WEDNESDAY 12 DECEMBER 2001
Mr Martin O'Neill, in the Chair
Memorandum submitted by the Department of Trade and Industry
Examination of Witness
Rt Hon PATRICIA HEWITT a Member of the House, Secretary of State for Trade & Industry, examined.
(Ms Hewitt) Thank you very much indeed, Chairman. It is a pleasure to have the opportunity to say something about the review. The Department of Trade and Industry has a budget of over £4 billion. We employ within the department and our agencies over 10,000 staff. I take the view that an organisation as large as this ought to be run like a first rate business. But being run in a business-like way does not mean being run by businesses. I think there may have been some confusion around that point when the proposals were first announced. At the heart of that structural change is the proposal for a new strategy board but what is actually a real innovation about that strategy board is not the proposal for non-executives, it is the proposal to bring ministers and officials together in a departmental board. At the moment, the DTI, like all the other departments, has a management board, chaired by the permanent secretary and made up of senior officials, and, in the case of the DTI, one non-executive director. Many other departments, and indeed some of our own agencies, already have a much larger number of non-executives on those management boards. What we are proposing in the DTI is to create a strategy board that I will chair as the secretary of state, and it will include another minister, it will obviously include the permanent secretary and another senior official, and it will include three non-executive directors. Underneath that there will be an executive board, chaired by the permanent secretary and including senior officials. By bringing together the senior ministers and senior officials with non-executive directors, I believe, and my permanent secretary Robin Young believes, we will significantly be able to strengthen the leadership and the management of the department. It is that combination of ministers and officials that is the real innovation in Whitehall terms.
(Ms Hewitt) It is essentially an advisory body that will, as I say, help to strengthen the leadership and the management of the organisation. In the process of this review, we set up a small review strategy steering group which included our existing non-executive director and some other outside -----
(Ms Hewitt) Mair Barnes. We can send you her CV if that would help. She has a background in retailing. I found her contribution and that of other outsiders ( for instance, William Sargent, who is chairman of the Small Business Council) on this informal strategy review group enormously helpful because they were challenging us inside the department to be more precise about what we were seeking to achieve, to learn from best practices, other organisations and so on. They were really supporting us in leading and managing the organisation more effectively. That is what I shall be looking to the strategy board to help us to do. In terms of the people from whom we recruit the non-executives on the strategy board and on other boards in other parts of the department, we will seek individuals with appropriate expertise from a wide range of backgrounds. We will announce - I think, given the time, it will now be early in January rather than before Christmas - the number and the kind of people we are looking for and we will be writing to a range of organisations, including obviously the TUC as well as the CBI, to invite nominations for appropriate individuals. But nobody will be appointed to any of the advisory boards on the basis that they represent a particular interest group. They will be appointed for their individual expertise.
(Ms Hewitt) Yes. It will depend very much on what we are looking for. In the case of the strategy board I believe we need people who have been outstanding at leading organisations and leading change within large organisations, which is really the challenge that faces us within the DTI. They could come from the not-for-profit sector as well as the private sector. Within the new divisions which we have set up, which are summarised in the organisational chart that we sent to you, we will have a new group responsible for science technology and innovation. That will have its own mini board, its own advisory board. That will include the chief scientific advisor to the prime minister and of course the director general of the Research Councils. We have not defined yet the precise specification of the people we will want on that group, but we might well want somebody who has operated at the sort of interface between science and industry, who really has deep experience and knowledge of how you do knowledge and technology transfer and how you build interest within business in using science and technology. That will be the central function of that new group and we will want individuals who may well have scientific backgrounds as well as industrial backgrounds to help us in that task.
(Ms Hewitt) I think there were some misunderstandings there. In fact, I think there were two misunderstandings. One was that I think an impression was gained in some quarters that people would be on the strategy board to represent a particular interest group - and clearly if business was going to be represented as an interest group then other interest groups would want, and properly want, to be represented. As I have said, nobody is going to sit on the strategy board representing an interest group. They will be there as individuals with expertise that will help us to strengthen the way in which the department is run. The other misunderstanding was the idea that the strategy board would be setting policy, day-to-day policy making, and therefore there would be a conflict of interest, that you might have somebody on the board from a business background who would, for example, be getting engaged in competition policy decisions. That is not going to be the role of the strategy board, and day-to-day policy will remain, where it sits now, the responsibility of ministers. Particularly, of course, with competition policy, where I sit in a quasi-judicial capacity making decisions under the competition law, those would not be discussed in any case with non-executive directors.
(Ms Hewitt) That is still in place, so that with the new Enterprise Bill that we will introduce later in this session we will very significantly strengthen the independence of the competitive authorities. I did just want to make the point, because the competition issue was specifically raised in relation to the strategy board, that quite apart from the legislative changes that potential conflict of interest simply would not arise.
(Ms Hewitt) Yes.
(Ms Hewitt) I was not involved obviously in all those discussions which led to the original change.
(Ms Hewitt) I do not see a conflict between the department's role in employment relations and the department's role on productivity and competitiveness. I would define the purpose of the DTI as being to work with business and employees and consumers to help drive up the productivity and competitiveness of the UK economy. Not all the factors that determine productivity and competitiveness lie within the responsibility of the DTI, but there are several levers that we have that do directly impact upon productivity and competitiveness. One of them obviously is the whole framework of law and regulation within which business operates. It includes competition law, which we have referred to, but it also includes the framework of regulation and of best practice for employee relations. I think we have in a sense two jobs there. One is to ensure that there is a proper set of standards that guarantees a good level of minimum protection for all employees - and that is done as a matter of principle because people are entitled to be treated with proper dignity and respect at work - but there is also a job to do which is to ensure that that regulatory framework and, equally important, the promotion of best practice, helps to create more high performance workplaces within the United Kingdom because there is very good evidence that the most productive businesses are the ones that have an effective partnership with their employees in the workplace. That may involve trade union recognition, it may involve other forms of partnership. Either way, we have a proper role in the DTI in promoting effective partnership at work, but we see that as contributing towards, not detracting from, the emphasis on productivity and competitiveness.
(Ms Hewitt) I think different people have very different ideas of what might be meant by that phrase "the European model of social partnership". This was being said, for instance, by Digby Jones at the manufacturing summit last week: we know, where there are good relations between management and the workforce and where there is investment in the workforce as well as involvement of them in what is going on in the company, that you get better business results. I think all of us would confirm that just from our own experience of visiting companies within our own constituencies and certainly I find it when I visit companies around the country. I think there is a very clear relationship there between business success and the relationships within the workplace. We want to encourage much closer partnership. That can be done, for instance, through the work of the Partnership Fund and through the spreading of best practice in employee relations. That is one of the things that we are seeking to strengthen as we work, as we move forward on the basis of the work that the CBI and the TUC have done together on how the productivity gap in this country can be closed.
(Ms Hewitt) That is correct.
(Ms Hewitt) That is correct.
Chairman: I am grateful to have had the opportunity to have that clarified for us.
(Ms Hewitt) I am not responsible for the comments that anybody makes on any aspect of the work that we do in the department or across government. Of course I spoke to John Monks on the day that the Financial Times report appeared and he was quoted as saying this meant handing over the department to business people and that would give rise to conflicts of interest and so on. I immediately phoned him. I had of course briefed him the day before on many of the changes that were coming, but this point had not arisen, because it arose really out of a headline and really a misunderstanding of what was actually being proposed. So I was able to explain what the position is in precisely the same terms as I have set it out to the committee. I know that John Monks would like to have a more detailed conversation about that and we will do that; we simply have not had time in the last week to go through that in more detail. I think he is now much more reassured and in particular accepts that the TUC and individual trade unions will be invited to nominate individuals who they think would make a useful contribution in the way I have described.
(Ms Hewitt) I really do not think that we should get too hung up about one day's press coverage or immediate responses to that press coverage. In the early phase of the review, we consulted directly about 1500 people. We wrote to an enormous number of organisations, including obviously the TUC and various consumer bodies, all of whom gave immensely helpful input to the review. It is something that I have discussed with Deirdre Hutton and John Monks, with a whole range of people, as well as obviously Digby Jones and some other people on the business side. The review and particularly the possibility of further changes on the consumer side has been very warmly welcomed by several of the consumer bodies. I think there was an initial misunderstanding, which was unfortunate, but there we are, these things happen, there was an initial misunderstanding on the part of the TUC about what was being proposed in relation to the strategy board. I think that has now been clarified. I am sorry that it happened but I do not think it represents any breakdown in relations here or of trust between us.
(Ms Hewitt) We will be drawing up a specification, a statement of what we are looking for in the individuals whom we want to appoint to the strategy board and to the other boards within the department, which I will be very happy obviously to show to the committee. But I said earlier that we know from very good evidence that the best run organisations are those which engage their workforce. There are various ways of doing that but I would want the individual to come on particularly to the strategy board whose purpose is to strengthen the leadership and management of the department to have demonstrated that they have done precisely that within the organisations that they have run; in other words, that they have been leaders in creating highly effective ways of working with the people whom they employ in order to deliver the best results to the people they serve. That sums up the sort of individual I am looking for . They certainly need to have led and worked in large organisations because the DTI is a very large organisation and we are looking for people to help us strengthen the leadership of it, but I can think - and I am sure you can - of a range of backgrounds from which those individuals can come. Because we will be inviting nominations, people will be free to nominate themselves for these posts. We want to get the widest range of talent, and I suspect the difficulty we have is that there will be so many good people available to us and interested in helping us that the difficulty will be narrowing it down because there will only be three non-executives on the strategy board.
(Ms Hewitt) I have not particularly this morning talked about business people, if I may say so. The committee have; I have not. I have talked about getting individuals who have shown outstanding ability at running large organisations and leading change. Those organisations, as I said earlier, may be not-for-profit as well as private sector organisations. I am looking for individuals who can help to strengthen the leadership and management of the department; I am not looking for people who are going to either represent particular interest groups or tell me what the government policy should be on competition or on a particular merger and takeover or on the minimum wage. One of the issues that John Monks raised with me was: "Oh, but you will have business people in there and they will have a view on minimum wage." Our current non-executive director comes from a retailing background and obviously the minimum wage is quite important in retailing. She has never once in her various conversations with me raised that as an issue. What she has contributed is a real knowledge of how you can manage large scale change, cultural change within large organisations. You will be aware from your own experience in industry of some of the challenges that that poses. That is the kind of expertise we are looking for. We are not setting up the strategy board to make decisions on day to day policy and therefore I do not see a problem that would require checks and balances as a solution. What I think is essential is that the department as a whole and ministers as a team have close and effective working relationships with all the various partners and stakeholders with whom the department has to deal, and that, when it comes to policy making, we have a proper system of consultation with all the people who have an interest in the outcome of the policy. That is precisely what we do on employment relations, competition law, everything else we do, but that policy making consultation function is a different one from the function of strengthening the leadership and management of a complex and large organisation that is responsible for a lot of public money, employs a lot of people, has a great deal of expertise within it, and could use that expertise in my view to better effect.
(Ms Hewitt) No, I have defined the kind of person I want. I will wait until I see who is interested in serving in this way. I do not think we need get too worried about the huge prestige involved - you know, there are significant commitments of time and hard work involved and we are looking for people who are willing to make that commitment. What I said to the Financial Times was that we were going to create, were planning to create, a strategy board. That this is a huge innovation in the way Whitehall runs. As Linda Perham said earlier, I think it is something that will strengthen the relationship between ministers and officials to the benefit of the governance of the country, and not simply this particular government, and clearly business leaders will be amongst those from whom we select the various non-executives we will want in the department. We will publish early in January the description of the kind of people and the expertise that we are looking for and the process that we will go through.
(Ms Hewitt) They will include people from business. It would be astonishing if they did not, I think.
(Ms Hewitt) It will include business people, but the test is individuals who have led outstanding successful organisations and led large scale cultural change within large organisations, because that is what this review is designed to do within the department, that is the expertise and the help that we are looking for in relation to the strategy board. In relation to the other boards, it is a rather different kind of expertise, for instance, that we would need in relation to science, technology and innovation
(Ms Hewitt) No, there is no secret shortlist.
(Ms Hewitt) We have already put that in place. I have already written not only to John Monks but also to a range of other people whom we originally consulted on the review and I have set out in exactly the same terms as I have set out in the memorandum to your committee this morning what it is that we are proposing. I have also made it very clear that the TUC and individual unions will be amongst the range of organisations that will be invited to suggest names for the various non-executive posts that we are looking for. If I may say so, I think things have rather moved on because I think the misunderstandings that led to those press statements have been to a large extent cleared up. Only last week I chaired an immensely successful manufacturing summit which built on the partnership work that the CBI and the TUC have done together on the issue of productivity. I was able to announce some modest additional funding for programmes that are very strongly supported by both the CBI and the TUC and the summit discussions themselves were model of partnership working because each part of the presentation to that summit was led by an industrialist and a trade unionist. So I think the commitment to openness and to partnership working and to an effective dialogue with all our stakeholders and partners is very, very clear in the actions that I have taken and am taking as secretary of state.
(Ms Hewitt) I think that is a matter for them rather than for me. But I would hope so.
(Ms Hewitt) That, if I may say so, is a rather crude characterisation of what we are doing. If you look at what we are doing in the review, we are seeking first of all to be much clearer about the purpose of the DTI and about its priorities; secondly, to create an organisational structure that much better reflects those priorities; and, thirdly, and actually really most importantly, to strengthen the leadership and the management of the organisation and in particular to ensure that we create a more open culture within the department where the enormous knowledge and expertise that our staff have is shared much more effectively across the department rather than being confined within silos, which is what has tended to happen in the past, and that the whole department is more outward looking, more focused on outcomes and better at making things happen quickly. I know from my own modest experience of business as well as from talking to a range of people who have led organisational change, including the consultants who helped us with this review, that effective change within large organisations depends upon effective leadership from the top, because unless there is effective leadership at the top, the momentum of change is lost and you do not actually drive it through. I think having some people who have gone through that often difficult and painful process themselves, helping, and both supporting and challenging ministers and officials in this regard, will be very helpful.
(Ms Hewitt) My new permanent secretary was appointed following an open recruitment process which was not confined to the civil service and he was the unanimous choice of the appointment panel.
(Ms Hewitt) I do not happen to be privy to the candidates who applied for the permanent secretary job: that happened before I became secretary of state. I am as well aware as you are of the enormous salary difference between somebody who has led a large successful commercial organisation and a permanent secretary within the civil service. I have no doubt at all that that is a factor in the minds of people who might consider applying for the permanent secretary job. I also know that our new permanent secretary was the unanimous first choice of the search panel, interviewing panel, and I know certainly, from six months of working with him, that he is an excellent permanent secretary and absolutely committed to change within the department.
(Ms Hewitt) We are looking at that issue at the moment. Of course we have our existing PSA targets. We will be reviewing those with the spending review 2002. I certainly think it will be possible to make those PSA targets rather more precise, and the committee has had helpful things to say on that in the past. We are not the only people who can influence and help to shape productivity within the United Kingdom, but what I will be looking for and seeking to put in place is a much more effective evaluation of the contribution that we can make as a department. One of our PSA targets, for instance, is to create a framework of competition law that is one of the best in the world. We say in the PSA target that we would measure that through a process of peer review and benchmarking. We used a process of that kind a year or so ago again, which made it quite clear that our current competition framework, although it is not bad and was significantly improved in the early days of the '97 government, could be further strengthened, and so it will be. We will then be able to measure the impact that is having. Similarly on our business support schemes, which you may want to come back to in more detail, at the moment some of those but not all of them are evaluated; they are not all evaluated in a consistent way. One of the responsibilities of the new chief economist and the strengthened central strategy unit, which is building, as I say, on the initiative of my immediate predecessor, Stephen Byers, will be to give us a much more effective and robust evaluation system, so that we can see that the billion pounds we invest annually in business support programmes are actually being used to maximum effect and are delivering measurable productivity improvements in companies.
(Ms Hewitt) Chairman, I would not accept your implication that the DTI is some kind of prison from which people escape at the earliest possible opportunity.
(Ms Hewitt) But there is a very serious point here. We have got within the department some absolutely outstanding officials. That became very clear to me in the two years that I spent, before becoming secretary of state, as minister for small business and e-commerce. One of the things that I was very struck by was not only my own experience of outstanding officials but also the number of business people who said to me how superb particular individuals were, what a good understanding they had of a particular business or a sector, how helpful they had been, how much they knew about a particular technology, whatever it happened to be. It is important that that is put on the record again. We also benefit hugely from the secondees that we have. I have not looked at the exact figures, but I think it is probably true to say that the majority of them would be in their forties of fifties, so they are quite well advanced in their careers, and in some cases certainly this may be their last post before retirement from their full-time career. That is not necessarily a bad thing at all because what they bring into the department is an enormous amount of expertise from the business or whatever other organisation they have worked in before. We also benefit from the secondments that our own civil servants have within business because in most cases they then come back to us. It is certainly true that quite a few of our officials do get head-hunted by business, not necessarily following a secondment, to move into the private sector, and some of them do move into the private sector. But by no means all of them. We keep a lot of very good people and we go on recruiting a lot of very good people. What I would like to do - and we are doing as one of the outcomes of the review - is to manage our secondment process in both directions in a more effective and strategic way, so that we get younger officials and younger people from the private sector and the not-for-profit sector coming into the department earlier in their careers, seeing that and having their employers seeing that as a really valuable part of expanding their expertise and broadening their personal development, so that they then take back into their careers something that is really useful to them. I have had two or three business people in recent weeks say to me that that is how one should work and, indeed, offer their help in making that happen.
(Ms Hewitt) We do have part-time secondees already within the range of secondments available in the department. I think we can look further at how we might attract people on short secondments or part-time secondments from the small business sector. You will be aware, I think, that we announced as part of this process of broadening our expertise that all members of the senior civil service within the department will be expected to spend one week every year within business, by which I would include social enterprise, not-for-profit businesses. We will encourage them very much to get out there into small businesses, because in a sense it is easier to go into another large organisation.
(Ms Hewitt) Yes - something of a cultural revolution and no bad thing either, if I may say so, chairman. I think it is very valuable. I have spent most of my working life running small organisations, not-for-profit businesses, and when I have owner-managers of small businesses talk to me about the problems of managing with a small workforce and being your own personnel director and your own finance director and your own marketing director, I know exactly what they are talking about. The more senior officials we have who at least have some idea of what that experience is like, the better. But we have also found other ways in which small business people can contribute. The Small Business Council which we established last year has on it 15 or 16 people who are owner-managers of small firms and who are making a very useful contribution, in terms of their time, helping us to deal with issues to do with regulation and policy making and, again, strengthening the expertise that is available to the department and indeed to the government as a whole.
Chairman: I would like to think that you do not just focus on London. Your regional offices and the regional development agencies ought now to be able to accommodate people so that the travelling distances, particularly in relation to small businesses, is not as great, because obviously time is of the essence for them. Perhaps you could bear that in mind.
(Ms Hewitt) That is an extremely important issue because it is not our job as a department or a government to try and second-guess business or to make decisions for them. A very important part of our job is creating the right environment - regulatory, legal and the market environment - within which businesses can flourish. Even that requires the ability not only to analyse a policy but to make good decisions and then to implement those decisions. The way in which we create institutions, the way in which our agencies run - Companies House and the Patents Office, for instance, both of which are doing an excellent job - they are part of the commercial infrastructure within which business operates and they need to go on delivering an outstanding service to business customers because otherwise they get in the way of business success. So that is part of the delivery agenda. But there is also another part of the department's work which is the business support services. I think that is quite an important part of the department's work. What we have been seeking to do in the last two years, as you know, is really to strengthen the work of Business Links, reduce their number. We are seeking to raise their quality. That is beginning to have real effects. Most of those business advisors, of course, are people who have themselves run their own business or worked in a small business and they bring those skills to bear. We have other teams of people within the sector-based team who are working with industry to deliver, for instance, best practice programmes within industry, and the Industry Forum Programme which we are now expanding, has a proven track record in raising productivity and quality of output within the companies that it works with. That sort of service, that is what I mean also when I am talking about making things happen. Similarly, when we have companies coming to us, for instance, in an area where regional selective assistance applies, where a company wants to make an investment and may well have a choice of location, this investment may make the difference between survival and going under. It is very important that we have the skills to evaluate that project quickly and to make a good decision, but also to make it pretty promptly because, as we know, Whitehall time is not always the same as the timescale within which businesses have to make decisions. I think we can sharpen our own delivery and our own focus and our own expertise.
(Ms Hewitt) David came to us on a two-year contract. He was in fact a social entrepreneur. He ran a highly successful not-for-profit business in the north-east of England and he came to us for two years to set up and run the Small Business Service. When I set that up as small business minister, we envisaged it having two different kinds of functions. One was to improve the delivery of business support services, restructure Business Links and then improve their quality and consistency. The other was to act as a strong voice for small business within government, working particularly on the regulatory agenda. We have made real progress on both of those objectives. David Irwin has played a vitally important role, creating the new Small Business Service, putting in place the new framework of Business Links, and working alongside Lord Haskins on the regulation task force, seeking to improve the quality of regulation that is coming out of government.
(Ms Hewitt) I had several conversations with David Irwin and with other people, as indeed did the permanent secretary, as we looked at where we should go with the Small Business Service in the light of the broader review. We decided to strengthen both of the roles which are currently combined within one organisation. We will retain the Small Business Service doing the delivery job, raising the quality of Business Links but also helping to streamline the support services that we offer. We will then have a separate role of one person from the small business community working alongside Lord Haskins to strengthen that role on the regulatory reform side. We are looking at exactly how that should best be fulfilled, consulting with colleagues within government about that. We will be making announcements on that in due course.
(Ms Hewitt) That is right.
(Ms Hewitt) No, it did not disappear and I think what you are overlooking there is the role of Small Business Council and its chairman.
(Ms Hewitt) The chief executive of the Small Business Service does indeed have the right to go to the Prime Minister on regulatory issues and that will remain the case for the individual who will be working alongside Lord Haskins in this role on better regulation.
(Ms Hewitt) No. You are misunderstanding what we are doing and the way in which we are building on the achievements of the last two years and what we are doing by having different people focus on each of these two roles: the delivery of services, particularly through business links, and the strong voice on better regulation. We will actually deliver a better service and a stronger voice for small business even than we have been able to achieve so far.
(Ms Hewitt) There will be an individual working alongside Lord Haskins.
(Ms Hewitt) Yes. I am sorry. We will have the chairman of the Better Regulation Task Force, Lord Haskins's successor. We will have a second person focusing purely on small businesses and the impact of regulation on small businesses, supported by a unit of officials working simply on those regulatory issues as they affect small businesses and I would expect the relationship between those two individuals to be just as strong and effective as has been the relationship between Lord Haskins and David Irwin.
(Ms Hewitt) No, that is not what I am saying at all. I think it is very difficult for a civil servant - and David Irwin became a civil servant when he became chief executive of the Small Business Service - to fulfil the role of being a strong voice for small business on the issue of regulation and therefore we will have somebody who will be the owner manager of a small business, who will fulfil in relation to small business regulation the same role that Lord Haskins has filled in relation to regulation generally as chairman of the Better Regulation Task Force. That will strengthen the role of somebody acting as a strong voice for small businesses in relation to regulatory matters.
(Ms Hewitt) I think they mesh up very well. We are obviously working across government at the moment on the preparation of a White Paper on regional government and directly elected regional assemblies but what I am proposing to do with the Regional Development Agencies fits very well with the regional devolution agenda. The regional devolution agenda seems to me to be about strengthening the leadership and the capacity of people within each of the English regions to make decisions that affect their economic and social future. The Regional Development Agencies are a very important part of that. I am delighted that they have now come within the DTI family and I think we are working very effectively with them. Their role in relation to regional economic strategy and business performance will be strengthened by this review. One of the problems I have found as a new Member of Parliament, which I know a lot of business people find, is who do you go to in the region. Do you go to Government Offices? Do you go to the Regional Development Agencies? Do you go to Business Links? What we are doing with the business support review is moving the part of regional selective assistance that currently sits with Government Offices across to the Regional Development Agencies. We are also moving the smaller enterprise grants and the Smart awards away from Government Offices and into the Small Business Service and Business Links. The Small Business Service regional managers are colocated with the Regional Development Agencies. That will give us a much better service to businesses and also to Members of Parliament in different parts of the country. The Government Offices will then be able to focus on their strategic role, working on behalf of government and the regions and feeding in regional experience and expertise to departmental policy making. That is where their role will focus instead of also acting as a delivery arm for particular bits of business support programmes. That strengthening of the Regional Development Agencies absolutely sits alongside our manifesto commitment to create directly elected regional assemblies where that is what people of a particular region want.
(Ms Hewitt) I do not think there is any danger of that at all. Last Friday, I was in Nottingham helping to launch Social Enterprise East Midlands, which is a partnership venture that has been initiated by the East Midlands Regional Development Agency. It is a wonderful example of an RDA absolutely understanding that social enterprises have a vital role to play, particularly in the regeneration of deprived areas, and itself taking the initiative, with other partners including the new Economics Foundation, in creating a supportive structure for social enterprises within their particular region. What I have also done, as you may be aware, is to create within the Department a Social Enterprise Unit that is now working with a large number of social entrepreneurs and organisations, including the Co-op Movement and the new Economics Foundation and so on, and working with a range of partners to define a more effective cross-government strategy for the support and promotion of social enterprises. It is a very important area, not only in the regeneration of disadvantaged areas, but also I believe in the transformation and modernisation of public services. That Social Enterprise Unit will sit within our new business support group within the reorganised department but part of its role will be to ensure not only that the RDAs understand the potential of social enterprise, which they seem to be doing very well, but also that our Business Link advisers understand that social enterprises are also businesses that need professional business expertise of the kind that they would give to full profit businesses at the moment.
(Ms Hewitt) I am delighted to have that question. I think there was a little bit of spinning done, not by me or the Department, of the manufacturing summit. I used to be a press secretary but I have long since given that up. This notion of a manufacturing tzar was not mentioned at the summit at all. What was mentioned was the idea that the government might have a chief manufacturing adviser, a proposal that has been around in various guises for some time. What I said and what will be the case is that the new director of the Science, Technology and Innovation Group will in my view fulfil the role that was being envisaged for a chief manufacturing adviser because a key part of the role of that new Science, Technology and Innovation Group will be to help drive out leading edge technologies and science across manufacturing industry. We could have a long conversation on the potential for new technologies across the manufacturing industry, but there was absolutely clear agreement at the summit that that is a central part of what we have to do to ensure that we have a highly competitive, high technology manufacturing industry as part of becoming a successful, knowledge driven economy. That is where I envisage the work that was being proposed for a chief manufacturing adviser sitting within the new organisation. As far as a manufacturing minister goes, I regard myself as the Minister for Manufacturing and in Brian Wilson I have somebody who is a Minister for Industry as well as a Minister for Energy. It is a role both of us take very seriously.
(Ms Hewitt) Thank you for that because in a sense this has been one of the most complex issues that we have had to resolve as part of the review. What I am very clear about is that the Office of Science and Technology needs to retain a state of identity, because of its responsibilities that go right across government. We have the Chief Scientific Adviser who is the chief scientific adviser to the Prime Minister and to the whole of government. We also have the Director General of the Research Councils and that work with the Research Councils will be taken forward following the Quinquennial Review of the Research Councils. Those two functions are cross-government because the research, the work of the Research Councils as well as the work of the Chief Scientific Adviser, includes issues like medical science which does not fit within the DTI. It includes the support of pure scientific research that is driven by pure curiosity and the desire for learning, not by the desire to commercialise science which is one of the driving goals of the DTI. What we have to do is ensure that we play our part within the Department, driving out the fruits of the science and technology base into business and across the economy. Hence, the new Science, Technology and Innovation Group which I know you welcome. If you look at the small print which I am just checking in the note at the bottom of the chart, you will see that there will be a knowledge transfer strategy group which will include the Chief Scientific Adviser and the Director General of the Research Councils, the head of this new group and some non-executives so that we have between the Department and the Office of Science and Technology which is housed within the Department a seamless strategy for ensuring that the fruits of the scientific research and technology base are coming out into business and that we are building demand for these things within business, which has been lacking in some cases in the past. John Taylor, the Director General of the Research Councils, is acting as the head of the Science, Technology and Innovation group at the moment to design this new group while we proceed with an external recruitment of the permanent head of the group.
(Ms Hewitt) Yes, I would agree with that. The key to this is building very strong relationships between the science base and particularly the Director General of the Research Councils who is responsible for working with the science base; and the new Science, Technology and Innovation Group within the Department and its head. I think we can do that but we will put a great deal of effort into making sure that that works. We will use the knowledge transfer strategy group to ensure that we have an agreed strategy to which we are all working and, by creating this new STI group, we will bring together a huge amount of expertise that at the moment sits in different parts of the Department. That will make it much easier for business as well as the science base to work with us and for us to build on what we have already achieved with the new funding streams that we have put into knowledge transfer work and the new enterprise centres, incubators and science parks that are beginning to flourish in the universities.
(Ms Hewitt) Our first thought was that we would treat energy in the same way that we are treating other sectors. In other words, within this Business Relationship Management Group, where our sector teams would sit. We would have a sectoral team focused on energy, but the regulatory expertise would stay within the competitive frameworks division. What has become clear as we have worked through this proposition is that we have a huge challenge ahead of us on the energy issues. First of all, we expect to get within the next month a report from the PIU energy review and we will be the Department responsible for taking that forward, working across government with colleagues to make decisions on the recommendations of that report and then putting in place the strategy that arises from it. We also have an enormous amount of work that arises out of the statement I made last week on British Nuclear Fuels and the creation of the new Liabilities Management Agency. We need at this point to keep the sectoral expertise and the regulatory expertise together while we put in place that new strategy and create the new Liabilities Management Authority and we do the other work that is needed to put in place a long term energy strategy. It is still the Permanent Secretary's and my view that once we have done that the right way to go forward will be to have an energy sectoral team within the Business Relationship Management Group and the regulatory expertise to sit within Competitive Frameworks Group. Change is a never ending process within large organisations and we will look at that as we move forward on energy policy and on the creation of these new organisations.
(Ms Hewitt) This has been one of the biggest problems I have encountered as a small business minister. It was one of the themes that came out really strongly in the consultation we did. What we are seeking to do is to group our £1 billion of business support investment into five portfolios. We may want to look at the names of these portfolios but the issues they will deal with are, first of all, innovation; secondly, enterprise and support for small firms; thirdly, regional investment; fourthly, investment in skills and people, workforce development and so on; fifthly, international trade and investment, which is very much the business of British Trade International. We are at the stage where, having identified all the different business support programmes and grant schemes that we have, we are now looking in more detail at the minority of those programmes that are responsible for the majority of the spend. We have an awful lot of small programmes but we are looking at the ones where most of the money goes at the moment. We are looking at the evaluations that have been done, where they have been done, of those existing schemes. We are looking at whether the existing schemes are really directed at a clear market failure and whether they are having good, measurable results. On the basis of that piece of work which has already started and will be completed within the next month, we will be able to have a much clearer and more robust set of criteria for deciding where it is we should put our limited amounts of money. We will have within this left hand pillar, the business support piece, a group that will be responsible for managing these portfolios but, like most other things - and you will not be surprised to hear me say this - we will have some outside experts. In this case, people who are used to managing investment portfolios, so that as we go forward we become much better at making decisions. If we start off by having 40 per cent of our money going into the innovation portfolio, is that right? Should we have been putting more into that or more somewhere else? Within each portfolio, do we have the criteria right? Are we effectively getting out there and making this support available to small businesses in a way that meets their needs, which is where a simplification of business support ties up with improving the quality of Business Link because they are the main point of contact for most small businesses who are likely to come to us needing support.
(Ms Hewitt) Obviously, our financial support to business has to operate within the state aid regime and therefore businesses that operate within Objective 1 areas will be eligible for more money within regional selective assistance than businesses outside. Nonetheless, we have other funding streams, including for instance enterprise grants and the technology grants under Smart, that are available to businesses regardless of where they are. One of the things we need to look at and we do not need to make instant decisions on is how we allocate the limited resources we have between the geographically limited schemes and the schemes available to everybody. Those are judgments that are quite hard to make because there is a very important job to be done here within disadvantaged areas -- in other words, Objective 1 areas - to ensure that we build a strong, sustainable economic base, particularly when we have other countries often offering extremely generous inducements to companies to set up or to move plants to other parts of the European Union. We have to be aware of that competition and there are occasions when regional selective assistance plays an absolutely decisive role, not simply in keeping a business or opening a new business within an assisted area, but by keeping that business within the United Kingdom. There is an important strategic role there as well as a role within disadvantaged areas.
(Ms Hewitt) That is an enormously important issue and already within the criteria we use to decide on regional selective assistance we are very clear that a company that is simply seeking to move from one place to another in order to get a grant is not going to get the grant. We try and bottom out that issue before we decide on the grant. Where perhaps we could do better is in using regional selective assistance not so much to support a company in crisis but to support companies to become much more competitive, to be adding much more value and therefore preventing them getting into a crisis in the first place. I would like to look at a more strategic role for regional selective assistance which is part of a much bigger strategy to move particularly our industrial base up the value added ladder. Unless we do that, we will not be able to secure good industrial jobs in Britain. They will move to low wages parts of the world.
(Ms Hewitt) We are working very closely with the aerospace sector, including the small businesses down the supply chain. Regional selective assistance will not always be relevant or appropriate for companies within aerospace. It depends on their particular position, but we have invested over the last few years about £1 billion in Launch Aid and in support for research and development within aerospace. We will continue to work with that sector to ensure that they are highly competitive and that they continue to win contracts like the joint strike fighter contract which involves a number of British partnerships with Lockheed and the new Air Bus order. Air Bus is a world leader handling two thirds of the market hugely successfully. Part of what we can do for small businesses in industry, regardless of whether or not they qualify for regional selective assistance, is to work with them particularly in sectoral supply chain based programmes to help them improve their productivity and competitiveness and to deploy and help to create the new technologies that will make them and keep them competitively successful.
(Ms Hewitt) Of course I will look at that. If you would like to write to me with any more detailed information on that, that would be very helpful. I think it is important not to under estimate the extent to which aerospace in particular but also the manufacturing industry generally can benefit by working through the supply chain so that businesses that are not as productive as they need to be learn from those that are and the importance of matching or partnering our manufacturing industry with our leading edge universities. I was in Sheffield a week or so ago where I was talking to the chief executive of Boeing in the United Kingdom who has formed a wonderful partnership with the metals department of Sheffield University who are world leaders in metals technology. The third partner in that is the Welding Institute, another British leader, and that is helping to strengthen our aerospace sector. I agree it is not solving the immediate crisis that has followed 11 September but nonetheless it is strengthening the sector for the medium to longer term.
(Ms Hewitt) I do not think there is any difficulty there at all. We will continue to operate within state aid rules but the limits of the European Union on state aid per job saved or created are so far above what we normally give in terms of regional selective assistance that paying more attention to the value added of the proposed investment, which may be quite capital intensive, should not cause a problem in state aid terms.
(Ms Hewitt) I am very clear that we need to build up our regulatory expertise because, as you will know, the whole issue of regulatory policy is enormously complex. I think there has been a great deal of learning over the last decade as we have looked at the experience of the privatised industries and utilities and the regulatory frameworks created for them. We will miss out if we manage the different privatised utilities and the different regulated sectors as silos. We need instead to build up a body of expertise where people who have been working on regulation in one sector share what they have learned with colleagues who have been doing regulatory policy in other sectors. Then we need to link the expertise and the experience in utilities and other regulatory sectors with the general framework of competition law. That is precisely what we will be doing in this new competitive frameworks group. The real issue there is how we manage. Effectively, we will be managing on a matrix basis. We will have a growing number of officials who have both a generic expertise in regulatory policy and a specific sector expertise, whether that is energy, postal services or telecommunications or whatever. We need to ensure that we are managing the general expertise and building that up which we will do within the competitive frameworks, but we are also building up sectoral expertise because in order to regulate the sector effectively you need to understand the sector and, secondly, there may be good reasons for having a different regulatory policy in one sector compared with another. Where we do that, we need to do it quite explicitly and understand why we are doing it and not do it simply because we have sector based silos not talking to each other or learning from each other.
(Ms Hewitt) We are looking at how we best achieve that but to take the example of energy, where I explained in response to an earlier question why we are keeping that group in being at the moment, I would envisage that the officials within the energy group who are working on regulatory issues will also be, for instance, getting involved in training and development programmes within the Competitive Frameworks Group so that their expertise is being shared with the teams who are working on postal services regulation or competitive markets generally and vice versa. They are all learning from each other and they are seeing themselves as part of a single team of officials who have expertise in regulatory policy as well as having expertise in this case in the energy sector.
(Ms Hewitt) No. Just as the Small Business Service has not been submerged, e-commerce has not disappeared. One of the sectoral teams will continue. We are looking at the definition of the sectors but I would be very surprised if we did not have a sector team that did not continue to focus on the information and communication sectors which of course is part of the responsibility, in ministerial terms, of the Minister for E-commerce. We will also within the science, technology and innovation division, be seeking to pull the leading edge of information and communication technology right across the economy and into business. We will continue within business support and as part of these more streamlined services that we offer small businesses we will continue to support and encourage small businesses in raising their game on the exploitation of e-commerce to achieve greater successes. All that work will continue and it will continue to be led by a Minister for E-commerce.
(Ms Hewitt) Yes.
(Ms Hewitt) That is a great merit because one of the difficulties of the Department which has grown up over the years -- the Department has been created over 20 years as departments have been absorbed within it -- has been a series of silos. You can still find within the Department the old cultures of the old departments that were once free-standing organisations in the dim and distant past. That is not a healthy or efficient way to work.
(Ms Hewitt) Every organisation has to have some vertical, functional divisions. Otherwise, you cannot manage a department. What you also have to have -- and we will have -- is very strong cross-horizontal working, team working, where you pull together people who happen to sit within different vertical functions, to work on particular issues.
(Ms Hewitt) That is simply wrong. We do not at the moment have an e-commerce directorate anyway. As far as the customer is concerned, we will be streamlining the relationship that customers have with us. For the majority of small businesses, the first point of call and ongoing point of relationships will be Business Links. For businesses where we want to operate within a sectoral framework, the focus will be the sectoral teams within a business relationship. As we build this up and get better at doing it, more and more businesses will have a relationship with one named person who will brigade behind them the different things that the business needs. There is no reason at all for our customers to have to worry about the way in which we manage the Department. This structure is to enable us to manage more effectively but we are acutely aware, the Permanent Secretary and I, of the danger of replacing one set of vertical silos with another, which is precisely why we are putting in so much more team working and horizontal working in order to ensure that we get the culture change we want within the Department.
(Ms Hewitt) Yes. I would discourage you from treating this as Kremlinology. This is the sort of change programme you would see in any well run, leading edge, global organisation that is seeking to keep up with the extraordinarily fast changes in the external environment. It is absolutely not the kind of ghastly bureaucracy and social planning that is conjured up by the notion of Kremlinology. Complex organisations are complex. You can get a bit bogged down in all the structure. I agree that that is not interesting. What is interesting is the way you manage and deploy the expertise of your people to achieve measurable results. In making these changes, Robin Young and I are building on the very real achievements of our predecessors, both Sir Michael Scholar as the previous Permanent Secretary, and my three Labour predecessors, particularly Stephen Byers who was in the role for long enough to get a real understanding of what was going on across the Department and who had already begun to strengthen the central strategic function of the Department. We are building on that and even by this time next year I hope to be able to show you real results in real companies from more focused work on the spreading of best practice in business processes and in the management of people. For an even larger set of results, yes, I hope to be able to come back in the same role in two years' time.
Chairman: It would be nice to see if you if you survive that long and I hope you do. We have not said anything about deckchairs on the Titanic this morning and we have not mentioned Consignia, so on that note thank you very much for coming and thanks for your help.