Select Committee on Treasury Minutes of Evidence

Examination of Witnesses (Questions 200 - 212)



  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 assessment?

  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 city—lovely green fields—and 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 be green?

  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.

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