Select Committee on Trade and Industry Minutes of Evidence

Examination of Witnesses (Questions 1-19)


24 OCTOBER 2006

  Q1 Chairman: Gentlemen, welcome. We welcome you, Secretary of State, for the first time in your role as Secretary of State for the Department; we are very glad to see you here. Although we have seen Sir Brian before, you and Mr Clarke are new to us. Perhaps you would like to introduce your colleagues for the record?

  Mr Darling: Thank you very much. I probably should not say that I am looking forward to my first appearance before the Select Committee; however, I am advised that its style is somewhat different to the select committee that I have been appearing in front of for the last four years. In case someone reads the record of that, if I may say how much I enjoyed appearing before the Transport Select Committee and I would not want to have any unfortunate exchanges, Chairman. As you correctly say, you have met the Permanent Secretary, Sir Brian Bender before; you have not met Mark Clarke, who is in charge of the Department's finances and who is now well settled in. Of course, you have not seen me in this capacity, but we are pleased to be here so far.

  Q2  Chairman: We will find out yet whether you are or not. Can I begin with a specific issue which is in presently in the news? There is a new EDM that the clerks of the House greatly approve of, that is extremely parliamentary, referring the issues relating to Farepak to the Select Committee. It is an unusual opportunity to have you in front of us and to perhaps act on that EDM even if it is not a resolution of the House quite yet. Have you anything to tell the Committee about Farepak?

  Mr Darling: It is clearly a matter of concern that a very large number of people in this country have paid money to this group of companies that are either in receivership or in administration. Usually we do not confirm whether or not there is an investigation under the Companies Act but, because these companies are in administration or receivership, I can tell the Committee that this morning the Department's Insolvency Service is about to start an investigation under the Companies Act 1985. Those reports may result in further action but at this stage I cannot say. It is probably not the only examination there is going to be but there is clearly concern here because so many people have been affected. It follows that now this investigation has started I cannot answer any further questions in detail and I certainly would not want to prejudice any proceedings taking place now or that might take place in the future. What I can say is two things: one is obviously the issue having been raised with Farepak we have asked ourselves could there be problems elsewhere? Our investigations so far suggest there are, we think, two other companies in this market which is a fairly small one. We have no reason to believe there is any problem with these other companies but that is something that we will consider. I strongly believe that government should not rush into doing something until we have analysed what the problem is. That has been done in the past, usually with unfortunate consequences. The other thing for the sake of completeness is that the Committee may be aware that Ian McCartney, the Minister of State of the Department, met the British Retail Consortium over the weekend with a view to seeing what their members might be able to do on a voluntary basis and that was a constructive meeting. Having regard to the number of people affected here, the receiver and administrator do not actually know yet because the company did not know how many people were affected. It is a matter of concern especially at this time when a lot of people are going to be in severe difficulties when they quite reasonably expected that having saved through the scheme they would get Christmas presents and other things which are now not going to be made available. It is a very, very unsatisfactory situation and it is for that reason, amongst others, that the DTI's Insolvency Service has started that investigation.

  Q3  Mrs Curtis-Thomas: Ian McCartney did have constructive conversations you said with members of the industry over the weekend but does "constructive" mean that they might be considering some sort of support to the families who find themselves without any funds or presents at Christmastime? Were they those sorts of conversations?

  Mr Darling: They were discussing in general what the BRC members and others might do. They have not reached any decision. It is clearly difficult because I suspect that in many, many cases it would not be able to offer anything approaching what the families might reasonably have been expecting. I expect there will be other Members around this table who, like me, have started to receive letters from constituents who have spent a lot of money in the expectation that they were going to get Christmas presents and are now not going to. Whilst the British Retail Consortium is acutely aware of the distress that has been caused, I do not think it is ever going to be in a position to take the place of it and it would be wrong to raise expectations that way. However, they are considering what might be done and once they have done that then probably they will make an announcement. Clearly no-one can stand in the shoes of this company. Something has gone very wrong with this company and it is tragic for the families concerned. What we will do is, firstly, through the investigation and through other agencies' examinations, find out what happened with a view to looking to what we might do in the future but, secondly, we do want to work with the British Retail Consortium and others to see if there is anything we can do to ameliorate the situation, but inevitably that is going to be limited.

  Q4  Mr Weir: Like you, I have had letters from many constituents who have been affected, some of which are calling for the Government to do something. I appreciate that that is not likely to happen, but for clarity an investigation under the Companies Act is not likely to lead to any compensation for those who are affected by this.

  Mr Darling: No. The purpose of this investigation is to find out what happened and then to make recommendations either to the regulatory authorities for prosecution or in relation to whether or not directors should be disqualified from holding office. That is the purpose of it. It has never been the case that any government would stand behind a shop; it is not possible to do that. Clearly this is a situation where people have been saving for some considerable time with an expectation that they will provide for themselves and their families at Christmastime. It is tragic for them, the BRC is aware of that, but even if it can make some sort of gesture it is going to be just that; it is not going to be able to compensate, and to go down that route would raise all sorts of questions and complications that would frankly defeat anyone.

  Q5  Mr Bone: I do not think the Minister wanted to give the impression that this investigation is purely for those purposes. It is actually an investigation to find out what happened.

  Mr Darling: Yes.

  Mr Bone: You might have given the impression that something had happened.

  Q6  Chairman: I am being very generous. We must get on to the main purpose of this session.

  Mr Darling: It is a perfectly fair point. You cannot pre-empt the investigation; it only started this morning.

  Q7  Mr Wright: This is a similarity to what happened a few years ago with the furniture company, World of Leather, where they were taking orders and did not honour those orders and people lost their finances. Do you now consider, perhaps in the light of what has happened with Farepak, that perhaps we should consider some form of legislation, some form of protection, some sort of bonding scheme when these schemes come forward?

  Mr Darling: I would rather find out what happened and then decide how best to proceed. It would be wrong for me to pre-empt the investigation.

  Q8  Mr Wright: That may well be an option.

  Mr Darling: It would be better to find out what happened. I did say earlier on that over many years governments have been tempted into coming up with a solution before they actually found out what the problem was and it is better to find out what, if any, the problem is, whether it is specific to this company or whether it is a generic problem. Once we have had the investigation obviously we will draw our conclusions.

  Q9  Chairman: I am not making a cheap point here but I do hope that the investigation is more rapid than, for example, the Phoenix Consortium and the MG Rover Companies investigation which is dragging on interminably. I hope there will be more rapid inquiries now. I appreciate that is not entirely under your control.

  Mr Darling: Quite rightly ministers do not become involved in investigations; that would be quite wrong. It has to be effective and it has to be efficient. We need to know the position as soon as is reasonable.

  Q10  Chairman: We will turn to the main purpose of the session which is our scrutiny of the Department's work over the year. I have in front of me three documents: your Business Plan which is very good, very succinct, very readable; the recently received Consolidated Resource Accounts which are audited, accurate and helpful and give all the information; and then what I describe as the Pooh-Bah of the trio. You will remember his quote: "Merely corroborative detail intended to give artistic verisimilitude to an otherwise bald and unconvincing narrative." I do not quite understand the purpose of these three documents, particularly as this £37.50 document I have in front of me is littered with errors and errata, some of which are quite fundamental to one's interpretation and reading of the report. Do you think this document, into which I am sure many person hours go in the Department, is worth producing?

  Mr Darling: That question was asked of me in just about every department I have ever been in. You ask what is the purpose of these three? Obviously it is self-evident what they are there for. The Business Plan tells you what we were planning to do and the Departmental Report is an account of what happened in the previous 12 months. All select committees from time to time ask themselves what is the value of producing this? Might it not be better to look in more detail at particular areas? My view, on balance, is that I think it is a good idea for departments to account for what they have done. However, I have always seen it as a first port of call, especially by the Department of Trade and Industry which covers such a huge range of issues. Inevitably somebody who wanted to know more about what we were doing in energy would consult not just the annual report, they would look at the Energy Review we published in the summer, they would look at all sorts of other things. Similarly, the Insolvency Service might want to go deeper into what we are doing than is contained in the report. Inevitably when you produce a large report, and they are done over a comparatively short timescale, errors may occur. We have provided you with a list of errors that we have identified. I am sorry about those. On balance producing a report is a good thing. There is a big question—could it be better? Do you need everything that is in it? You mentioned the £37.50. All I can say is that last time in Transport when I attempted to take things out it was met by stiff resistance from the Select Committee. I may be wrong but I think you suggested keeping things in that we suggested taking out 12 months ago.

  Q11  Chairman: The tables in the annexes are very useful at the back but this report was littered with errors. Your PSA targets you translated ones from the wrong spending review period and so things that were slipping were actually on course and things that were partly met were on course. The most important two pages probably in the whole report were wrong. I hope at least you can make sure it is accurate next year.

  Mr Darling: It is a perfectly fair criticism and it should not have happened. We will try and make sure that when you get next year's report that it is not.

  Q12  Chairman: I hope all the readers who have paid their £37.50 have had the errata slip as well as it is quite important. Looking at those public service agreements and the targets, how valuable are they? What influence does the Department have in many of the things you have targets to achieve?

  Mr Darling: A lot of the PSAs and targets are shared with other departments which is inevitable if you look at something like productivity and so on. There are others like energy, for example, where we have a direct influence here at home, but in terms of climate change not only are other government departments involved but so too are governments of other countries. One of the things that we are looking at as part of the Comprehensive Spending Review, which will of course be published next year, is whether or not we should have quite the range of targets we have at the moment. My own view for what it is worth is it would be far better having far fewer targets and concentrating on those things where a department can reasonably be held to account. If you have a target that is shared the problem then always is that, rightly or wrongly, someone else is involved with the thing and there is not that line of accountability. There are also other targets on productivity where there are so many different things in play you keep asking yourself can you hold any secretary of state, any department, accountable if we do not meet a target? That said, to take productivity it is patently obvious one of the things as a country we need to do is to drive our productivity. As you know, a lot of the drivers that determine that are totally out with the control of Government targets or ones that you can only influence very indirectly. My preference would be from 2007—this is the stage we are looking back over the last 10 years—as well as fixing up our public spending for the three years beyond 2008 it is an opportunity and what I would like to see is to have less targets but ones where you more reasonably say it is up to you to deliver this.

  Q13  Chairman: Making the UK the best place in the world for your business, but it is not really within your gift.

  Mr Darling: I do not think anyone would dispute that as an objective, no matter where they sit in the House. It is a good thing, but yes, with things we can do, like Company Law Act regulation and tax and so on, but whilst in the DTI we are responsible for some regulations, tax is a matter for the Treasury. There are other things that are altogether more intangible—the general critical mass in London, for example—which are much more difficult.

  Q14  Chairman: Before I hand over to Roger Berry, I am slightly concerned that the Energy Minister is actually a part-time Energy Minister. Energy is one of the most important issues facing the country today, yet poor Malcolm Wicks, his responsibilities do not stop with Energy. Do you think the ministerial workload is appropriately shared around? Could you do with an extra parliamentary under-secretary of state or something to help make sure these things do get the ministerial time they need?

  Mr Darling: I am not aware of any clamour to have even more ministers than we have at present. As a matter of fact, I am the Energy Minister. I am the Minister responsible for everything that happens in the DTI. Malcolm Wicks assists me and very ably he does it as well. It is inevitable if you have a limited number of ministers—and every department has got this—they are going to have to do more than one thing and most ministers are capable of doing that. You are absolutely right, Energy has gone from having pretty little strategic salience five years ago to having massive salience now and massive importance, which is why I take a direct interest in it myself, which is why we published the Energy Review, a White Paper coming up. Happily in Malcolm I have a very able Minister of State who is able to do more than one job at once. However, we always keep these things under review. We just have to be reasonable in how people have the work allocated so that they can cope with it.

  Q15  Chairman: We are told that until recently you only had one official to support it. It does seem you are quite lean and mean on the Energy side which is a very important issue for the Department.

  Mr Darling: When I took over this job in May I was determined that this Energy Review would be just that, a total Energy Review that would not ignore developments that had taken place in this country. A lot of what was in the Energy Review and what you will see when we publish the White Paper, which will probably be in March now because of areas like microgeneration where we are about to publish a document on that and there is more information that we need from the industry and so on. There are areas that we perhaps in the past have not gone into sufficiently. I want us to exploit to the full greener sources of energy. We need to be more imaginative about what is called distributive energy at the same time as maintaining the energy mix which is essential. I hope I have indicated in that answer, going back to your first question, that I see energy as probably, in policy terms, one of the biggest things the DTI is going to be dealing with in the foreseeable future.

  Q16  Chairman: There are two very capable Ministers.

  Mr Darling: We have more than two.

  Q17  Roger Berry: Secretary of State, before April the Department felt it important that the Innovation Group and the Office of Science and Technology were separate—there was a clear rationale for that—and since April they have now been merged. What changed the Department's mind to bring about the new approach?

  Mr Darling: It is probably fair to say this was not something that was thought up on 31 March.

  Q18  Roger Berry: I was not suggesting that for one moment.

  Mr Darling: 1 April was simply the date when the OSI came into existence. Quite simply, I do not see a gap between Science and Innovation; one runs into the other. What we are keen to do, if you are interested—I expounded on this last night when I was speaking to the Royal Society—is that we need to do far more to exploit the undoubted ability that we have to invent, to research into goods and services we can sell. Where we are quite good at in this country is in our ability to invent and to innovate. If you look at the Department of Trade and Industry the title does not in some ways do justice to what we do. Over half our budget goes on Science and Innovation—nearly £3.5 billion—and it makes sense to bring these together. I also think, although I am relatively new to the Department, having the OSI located within the DTI has been beneficial. It has been immensely helpful to us having someone like Sir David King there as well. The reason we have done it is that one logically runs into the other.

  Q19  Roger Berry: I agree, except that there is more to innovation than simply that which takes place within Science and Technology. Innovation is in business processes, business services, et cetera. How do you respond to that? There are significant issues that are not purely and simply Science and Technology.

  Mr Darling: That is true, and I suppose however you brigade the Department you can make a counter-argument that there might be a better arrangement. The link with Science and Innovation is very important. This decision was taken before I got to the DTI but that would certainly have influenced me in my consideration. You are quite right, there is a lot of innovation that is not directly linked. Going back to Peter Luff's point in relation to what is the Department for and what can it influence, this is one area in Science and Innovation where we cannot do everything, but through financial support, through other means we can encourage this process. When you consider the immense problems we face with globalisation, when you bear in mind what is happening on the other side of the world, this is where we have to be. We have to make sure that we are at the forefront here. We have a very, very good record. In the past we have not always been so good at exploiting it in this country and that is something that we need to get better at.

  Sir Brian Bender: May I add something since I have the continuity of being to blame for recommending to the last Secretary of State this merger. I saw great value, as the Secretary of State has said, of bringing together the budget for the Science push and the budget for the Innovation pull into one place and then trying to bring that culturally more into the centre of the Department. On the second point, taking your direct question, Mr Berry, about the relationship with non-science innovation, it is really important in any department to make sure the different silos do not operate as silos. One of the really important things we are working on now, particularly as we are trying to make the Technology Strategy Board an arms-length body, is making sure the link in to industry on the business side of the department is kept strong. The Director General for Enterprise and Business works closely with the Director General for Science and Innovation to try and make sure that we do not fall into the trap of thinking that all innovation is science push and technology, but we are keeping our fingers on both sides of it.

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