|
UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 261-i House of COMMONS MINUTES OF EVIDENCE TAKEN BEFORE ENVIRONMENTAL AUDIT COMMITTEE
PRE-BUDGET 2004: THE road ahead
WEDNESday 19 January 2005 SIR DIGBY JONES AND MR MICHAEL ROBERTS Evidence heard in Public Questions 1 - 18
USE OF THE TRANSCRIPT
Oral Evidence Taken before the Environmental Audit Committee on Wednesday 19 January 2005 Members present Mr Peter Ainsworth, in the Chair Gregory Barker Mr Colin Challen Mrs Helen Clark Paul Flynn Mr John McWilliam Mr Simon Thomas Joan Walley ________________ Witnesses Sir Digby Jones, Director-General, and Mr Michael Roberts, Director, Business Environment, CBI, examined. Chairman: I am now opening the second part of the inquiry. We are very short of time. What I propose to do is to submit many of the questions we would like to have asked you in writing and merely focus on a couple of questions which touch on the issues we have just been talking about in some cases. I will hand over to Joan Walley for a couple of questions and then we will let you go. Q1 Joan Walley: What we really just wanted to home in on is the issue of our current inquiry about the Pre‑Budget Report and where that leaves us in respect of this whole issue of regulation and appraisal. We have touched on some of the issues already and new environmental technologies are part of it, but in your Environmental Regulation Report you acknowledge that UK business has incurred relatively low direct costs associated with regulatory compliance. I wondered if you had any hard evidence of any UK industrial sector whose competitiveness has been damaged by environmental protection measures. I know that we touched on that in some of the earlier discussion on the climate change issue but I just wondered if you wanted to flesh that out a little bit for us. Mr Roberts: Perhaps I might as a preface to that mention that whilst historically we have flagged up that we do relatively well as a country in terms of the cost of regulatory compliance on the environment, if you look at the trends other countries seem to be moving towards our favourable position. What we articulate in the report is a need to maintain that competitive advantage by continuing to be effective and efficient in the way that we go about regulating on the environment. With regard to your question, at the risk of going back to the issue on carbon (but it is a useful example I hope for your benefit) when the Climate Change Levy was designed and introduced there was a recognition amongst policy makers, not just amongst industry, that there would be net winners and net losers. In a survey we carried out in 2002, one year after the introduction of the levy, we identified that the manufacturing sector had been a net loser, after taking into account the NIC reductions to employers, to the tune of £143 million in that year. That effect had been anticipated by policy makers but it was deemed desirable in the interests of pursuing environmental improvement. For a part of the economy ‑ manufacturing ‑ which is facing particularly tight margins, or has done over the last few years, taking a hit of £143 million has an impact on competitiveness. Different manufacturers will respond in different ways. They will absorb it into their margins, they will change behaviour (and indeed some have) but you can not deny that there is an impact. Whether that has material consequences depends very much on the individual circumstances of the firms. Q2 Joan Walley: I think that is interesting because if you look at manufacturing as a whole sector, within that there will be companies that will be looking to move towards a non‑carbon economy and get all the advantages that might come from that and that might in turn enhance those industries and businesses that are going down that route in terms of production and so on. Thank you for that. The other side of the coin of course is the benefits as well as the costs. I just wonder how much you think the Government makes sufficient attempt to assess these benefits in respect of the regulatory impact assessments. I think regulatory impact assessments are really key. I know I interjected earlier on in one of your comments but I think it is very important that we look at the whole cost of something and take the environmental costs into account as well. I just wondered what examples you had got of how higher environmental standards can give rise to benefits like that? Sir Digby Jones: One thing I am concerned about on regulatory impact assessments - and indeed it is the perennial complaint from business about regulation - is in almost all of it what the real problem is not the regulation, it is the implementation of it. Q3 Joan Walley: But regulation is there for the purpose of implementation, is it not? Sir Digby Jones: No, I mean the way it is implemented. In other words, it is not whether regulation is a good thing and whether government has responded to a need or not, it is not that at all; it is how is it implemented in a competitive environment comparative with other economies. That is the important thing that the regulatory impact assessment has to look at. You cannot just say regulation is good or bad, it will add or not add to cost; it is always about how a government insists on it being implemented. Q4 Joan Walley: There are two issues there, are there not? One aspect is the mechanism by which that regulatory impact assessment takes place and the other aspect of it is the degree to which it is applied in a uniform way across whatever participating countries are taking part in it? Sir Digby Jones: I agree, so in some European Member States and some regulatory environments compliance is a voluntary event and in others at the same time you get the man from the ministry here to help. We are trying to compete in a thing called the European Union and you have that happen all the time. The regulation is the same regulation but in certain parts it causes greater costs than in other parts, so when you conduct a regulatory impact assessment it is going to give an erroneous finding unless you look at the way regulation is implemented in a separate jurisdiction. Q5 Joan Walley: Earlier on you said yourself, did you not, that regulation is important because it is the regulation which gives out the signal and it is the regulation that provides a certainty, which I think was your phrase? Sir Digby Jones: I did not say regulation is important for that purpose. I did say a regime of certainty which can be achieved in ways other than regulation, certainty and transparency. Q6 Joan Walley: Yes. There will be other benefits, will there not, for example, where you have a cleaner environment that is going to make an enormous difference to business, tourism, et cetera? Sir Digby Jones: There is an even more obvious one in terms of a clean environment. The world at work has changed and the world of consumerism has changed from 30/40 years ago. People like buying products, goods and services from companies which have a track record of being sensitive to the environment in which they operate. People like working for companies that have the same and, thankfully we live in a Britain with extremely low unemployment and unhappily, with a skills shortage. If you have a need for labour and you have a need for skilled labour, these days those sorts of people are tending to say: "Can we have a look at what you do for the environment before I decide to come and work for you?". There is a huge win for business in stepping up to the plate on this. A member of mine in a city in the north of England manufactures paint. You cannot get much more environmentally unfriendly than that. They take water out of the river, they do amazing things with it, they put the water back and they put it back cleaner than they took it out. You cannot get many newspapers to write about that because it is good news, but, nevertheless, they do it all the time. They never have a problem in recruiting people because when applicants come they show them around and show them the water and, people go home and say: "I like working for companies like this". The one down the road probably is not doing that and has more of a problem. That is a huge added advantage in a company that invests in clean technology and in the DNA of the business, right the way through the business, everything and every way they do, they think "environment". That is a huge benefit to a country. You cannot quantify it, you cannot put a figure on it, but I can tell you in a competitive environment it is good. Q7 Joan Walley: In respect of that increase in competitiveness, which we have got in UK industry, do you think the Government can be doing more in respect of how it carries out its Regulatory Impact Assessment? Sir Digby Jones: Yes. Q8 Joan Walley: If so, how should we be asking for it to be done? Mr Roberts: One of the things we hear often as a complaint, a frustration with the way in which Government assesses regulatory initiatives, is the extent to which Government overlooks the degree of overlap, duplication and conflict between a new proposal with what already exists. That applies both to those who are regulated - and, if you like, therefore incur a cost - and those who might benefit potentially, there are various examples. The water industry is being asked to comply with higher water treatment standards and sewage treatment standards for the good of the environment and public health, but that implies a higher energy cost. Simultaneously, they are hit with a climate change levy from which they do not benefit from a discount, unlike other companies. For them, they are frustrated in the desire to do the right thing because the signals conflict. Alternatively, in the motor manufacturing community they have a commitment to deliver on fuel efficiency of every fleet and want to do the right thing in terms of reducing carbon emissions from new cars, but simultaneously are being told they have to improve safety standards, which makes vehicles heavier, therefore, less fuel efficient, therefore higher emitters. It is those interfaces, which do not work, which are deeply frustrating and are not properly assessed when policy-makers sit down to decide about the next regulator initiative. That is critical way where we think Government can get its act together in terms of improving its assessment of where both the cost and the benefits lie. Q9 Joan Walley: Are you in dialogue or have you got some means of communications with government departments about precise ways in which you think that can be done? Mr Roberts: Yes. You mentioned our report from the summer and we have had a very active programme of follow-up. One element of which has been a quadrilateral meeting which we have with the Environment Agency, Defra and DTI, where we sit down and we say what is coming up on the regulatory agenda, how can we learn the lessons of the past in terms of getting the enforcement and design of those regulatory items to be better than the way we have done them in the past. It is early days. Q10 Joan Walley: That does not include the Treasury? Mr Roberts: I think getting three departments plus ourselves around the table and keeping it manageable is challenging enough. Q11 Joan Walley: I accept that, but if we are talking about a Pre-Budget Report and we are looking at tax levers and so on, there is an element of the Treasury which needs to be involved as well, is there not? Mr Roberts: We do talk to the Treasury and have done. Sir Digby Jones: They consult with us. From the top to the bottom of it they consult with us on the issue, but the implementation of the regulation, they do not, they consult more on, as you say --- Q12 Joan Walley: That is part of the Environment Agency. Finally, on this series of questions, do you think in the UK we are doing as much as we can possibly to take full advantage of the worldwide market for environmental technology? Sir Digby Jones: No. One of the things we can do more - this should be seen in a wider context - is stimulate more investment in the research of getting there. Q13 Joan Walley: Would some people not argue that there are many areas where research has been done already and it is simply a question of them not being added or the right signals or the right regulations which would enable full-scale production to go ahead? Sir Digby Jones: The other thing we are not so good at is translating that research, be it there already or be it new, into capital investment. We can be so much better at that. That calls for three things: firstly, at the R&D end of it, it calls for better working between business and universities and it calls for more government money into that. Q14 Joan Walley: Can I stop you there and ask you, in view of the recent debate about science and science at the universities, is that part of that? Sir Digby Jones: Yes, it is. I was about to say it is in the wider context and I will come back to that. That is number one. Secondly, to get business itself voluntarily to start investing in more of this. You find your bigger companies do but your smaller companies do not, and I know why, because it is expensive, it is risky and they have to bet the ranch. A bigger business does not bet the ranch on something like this and a small one does. There is an effort there which is voluntary, which, at CBI, we can do more to help, I fully understand that. Thirdly, the question, to which I do not know an answer and I guess neither do any of you, at what point does putting more regulation on guide and force companies into doing number two, at what point do they respond accordingly, which is what we all want, in other words, if they do not do it on the carrot let us do it with the stick, at what point do they say: "This is not worth the effort, clear off"? I do not know the answer to that and neither does anybody else. Q15 Joan Walley: There is some point at which they become uncompetitive if they do not go down that route? Sir Digby Jones: Yes. Q16 Joan Walley: It is in their own business interest to try and help the environment. Sir Digby Jones: Some may become uncompetitive for many reasons - uncompetitive in recruitment, uncompetitive in consumerism and providing and competitive in being able to deliver because they cannot afford not to - but there is a point at which the atmosphere in which you operate becomes uncompetitive if you do. There is definitely a role for some stick in that, without a doubt, but at what point you get the balance between being voluntarism, changing DNA in a business and enforcing compliance, that mix is why we elect you, you make the difficult decisions in that. I am not sure you have got that mix right and, by the way, I am not sure business has either. Universities have got an enormous role in that because in the wider context - of which environmental compliance is only one - if everything we talked about right at the start, taking those jobs away and filling it with new, better and skilled jobs and your steelworkers going on to new things, if that has got to be right it has got to be based on modern technology and more skilled people. They are attracted to work in an environment which is cleaner, they are attracted to work with companies and universities who are up for that but, nevertheless, it does not have to be the environment they are researching in, the whole issue is an enormous one. Q17 Joan Walley: If it is good for the environment, it is going to be good for business as well. Sir Digby Jones: I do not disagree with that. Q18 Mr Challen: Just one last question so I can sleep at night. Dealing with this inconsistency - which appears to me anyway - trade unions have a lot of fears about the outsourcing, off-shoring of jobs, call centre jobs have been mentioned. A recent report, I think last week, rather dented those fears saying this process is creating more jobs in the UK. Would you agree with me that possibly the approach we are taking to the environment might create more jobs in the UK, but every time the environment is mentioned, the CBI has a crisis of confidence and fails to provide leadership to business? It seems to me that is the case and this talk of flexibility is overriding in your mind and we must not back off from anything which reduces our alleged competitive role in the world. Sir Digby Jones: To assist your somnolent posture. Point one, you mentioned call centres, the whole role of call-centres at an elementary level - I do not mean specialised, very skilled call centres, I mean the general run-of-the-mill call centres - is a fabulous tool in an economy which is restructuring. You can see it has worked in parts of Britain very, very well, but any local economy which says: "We are going to rely on that for the next 20 years" will be making an enormous mistake. It will migrate, no-one should ever take that as a measure of failure in an economy, they should say: "We bought time". South Wales is a very good example, coming out of a coalmining economy and call centres have had a role to play in that. They will move on and, indeed, they are going to move on from India, they are going to go to Vietnam, and they will move on from Vietnam one day and go somewhere else. There is nothing wrong with that, we should not get alarmed with that as long as we concentrate, as unions and employers, in skilling those people into the next job. I invite you to come to any of the speeches I give about, what I call, "socially inclusive wealth creation". I give a lot of them because I believe in it passionately. Point two, at the end of the day, part of that social inclusion aspect of wealth creation has to reach out to not only the community affected by its actions but has to be sensitive to the environment and show by its actions, not its rhetoric, that it does so. I talk about this a great deal and make a lot of speeches on it and you would be very welcome. I do not think you and I would disagree on what I say on that respect. The CBI does not run scared from that environmental issue. Point three, as a nation we operate more than France, Germany, America or Japan in a very competitive globalised economy. We are a very open society in Britain. We do not have the tariffs, subsidies or the protectionism of America or France. The price we pay is we are more sensitive to the competitiveness issue than others. If this conversation took place in France or America, if it got to a certain point, they would just slap a tariff on it or just pass a law to stop it or politicians call chief executives "traitors", as they did in the presidential campaign in America or in France they put up barriers to entry. We do not, as a nation we just get on with it. That means you will find businesses and trade unions will say: "Is this going to hurt our competitors?" "Is this going to be a problem?". We start from the jittery bit as opposed to the kneejerk, slap a tariff on it bit. That shows why we tend to be more jittery, but does the average businessman or woman get up in a morning and think, "I know what I am going to do, I am going to pollute the planet and I do not give a damn", no they do not, they care about it enormously. Interestingly, I think you will find most businesses are so exposed to the globalised economy in this country - themselves or their first customer is on the tier - that they are as much aware of the behaviour of other nations in this than an American, French or Japanese business would be. Therefore, they are more aware of the "why are they not behaving" argument more, that means they get more sensitive to the competitive element. That is not an excuse for them not stepping up to the plate, I do agree, but it is a reason for why they behave the way they do. Mr Challen: I will try to sleep well tonight. Chairman: Perhaps those call centres, when they have left Vietnam will come back to Britain. On your analysis, environmental legislation will have reduced to the Stone Age. Thank you very much indeed, Mr Roberts and Sir Digby, for your time. It has been a very helpful session. |