Examination of Witnesses (Questions 200
TUESDAY 17 OCTOBER 2006
Q200 Mr Gauke: Finally, just returning
to regulations, there was a poll of company CEOs that was published
earlier this week in which 52% of them said that the regulatory
burdens created by the EU outweigh the advantages of the single
market. Can I ask both of you whether you would agree with that
Mr Radley: We have not polled
our members on this recently, but certainly the last time we looked
at this issue extensively we still found that the overall majority
of our members actually saw being part of the European Union as
a significant benefit to their company, but I think if you actually
looked at the strength of feeling there it had actually cooled
considerably. So, companies did see a strong case of being in
the EU but their feelings towards the EU overall were a lot less
warm, and a lot of this was because of the increased level of
regulation that they saw. In many cases what companies are actually
seeing is higher levels of regulation and there is a tendency
to blame it on Brussels, which in some cases may be correct, but
I think in many cases what is really driving the bad experience
of companies is not that we are seeing more regulation from the
European Commission but it is the very poor implementation in
this country. I think, particularly in the environmental area,
if we see the directives that have affected the disposal of refrigerators,
the WEEE directive, some of the measures that have been taken
in terms of landfill at the moment, the overall objectives, the
measures, are generally fine, but there has been absolutely abysmal
planning and implementation, and I think that is one thing that
the Government could do to make a real difference there.
Sir George Cox: I think the question
of whether the costs outweigh the benefits is too broad. I think
most companies that I speak to now just accept being part of the
European Community and the single market for granted. There are
certain things you take for granted now which are a great advantage,
the ease of moving people around, it is just a way of life, so
one never considers whether you should do it, that is it. I think
coming back to regulation, whatever the source, and some of it
is frustrating and hard to understand that comes out of Brussels,
the thing I would tackle would be the application. Make it easy
to understand, easy to comply with, particularly for the smaller
business. Remember that in the smaller business there is no department
to give it to. Faced with a form to submit there is no-one to
give it to, it is you. I argued very strongly, I think with eventual
success, to take the payment of tax credits out of the payroll
system on the grounds that, fine, pay people who have worked on
site or at home, I agree with, but do not make the company apply
it. I do not want to get involved in the administration of benefits.
If I am running a small company, I have got eight people, it is
Monday morning, I have got an angry customer, I have got the bank
manager, and someone says, "You did not pay my benefits on
Friday", "I did not even know you were entitled to benefits",
but that is my biggest problem. I then say, "We will attend
to that some time." Ease the burden on companies at the moment.
It is very simple, a simple answer: "Am I allowed to do this?"
Yes or no? "What do I have to do with this?" Make it
more supportive. "How do I have to do this?" I think
that is the key to it. The only thing I would tackle is planning.
You cannot go to a single company which cannot give you a horror
story about planning. The whole attitude of planning should be
a service: "I am going to help you decide what to do."
Q201 Kerry McCarthy: I have to say,
I entirely agree with what you have just been saying about planning,
but moving on to a different topic, you talked about the predicted
economic growth. I think you mentioned an explosion in likely
production and, obviously, that would be an explosion in consumption
as well, which will have environmental consequences.
Sir George Cox: Yes.
Q202 Kerry McCarthy: To what extent
do you think the concept of contraction and convergence has got
legs: the idea that as developing economies start producing more
by way of emissions the developed countries ought to reduce theirs
and we meet somewhere in the middle? Do you think that is a viable
template for moving forward?
Mr Radley: I am not sure I fully
understood your question, but I think that clearly the developed
part of the world, particularly the European Union, has been taking
the lead in terms of having tougher environmental standards and
regulations and also developing technological solutions to that.
I think, looking forward, looking beyond 2012 when the Kyoto Treaty
runs out, I think we need to work harder actually developing something
where we have got an international agreement which countries around
the world can buy into. I think also there are significant opportunities
for companies in countries like Britain to actually provide assistance
to other parts of the world which are experiencing a very rapid
growth in terms of developing low-carbon energy sources and advising
companies in terms of how to curb their emissions, improve their
energy efficiency. I think there are big opportunities there for
British business that we need to capitalise on, and I think what
we need to do now is use that opportunity by investing significantly
in research and development so that we have actually developed
those goods and services to meet the challenges.
Sir George Cox: I think the question
is a very broad one and a very important one. As this wealth is
generated, if it is spent the way that the wealth has been so
far, it is unsustainable. You just cannot do it. You cannot raise
the population of China with the same lifestyle as everyone has
in America, you cannot have the degree of travel that we enjoy,
but that is a given. What I think it means with regard to the
spirit of my report is that this is increasingly recognised, not
just here, and I think when it comes to innovation it will create
a great demand for innovation. When you talk about products the
emphasis will be on it. If you talk to an aerospace company like
Rolls Royce, the whole emphasis is on energy and efficiency, that
is the big demand. That is they only reason people are replacing
planes, there is a great demand for it, and I think you are going
to find this in energy, you are going to find it in transportation
and I think, again, coming back, companies which can plug into
this will not only be doing a service to the world but that is
where the opportunities are.
Q203 Kerry McCarthy: If you accept
that companies have got to do more to meet environmental standards,
is the way forward to set higher environmental standards or is
it through, perhaps, more vigorous means like taxation?
Sir George Cox: No, I think the
way forward will come through public pressure. That is what will
stop people taking four litre cars for the school run; it becomes
socially unacceptable to do it.
Q204 Kerry McCarthy: The idea of
corporate social responsibility, you think that is a heavy enough
pressure on the corporate conscience?
Sir George Cox: I think it is
growing. I think companies are very strong on those issues, much
stronger on those issues than the public perception, but I think
the big issue is the public. The public go on about energy waste,
the big waste in the home. You have only to look at the school
car park, it is full of. It will become publicly unacceptable
to do it.
Q205 Kerry McCarthy: In this country?
Sir George Cox: In this country,
but that will expand quite rapidly. No-one wants their country
polluted. I think attitudes will change, remarkably so.
Q206 Kerry McCarthy: Do you think
it is realistic in developing countries where they have not gone
through the over-consumption, if you like, and then have realised,
you think they can jump several steps ahead?
Sir George Cox: No, there will
be a big challenge because the aspirations of those countries
is to have a motorcar and all the things that we have, and so
I think it is difficult, it is not an easy problem to tackle.
People talk about things being manufactured in countries where
they do not give a damn about environmental pollution. I do not
think that is the right scenario at all. I think the attitude
of that is changing in all these countries. In some of the cities
being planned in China there is terrific environmental consideration.
There was one I saw when I was in Davos, the city there. He said,
"Here is what it looks like now." There is going to
be an industrial citylovely green fieldsand his
picture after was the same. He said, "We will just plant
over the top of it." A lot of these areas will probably be
leapfrogged, by the way. I think these are issues.
Q207 Kerry McCarthy: Do you think
there is any credence in the suggestion that companies are moving
overseas to avoid. The evidence we have had from Martin
Wolf, when he appeared before the Committee, was that he did not
think that was happening, he thought companies, if they were being
asked to meet higher environmental standards, were adapting their
technology appropriately in this country rather than thinking
of that as a reason to move overseas where the regime was less
restrictive. Would you concur with that?
Mr Radley: It is not necessarily
looking at the difference between investing in the UK and investing
in China. I think if you are doing that you are going to be doing
it for a whole host of reasons, and that will lead you to levels
of taxation, regulation, whether you need to be there to be near
the customer to exploit the opportunities. I think the regime,
in terms of environmental regulations, is only going to be one
factor. What we do find, though, is that companies are making
short-term responses where they are facing increases in their
energy bills at the moment relative to their competitors, and
what can be done relatively easily is actually to shift the loading
of some of your production from here to other locations, and in
many cases this is not in China, it is in other parts of Europe.
On one point I would like to agree very strongly with what Sir
George was just saying. I think that in many cases what you do
find is that for some companies it can be easier to actually address
these environmental challenges, in countries like China, than
it is here. In China you can develop a new facility fairly cheaply
from scratch and really make it state of the art in terms of its
efficiency and also its energy efficiency. In this country many
manufacturers are finding that they have plants that are unsuitable
for their needs, that are too large, and they need to make a change
and in many cases the planning system gets in the way of them
being able to do that. I think that is probably one of the priorities
that we need to look at urgently.
Q208 Kerry McCarthy: You are almost
saying it could work the other way: because they want to be greener
they would be driven overseas because it is more difficult to
Sir George Cox: I think there
is a general issue here. I think we could sit here and swap horror
stories of outcomes of behaviour around the world, but I do believe
that global companies are an enormous force for spreading the
standards we believe in. If you want to get people treated differently
in these countries, you cannot do it as a government, but a company
can. I have worked for multinationals and we had global standards
for training people, global standards of behaviour. I believe
an awful lot of the spread of standards will come from companies.
I think there have been good moves for some of the big oil companies
with regard to environmental issues around the world, make a feature
of it here. I think the bigger, more responsible companies will
be a great force for spreading standards.
Q209 Kerry McCarthy: So you do not
think there is an argument for requiring them, for example, to
include more information about what they are doing on the corporate
social responsibility side?
Sir George Cox: Reporting?
Q210 Kerry McCarthy: Yes.
Sir George Cox: No, I am very
cynical on this. We believe that company reports are read avidly
by people. Company reports are read by almost nobody. Thank God
we chucked the other one. I am on the Board of a company, a bank.
It came up with this requirement to report further on directors'
pay. It was going to be for a non-binding vote of the shareholders,
and I said, "What do you do with this?" They said, "You
put it in your company report." No, you cannot put it in
your company report because, of about 1.25 million shareholders,
95% or even higher elect not to take a report. They do not want
it. You say, "Okay, well put it in the summary." No,
you cannot put it in a little summary because, as it is going
to a shareholders' vote, you have got to give them the full information;
so the summary consists of a page of results and about five pages
on directors' pay. The belief that people who pick up these reports
and read them is nonsensical. Company reports are written by the
PR department anyway, it is all boiler-plate on any issues like
that. I do not think reporting gets us. I think company reputation
does. That is what has a real force. If you get exposed in the
media because of some malpractice, that gets to millions of people.
Millions of people would never look at a company report, and so
further reporting I do not believe is the answer to this.
Q211 Chairman: That does not apply
to your report, Sir George, of creativity though?
Sir George Cox: That should be
read as widely as possible. If only the Treasury were not so mean.
They would not have another production run!
Q212 Chairman: Thank you very much.
Can I finish with two quick questions and your answer. In the
report I was reading last week on the US congressional elections
there was mention that US businesses are becoming more socially
environmentally friendly, not least because of the issue of oil
and self-sufficiency. Do you think businesses here will increase
in that way? Secondly, at a seminar I was at very recently in
terms of public/private procurement and public policy, the speaker
said the question for these projects is how much can you afford
to waste or throw away, and if you cannot afford to waste or throw
away anything, then you are not taking any risk and things would
not work. Do you agree with that?
Mr Radley: I think if I was to
answer the first of your questions, certainly the evidence that
we found researching our companies was that the overwhelming majority
of them are paying increasing attention to energy efficiency,
and clearly the big increases that we have seen in gas/electricity
prices have been one of the major imperatives of driving this
forward. In many cases actually being a low carbon emitter and
actually improving energy efficiency and seeing improvements in
profitability can all go together hand in hand, and what we need
to do is make sure we get rid of things that get in the way of
doing that. At the risk of being repetitive, one thing we need
to address is the planning system but what we also need to do,
bodies like the Carbon Trust and EEF itself and others, is to
facilitate this by making sure that companies are aware of the
opportunities that are out there and what they need to do to exploit
them. I think, again, there are probable implications for developing
some of skills they need to become more energy efficient.
Sir George Cox: There are two
questions. I think, in terms of company behaviour, the big force
will be public pressure. That is what is happening in America
now. Global warming was just not believed in in America. Whether
Katrina had anything to do with it, it sure has shocked a lot
of Americans I speak to that this is an issue; so I think that
public pressure will bring about great change. The more awareness
we are, it becomes socially unacceptable to drive a huge Getty
or to throw things away, and companies will respond to that, their
markets will respond, their reputations will respond, and so I
think that you can see changing. Turning to your second question,
yes, if you are going to innovate you are going to get certain
things wrong. I am not arguing for gung-ho innovation, I am not
saying, "Go for innovation." You take it in a controlled
way and you get used to managing risk, it is part of it, but there
are certain avenues you will go down and it will not get anywhere,
and I think you have got to accept that, and I think you have
also got to accept that if people make mistakes, provided they
are made for the right reasons, fair enough. The idea that heads
must roll for a mistake I think is outrageous, in business or
in the public sector. A person took a decision on all the available
evidence, they took it for the right reasons, fair enough, that
is a change we have to bring about.
Chairman: We invited you here for the
right reasons because what we have found out this morning has
been fascinating. Can I thank you, Stephen, for coming this morning
and helping us with this inquiry. Thank you very much.