-type budget under the new powers
for specific subjects rather than have one system operating in
one part of Wales and a different system in other parts which
have not been benefited so far from them?
(Mr Hain) I do not want to—I am not sure whether
you are asking me—to recover the £2.5 million from
local government.
418. I do not suggest that. I ask for your views
on it.
(Mr Hain) I do not think that I have hedged on that.
I do not want to do that; indeed, the Secretary of State has made
that clear. But as part of the new agency's agreement we need
to be clear that it is able to deliver to rural areas what the
DBRW was able to do and more, because it can bring to rural areas
the DBRW's expertise which would benefit areas like Powys, just
as areas which previously have not been within the DBRW's geographical
remit would benefit from that expertise and experience coming
in there. If however any Member of the Select Committee has evidence
that local government spending in this area is perhaps not as
efficient as it should be I would be interested to know about
it.
419. I think that it is rather a matter of local
government having an extremely tough time with its budget allocations
which have inhibited its ability in some respects to be as effective
as the DBRW was previously.
(Mr Hain) I take that point. There is no doubt that
local government has had a tough time.
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