Examination of witnesses (Questions 92
- 119)
WEDNESDAY 13 DECEMBER 2000
RT HON
BARONESS HAYMAN
and DR DAVID
SHANNON
Chairman
92. Minister, welcome again, another recidivist.
We are sorry to have kept you waiting but we will try to be reasonably
brisk. As you know we are looking at this a second time. When
were you first aware of how serious the problems were that HRI
was facing?
(Baroness Hayman) I will check the dates. I suppose
it was really about a year ago, December last year, that the problems
really emerged with full clarity. There were fairly extensive
discussions between officials and HRI at the end of last year.
Then officials, including officials from the finance department
and the Acting Permanent Secretary, who was Richard Carden at
the time, were drawn into more detail of the discussions. Ministers
were kept informed at that time and ministerial agreement to provide
funds to underwrite the restructuring plans came forward in July.
Approval to proceed was given in early August and that was very
much after we had seen the impact of the SR2000 announcement.
David Shannon is with me and he is the Chief Scientist at MAFF.
93. Who produced the restructuring plan? Did
they produce it or did you produce it? Was it produced between
them and officials? There is a slight fuzziness about all this
at the moment, can you help?
(Baroness Hayman) My understanding is quite clearly
that they produced the restructuring plan but it was not that
they produced something completely fully formed and defined. They
had obviously looked at options and they kept officials at MAFF
aware of the options that were being assessed.
94. There was a MAFF input into that process?
(Baroness Hayman) Yes.
(Dr Shannon) There was a MAFF input into the process
in so far as any restructuring plan was going, obviously, to involve
expenditure of significant sums of money. If you like, the earlier
discussions were about the feasibility of sums of money becoming
available. That was not obvious at the beginning, that there were
going to be the sums of money produced for the plan.
95. When the plans finally emerged, were there
any elements in the plans which would not have been there without
the MAFF input or were there elements which were there which were
not there as a result of the MAFF input? How do you quantify the
geometry of this?
(Dr Shannon) The sort of questions that officials
like myself were asking were is this necessary; will this plan
provide a long-term solution to the problems that HRI might be
facing? We talked through a number of the plans but the plans
were essentially HRI plans. We did question a number of elements:
was Stockbridge House the right site to lose; why Stockbridge
House and so on.
(Baroness Hayman) Personally I find it very difficult
with a non departmental public body to assess where the line is
drawn between meddling in the proper responsibilities of the board
and the senior management and having a proper strategic overview
of an organisation of which you are the sponsoring body. I do
not think ministers are there to second guess the people who are
involved day to day in the running of that organisation.
96. You were conscious, nonetheless, there had
been a series of restructurings here?
(Baroness Hayman) Yes.
97. £60 million of public money had been
committed to restructuring. You were being asked to invest another
£4.5 million in restructuring.
(Baroness Hayman) Yes.
98. You must have felt "We had better get
it right this time. This sequence cannot continue".
(Baroness Hayman) Yes.
99. That must have accounted for some of the
time it took to make sure that this thing was airborne?
(Baroness Hayman) Absolutely. I think the role there
is asking the questions and probing and satisfying yourself that
other options have been properly explored and assessed and making
sure that you have the proper financial advice on whether these
plans look robust and making sure you have the scientific advice
as to whether the scientific aims of MAFF will be not compromised
by what is being proposed. I think it is very much testing those
assumptions and underlying structures rather than trying to superimpose
your own solutions ab initio.
100. You did lay down, did you not, a requirement
in the sense that when restructuring was endorsed MAFF approved
it on a specific basis and the specific basis was that it should
maintain and improve its R&D work for industry, Government
and customers and that the necessary cost reductions had to be
properly managed. Are you satisfied now that HRI will be able
to carry out the horticultural research and development and transfer
the results to the UK horticulture industry?
(Baroness Hayman) I think I am satisfied that the
plan which has been put forward is the appropriate plan to see
us through and lay the foundations for the long term. I am very
conscious that we have both the scientific assessment coming up
next year and we have a quinquennial review coming up.
101. Yes.
(Baroness Hayman) I do not think it would be sensible,
given the experience that there has been restructuring done in
the past, and given the changes that are going on, to say that
this is forever and a day. I think it is robust and fit for purpose
at the moment but I think it is appropriate that we have a rigorous
quinquennial review that has been informed by the scientific assessment
next year.
Chairman: Since he has been jogging this morning
Mr Jack is robust and fit for questions.
Mr Jack
102. Minister, you will probably have noticed
from our previous report and indeed the information from HRI that
some of the problems they have encountered were not just about
the way they carried out the scientific research but effectively
the failure of the their business plan, HortiTech Enterprises,
to deliver the necessary cash flows. Could you tell us what examination
you have made now of revised plans for cash generation; what parts
of those plans impressed you and what steps did you take to check
the robustness of the business model now presented?
(Baroness Hayman) As I said, there was the involvement
on the robustness of the financial planning which was referred
within MAFF to financial colleagues for their assessment. I would
prefer to rely on their expertise.
103. What did they tell you that impressed you
about the recovery plan in terms of generating income?
(Baroness Hayman) I suppose they gave us a general
rather than a specific assurance. Perhaps David would like to
add to that. It was a general assurance. I have certainly discussed,
both with the Chairman and the Chief Executive, the lessons which
have been learnt from HortiTech and the importance for the future
of making sure that they do not over-estimate. I believe they
have not put into their business planning assumptions about growth
in commercial income because I think there are important lessons
that they have to learn.
104. What I am striving for, you are going to
invest another £4Ö million of public money and I have
not heard one specific example about something in the recovery
plan. Your contribution is effectively going to remain level or
possibly decline. The work remains to be done. The financial gap
has got to be filled by something. Did you think because this
was a business plan, a commercial plan, which underpinned this
recovery programme it was worth taking any outside advice or was
it a nice and cosy enclave in MAFF and you thought it would be
all right?
(Baroness Hayman) Well I do not think there was specific
external advice.
(Dr Shannon) No.
(Baroness Hayman) I do not think it was that cosy.
I think there were some fairly tough question sessions. I think
there are two elements here. There is the business plan about
income and the work that will come in to the organisation but
there is equally the fact that despite the restructurings that
have gone on in the past, this was an organisation working across
several sites. I think there was some evidence that the methods
of organisation and management were not those that produced the
most cost effective running.
105. I think we discovered that when we did
our last report. I will give you one last chance. Can you cite
anything specifically that you can tell me about the income generation
plans of HRI which particularly impressed you? What programmes,
projects, prospects made you think this was a plan which was going
to deliver?
(Baroness Hayman) No, I cannot give you a specific
there because we were talking about the general plan which dealt
both with proposals for generating income in the future but also
for maintaining the capacity to do all the work that had been
done before with less staff and on less sites and with a confidence
in the chairmanship and the chief executive to carry that through
and the belief that the necessary and painful lessons of the past
had been and were being learnt.
106. All right. If you cannot tell us about
what impressed you—
(Dr Shannon) Could I just comment a little bit on
that. What was important, I think, from my point of view was that
the restructuring was sufficient so that HRI was not going to
be up against the ceiling right from the word go. In other words
this is quite a major restructuring which puts it into a position
to live with a greater range of levels of income than had been
the case previously. It has been very much up against the ceiling,
requiring to achieve certain incomes to balance the books. It
will have a bit more flexibility under the new plan. I have listened
to the exciting areas that have been talked about in relation
to plant biotechnology and so on and these are very exciting.
There are significant sums of money available in those areas.
Of course it is a matter of experience whether those sums will
be delivered to HRI because there is clearly significant competition
in these areas. There are exciting plans for additional income
but, of course, they have yet to be realised.
107. What sanctions have you put on the management
if they do not achieve the plan?
(Dr Shannon) They need to come forward with a further
corporate plan as a result of this restructuring, and we will
then look at it in the light of that.
108. Are you going to put sanctions and performance
measures in? You are investing £4.5 million worth of public
money—I would like to ask one question about how you are
going to get that back—you are bankrolling them for this
restructuring, what performance requirements are you going to
put on the management and what sanctions if they do not achieve
the plan?
(Dr Shannon) We will monitor the expenditure of the
£4.5 million very carefully to ensure that it complies with
all Government rules on that sort of activity. They will have
to get the approval of ministers for the corporate plan that they
come forward with.
109. There are no specific sanctions like, "If
you do not achieve X you are out the window", you are just
going to monitor it?
(Dr Shannon) The Board itself monitors the performance
of the chief executive. I am not aware of the total details, but
I have no doubt there is a performance element for the chief executive
to play. The Board will be monitoring the performance of the chief
executive and the organisation against the plan.
110. Do you think it should be a bit tougher?
This organisation has a very sorry tale of its finances. There
are a lot of people who will be looking to the robustness of this
plan in determining their own futures. Something which requires
monitoring and no sanctions at a senior level of management would
make me nervous if I was working for HRI.
(Dr Shannon) We do monitor the performance of HRI
carefully.
111. You monitored it carefully before and it
got into a very deep financial hole. Is that how good the monitoring
was?
(Dr Shannon) I would say that it is not unique amongst
scientific organisations. Perhaps some of these organisations
are learning that commercial and non-government income—
112. I am a bit unclear, you were busy monitoring
two or three years ago and this organisation digs itself into
a large financial black hole, from which it is now having to recover,
and the message I am getting is that the same careful monitoring
process that led to the present debacle is going to be repeated
for the next X number of years. That does not suggest a robustness
in terms of the way your monitoring operates?
(Dr Shannon) It will be a smaller organisation. It
will not be operating quite as close to the ceiling in the future,
so there will be more flexibility for it to balance its books.
(Baroness Hayman) I think the point you make, generally,
is an important one, about the relationship of departments with
non-departmental public bodies, the monitoring, the sanctions,
the degree of involvement managerially and the levers that departments
have over performance for non-departmental public bodies. Quinquennial
Reviews are meant to give us some help about those. Management
statements between departments and those bodies are meant to give
us some framework, but my own experience across three Government
departments is that the amount of involvement of senior staff
varies enormously within a department with individual organisations.
From your line of questioning I take a thesis with which I would
not disagree, that when an organisation has a track record of
getting into difficulties and there has been a significant investment
in a "last chance saloon, let us get it right this time",
it is important that both senior officials, whether at permanent
secretary level or ministers, monitor that closely. I do not think
you should start saying, "We will sack people if this much
money does not get in the next six months", I do not think
it is quite like that. I will not demur from the general line.
113. How will you recover the £4.5 million?
It is not new money, you are merely bankrolling, as I understand
it. How are you going to get your £4.5 million back?
(Dr Shannon) The £4.5 million will be coming
out of the Department's funding, and it will be made against a
significant reduction in the staffing of HRI. We are, effectively,
buying-out a reduction in the staffing of HRI.
114. You are putting the money up front. How
much will the asset sale, in your estimation, of Stockbridge House
be?
(Baroness Hayman) The sale of Stockbridge House will
be the contribution that comes in. There has been a valuation,
but that is confidential at the moment. I think given that we
intend to sell for the best price available the advice that I
have is not to give anyone the details of that.
115. What can the site be used for other than
its current use?
(Baroness Hayman) I am not aware of any planning restrictions
on the site, if that is what you are saying. One thing I am aware
of is we may have to offer the property back to the former owners
under the terms of the Crichel Down rules, because I believe it
was acquired under compulsory purchase.
116. Who were the former owners?
(Baroness Hayman) West Riding District Council.
117. It could revert to the local authority.
(Baroness Hayman) The offer of sale might have to
be made to the successor. I understand that the council in whose
ownership it was when it was acquired no longer exists, but it
has a successor body. There are rules for offering the property
back first to the original owner.
118. That might be a sum of money under a commercial
sale valuation?
(Baroness Hayman) There are clear rules set down about
those sums.
Mr Todd
119. Michael Jack explored the pretty abysmal
track record over a period of time of HRI management to resolve
its own problems. I interpreted both your remarks as being reasonably
cautious about the level of confidence that you have for delivery
on this occasion. You remarked this is a rather smaller body,
which might imply it is a rather smaller risk, otherwise not a
ringing vote of confidence. You have also indicated that there
is a difficulty in working with a non-departmental public body
in defining precisely the roles which are involved. Was a more
radical option not considered, that with the thrust of HRI clearly
being towards the development of more commercial income that the
more sensible approach might be to seek to transfer HRI into the
private sector?
(Dr Shannon) My hesitation about HRI is, perhaps,
no more or no less than a range of other laboratories that I have
had to deal with in the last two or three years, for example the
Centre for Coastal Marine Science of NERC. I do not want to run
over them. There has been a tendency on the part of these laboratories
to believe that there is a pot of commercial money and they all
think they are going to get a portion of that. When you add up
the portions that everyone thinks they are going to get it adds
up to more than the size of the pot. There has been an element
of reality today.
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