EIGHTH SPECIAL REPORT
The Agriculture Committee has agreed to the following
Special Report:—
The Committee has received the following memorandum
from the Ministry of Agriculture, Fisheries and Food, constituting
the Government's Reply to the Seventh Report from the Committee
of the 1999-2000 Session, Horticulture Research International,
made to the House on 5 July 2000.
* * *
1. The Government welcomes this report which was
a helpful contribution to the discussions between HRI's management
and MAFF about the options for dealing with its financial circumstances.
These discussions were concluded in August. The outcome is described
below together with the Government's response to other aspects
of the Committee's report.
(paragraph 5) We expect the necessary cost reductions
to be carefully managed to ensure that HRI's science and staff
base is not damaged irreparably. We also expect HRI to produce
a clear recovery plan for the HortiTech business units. As long
as HRI fails to achieve its targets, doubts about HRI's overall
financial viability will remain. We recognise that MAFF has contributed
significantly to this uncertainty by the decline in its science
budget. The plight of HRI is further evidence, if it were needed,
of the consequences of MAFF's failure to maintain its investment
in research and development.
2. HRI has considered a range of restructuring options
designed to improve its financial performance whilst retaining
the ability to deliver its mission. It has concluded that this
would best be achieved by closure of the site at Stockbridge House,
North Yorkshire and by the loss of some 150 posts across the organisation.
It is hoped that many of these post losses will be achieved through
natural wastage and voluntary redundancies. HRI announced the
restructuring plans on 11 September. Subsequently, following Ministerial
meetings with the industry and with HRI, MAFF issued a press notice
on 6 October to confirm that the restructuring plans will be taken
forward (attached at Annex).
3. These measures will reduce overheads and capacity
but without compromising HRI's capability since there are no specialist
facilities at Stockbridge House which are not available elsewhere
in HRI. The science programmes and commercial business carried
out at Stockbridge House will be relocated to other HRI sites.
There will also be operational changes to the Kirton and Efford
sites, with some key scientific staff being redeployed to strengthen
the teams at HRI's science centres, Wellesbourne and East Malling.
4. MAFF Ministers have agreed to provide HRI with
the necessary funds to implement these measures. The cost of the
redundancies and staff transfer costs will be £4.533 million
(£4.213 million in 2000/01 and £80,000 in each of
the four succeeding years). This cost will be partly offset by
receipts from the sale of Stockbridge House and land at HRI's
site at East Malling, Kent which is being given up as a result
of the creation of the new European Centre for Organic Top Fruit
and Nursery Stock. MAFF will also be providing assistance from
its building and estate management budget worth some £0.3
million per year.
5. At the same time, as part of the reorganisation
of its senior strategic scientific and business management initiated
in November 1999, HRI is systematically undertaking rigorous reviews
of the profitability, forward business plans and future viability
of its HortiTech Business Units in order to provide more informed
and robust financial projections. This is expected to result in
further consolidation and rationalisation, together with the identification
of new areas of opportunity, for example, the broader environmental
and dietary healthcare benefits of horticultural produce. Details
will be provided in a new Corporate Plan 2000-2005 to be submitted
to MAFF Ministers for approval.
6. The funding being provided by MAFF is on top of
the significant investment made by successive administrations
in HRI since its creation in 1990. This includes over £60
million for capital investment, restructuring and other purposes.
The organisation has also received through contracts, many competitively
placed, R&D funding of about £125 million. MAFF remains
HRI's main funder providing around 50% of its annual income. The
recent award of £2.261 million from the Capital Modernisation
Fund to create HRI's European Centre for Organic Top Fruit and
Nursery Stock is further evidence of the Government's support.
7. MAFF's R&D budget has declined by more than
30% in real terms over the last 15 years. In consequence, MAFF's
R&D funding at HRI has fallen from a peak of £13.6 million
in 1994/95 to £11 million in 1999/2000 and it is acknowledged
that this has required HRI to make significant adjustments to
its business. The Ministry has had no option but to prioritise
the allocation of its funds, as well as deal with new and urgent
demands for research into topics such as TSEs. Nevertheless, current
levels of MAFF R&D funding at HRI still represent a very firm
commitment to HRI and to the UK horticulture industry.
8. MAFF's future spend on horticultural R&D is
under consideration in the light of the outcome of Spending Review
2000 and the Minister's announcement of 24 July [Hansard Cols
469 - 472W]. MAFF's new Science Committee, which will include
independent members, will be asked to take a view about the prioritisation
of the Department's R&D budget when it meets for the first
time this autumn.
(paragraph 6) We recommend that a bill be laid
before Parliament in the coming Session.
9. As noted by MAFF's Memorandum to the Committee,
Parliamentary time has been at a premium. The possibility of introducing
primary legislation to establish HRI as a public corporation is
under consideration, but the Government will need to consider
carefully whether bringing forward a Bill now would prejudge the
Quinquennial Review of HRI's status and performance scheduled
for 2002/03.
10. Nonetheless, MAFF is currently investigating
carefully with HRI and others what action can be taken to resolve
the operational difficulties mentioned without the need to have
recourse to primary legislation. The harmonisation of staffing
arrangements may be capable of being resolved by more recent opportunities
available in secondary legislation. Other matters, such as the
formation of spin-off companies, do not require any legislation.
Likewise, HRI is able to borrow money under the terms of its Management
Statement although the fact that any such sums would count against
MAFF's Departmental Expenditure Limit is a significant constraint.
The ownership of HRI's assets is an issue which will be examined
as part of the Quinquennial Review.
(paragraph 7) We agree that HRI is not yet ripe
for privatisation and that it is in need of a period of stability
in order for the management to reflect carefully on its future
role and status in order to decide on an outcome which will provide
the best possible service to MAFF and its other customers.
11. In line with Cabinet Office guidance, the Quinquennial
Review will consider whether HRI's functions are needed and, if
so, will assess the organisational options, including privatisation
and retention in the public sector. As MAFF's Memorandum notes,
it would be premature to take decisions about the future of HRI
in advance of the Quinquennial Review. HRI will also undergo an
Institute Assessment Exercise by the Biotechnology and Biological
Sciences Research Council in October 2001 to assess the quality
of its science. The Government agrees that HRI should benefit
from a period of stability before the start of the Quinquennial
Review to enable it to consolidate the management changes in hand,
to implement the restructuring programme and to prepare for the
forthcoming assessments of its performance.
(paragraph 8) Our evidence session with HRI highlighted
a number of pressures faced by the organisation at present, which
are unlikely to go away. HRI's own assessment that it is "very
much¼in
a half-way house" underlines the difficulties conferred by
the unresolved issues concerning its status. Primary legislation
is required to resolve many of these issues and must be brought
forward. We do not believe that such a resolution will remove
all the pressures HRI faces. HRI will continue to experience planned
reductions in funding from the public sector and uncertainty over
its future while it awaits its Quinquennial Review. However, we
believe the availability of finance, clarity of ownership of assets,
the harmonisation of staffing matters, and the strengthening of
the feeling of "HRI-ness" that would be likely to result
from legislative changes would be beneficial to the organisation.
Responsibility for success then as now would lie firmly in the
hands of its management and we look to the Chairman and Chief
Executive in particular to show the leadership necessary to pull
HRI out of its current situation.
12. HRI is mindful of the need to safeguard its unique
position as the main UK provider of horticulture-related knowledge,
new technologies and policy advice for its principal sponsors
and many other customers. The Board of HRI is working closely
with the Chief Executive and his senior management team to ensure
that the organisation has the necessary skills to streamline,
refocus and deliver HRI's corporate objectives more effectively.
As well as the measures described elsewhere in this document,
HRI will be strengthening its senior management team through the
addition of two posts in the areas of business development and
operations.
Ministry of Agriculture, Fisheries and Food
11 October 2000
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