Examination of Witnesses (Quesitons 1-19)
RT HON
JOHN HUTTON
MP
20 NOVEMBER 2007
Q1 Chairman: Secretary of State, welcome.
This is your second appearance before us but your first before
the new Committee. I believe you attended the last public meeting
of the old Committee when it discussed post offices, so you are
alpha and omega. We are grateful to you. I am sure that later
we shall be asking some rather more searching questions, but what
do you make of the rather long and cumbersome name of the department?
Was it worth spending all that money on making the change?
Mr Hutton: I have the longest
job title of any minister in government, which I suppose is nice.
Politicians spend a lot of time on these kinds of things, but
it is important that the new department has a proper focus on
being the voice of business at all levels of government. That
is the mandate which the Prime Minister has given to the department
and we intend to deliver that. The cost of making the change was
about £200,000. One of the familiar Westminster pastimes
is the question: does the DTI have a future? It does have a future.
It is necessary and important for business to have an effective
voice in government, which is crucial as the pace of change in
our society and our economy accelerates and does not diminish.
It is a great honour for me and I am really pleased to be doing
this job. I cannot think of a more important job in government
than making sure British companies have the best prospects of
success in future. I see our ambition as a country as absolutely
dependent on delivering that objective and I am very pleased to
be playing my role in it.
Q2 Chairman: As the acronym makes
us "BERRCs" we are not entirely thrilled.
Mr Hutton: I think that is more
your problem than mine. I know that my department does not like
me to joke about the job title and at some point you have to move
on.
Q3 Chairman: On a little more serious
note, I do not understand the difference between business and
enterprise. Would it not have been better if the "E"
had stood for "Energy" which is one of the crucial roles
of your department?
Mr Hutton: That is a perfectly
fair point. There is a difference between business and enterprise.
Enterprise for many is seen not as a state of mind but a philosophy.
In terms of government and what it does, inevitably it is about
the process—because government is often about process—and
substance of helping as many people as possible to set up a business
and to grow it and to inculcate an approach which views going
it on your own as being on a par with any other career choice
and pathway that you could choose. For many people I think business
is seen to be about free and fair markets and a series of things
that happens once you have taken the plunge and set up a business.
I think the two titles are perfectly complementary and cover discrete
areas. Although inevitably there is a measure of overlap between
the two I think they are sufficiently discrete. The energy portfolio
is becoming more and more important. If I am being honest with
the Committee, I always wanted to do that. I have spent most of
my time since becoming Secretary of State of this department looking
at energy-related issues. In part, that is because of the imminence
of the response to the nuclear consultation but it is also because
of the new targets that the European Union will set for Member
States on greenhouse gas emissions and so on. Securing clean and
affordable supplies of energy is of fundamental importance to
British business. It is impossible to imagine a more fundamental
issue that relates to competitiveness than energy, so I have some
sympathy with what you have said. Most of my officials probably
would wish that I did not recount this story but it will come
out one way or another. When the department was first established
we had the "D" before "BERR"; now the "D"
is pretty well not referred to because it is a bit of a mouthful.
When people were emailing me at `dberr.gov.uk', none of those
messages were coming through. We were at a loss to understand
the problem until one of our IT staff realised that "dberr"
stands for "database error". The computer picked up
"dberr" as a problem in the message. It is not that
funny now but it was funny when I told the story earlier. I will
polish up my lines later.
Q4 Chairman: I read it in the gossip
columns a few weeks ago, but it is worth getting it on the record.
You used the expression "being the voice of business".
You have six key themes where you are the voice of business: transport
infrastructure; the planning machine; migration; skills; innovation;
and, intriguingly, business taxation. Can you tell us what role
you have been playing as a voice for business in the current furore
over capital gains tax?
Mr Hutton: In relation to all
of those six topics I hope there is a consensus in the Committee
and outside that those are probably the most important cross-government
issues affecting business. I do not think we can successfully
tackle the challenges that businesses are facing if we assume
that they will be uniquely the responsibility of one department
of government and not several. If you look at the public service
agreements we lead on three but they are all in a sense shared
responsibilities when it comes to delivery. I talk to the Chancellor
about tax on a regular basis. With the greatest respect to this
Committee and its Members, I shall not reveal the content of the
discussions with Alistair Darling; that would not be appropriate.
Obviously, taxation is a major issue for business. I have been
lobbied pretty extensively about the contents of the pre-budget
report, which is in the public arena. What I do say about the
Capital Gains Tax (CGT) changes is that the debate is still a
lively one. I do not try to diminish the strength of feeling around
it, but business no longer says to me that it will stop people
forming businesses, because I personally do not believe that to
be true. The issue of rewards and incentives on completion when
you have done the job and want to sell the business is a very
important one, but from what we understand it is not one of the
ideas that people have in mind when they take the plunge and set
up a business. No one can really tell what the tax rates may be
six, seven, eight or nine years from now; it is very difficult
to do that. There is no international evidence to show that tax
is one of the issues that decides whether or not you make a go
of business. I believe that argument has slightly changed; it
is now more on the rewards and incentives side. I do not believe
that it will be a deterrent to enterprise ab initio. The
rates are highly competitive internationally and that is something
of which we should not lose sight. There are very strong arguments
going on. I know the Chancellor is looking at all of the points
that are being made to him during this period of consultation
on the PBR, as it were, and we shall see what emerges.
Q5 Chairman: But you have set yourselves
up as the paramilitary wing of the CBI by declaring yourselves
as the voice for business in government. If business is to be
persuaded that its voice is being heard it needs evidence. I understand
why in government process terms you will not reveal what is going
on, but how can we know that the department is being an effective
voice for business as the paramilitary wing of the CBI if you
will not tell us what you are actually saying about it?
Mr Hutton: I do not see ourselves
as the paramilitary wing of the CBI. With great respect, I think
that is a gross mis-characterisation.
Q6 Chairman: The point I am making
is that the CBI is already a voice for business. What do you add
to the sum of human happiness if you do not tell us what you are
doing?
Mr Hutton: We are telling business
what we are doing.
Q7 Chairman: But you will not tell
us about crucial issues that at present affect business most profoundly.
I understand the reasons but you will not do it.
Mr Hutton: Quite—for understandable
reasons. I think that is understood. In relation to the wider
points, there is no doubt that we need a pro-business department
in government. That is the view of the Prime Minister, the CBI
and also other employer organisations. They welcome the establishment
of the new department and regard it as important to have a pro-business
department in cabinet, and they have certainly got that. I made
it clear to the CBI when I spoke to it within a few days of becoming
Secretary of State that we would be pro-business, but I also made
it clear that we would not necessarily agree on everything. There
is a sense that you can be pro-business without necessarily agreeing
on every single item on the agenda going forward. There is a process
of decision-making within government. It is very good to have
a former secretary general of the CBI inside Government now for
obvious reasons, for example constitutional importance.
Q8 Chairman: He is inside the Government?
Mr Hutton: Yes, and he is a very
valued member of the Government. Clearly, you cannot have the
Director General of the CBI sitting at the cabinet table on a
par with all the other secretaries of state; that is not how our
system works. It is my job always to put the pro-business case
to my cabinet colleagues as far as possible, and I do, but ministers
are there to make decisions. Sometimes ministers may agree to
take a course of action that the CBI and Engineering Employers
Federation, FSB and others might want them to take; sometimes
they will not take that advice.
Q9 Chairman: Do you talk to them
about tax?
Mr Hutton: I think that is an
inevitable part of our process of democracy and accountability.
At the end of the day our accountability is to the country, our
constituents and to voters, and long may it continue to be the
case.
Chairman: Julie Kirkbride wants to press
you on the question of tax.
Q10 Miss Kirkbride: I think the former
Director General of the CBI on the issue of tax policy has some
very strong views in private, albeit he is now a little constrained.
When the Prime Minister was Chancellor of the Exchequer and brought
in the 10% CGT tax band he did so for very specific reasons, saying
that the thing society valued most was entrepreneurs because they
brought forward ideas and jobs and therefore they were in a special
category, which was why they got and would otherwise still be
getting, a superior tax regime. The new tax regime will put entrepreneurs
when they sell their businesses in the same category as property
developers, without being disparaging; they will pay 18% on any
asset they sell in the same way as anyone who has created a company.
As Secretary of State for Business, can you explain why that is
the right thing to do?
Mr Hutton: The Chancellor has
set out why he believes that is the right thing to do and I support
him and the arguments he has made. A big part of his case for
these reforms has been simplicity in the tax system. I think there
is a very important prize to be reached in simplifying the tax
system, and he has put forward his arguments as to why he thinks
that is appropriate in relation to capital gains tax. On the wider
point about how we reward enterprise and initiative, it is worth
reminding ourselves of two important facts: first, the international
competitiveness of our capital gains tax regime. After the changes
that the Chancellor has announced they still remain amongst the
most competitive in the world. Essentially, the tax changes that
Alistair Darling proposes means that instead of keeping £90
out of every £100 of gain the successful entrepreneur will
keep £82.That is an immensely attractive tax regime. The
tax changes have been made in order to finance other reforms of
the tax system, in particular in relation to inheritance tax where
a very strong case has been made for reform. Perhaps I may make
one point that is not aimed at any political party. To some extent
all of us fall prey to this. All of us like the idea of a tax
cut that we think someone else will pay for and I am afraid that
in government that is not a respectable position to take. It is
perfectly possible to make a case for inheritance tax changes.
We have accepted the case and it must be funded in a proper way.
That is fiscally responsible. That is what the Chancellor is trying
to do and I believe that he has taken the right course.
Q11 Miss Kirkbride: He has done the
right thing on CGT?
Mr Hutton: I think he has made
the right changes, yes.
Q12 Chairman: We must not trespass
too far on the work of the Treasury Select Committee, but the
concern must be that business will not understand exactly what
you are doing on its behalf because you cannot produce the evidence
in public. The Business Council was an interesting innovation
of the new Prime Minister. I do not yet understand its significance.
Many of its members have also been very critical of this particular
issue. Now Lord Drayson has resigned how will the Business Council
be looked after at ministerial level in the department?
Mr Hutton: I shall be looking
after the Business Council.
Q13 Chairman: You will be taking
personal responsibility from Lord Drayson. Remind the Committee
how often it will meet.
Mr Hutton: I believe it will meet
two or three times a year.
Q14 Chairman: Will you be at those
meetings?
Mr Hutton: I shall be and so will
Lord Drayson; he will remain a member of the Business Council.
That was made clear in the exchange of letters between the Prime
Minister and Lord Drayson when he resigned. I think that he had
one of the best reasons ever for any minister to resign from government:
he wanted to race his Aston Martin. I know that people can be
cynical about all of these reforms and changes but I believe it
is immensely important that if Government is to make most of the
right decisions in relation to the hugely challenging agenda of
business going forward it should try to involve senior leading
business figures in our country at the highest levels. I would
be surprised and disappointed if there was a sense in the Committee
that it was wrong to set up a very distinguished panel of senior
business people who could advise ministers and the Prime Minister
directly. It has certainly been warmly welcomed in the business
community. So far there has been one full meeting of the council.
Its members have decided that they will also pursue more detailed
working groups to look at particular issues. In the next couple
of weeks I hope to meet a group from the council to discuss energy
because this is a hugely important issue for business. Early in
the new year there is an opportunity for the Government to set
out its response on the nuclear question, to which I am sure the
Committee will want to turn to in a moment. The Business Council
is not a substitute for other forms of contact with business.
We have regular contacts with business leaders, large and small.
We are in the middle of very extensive consultation with small
businesses on how we should revitalise our approach to enterprise.
It has been several years since the Government last published
a statement of its policy intent in relation to enterprise. I
want to renew that and be radical in how we look at enterprise
going forward. The challenges are getting bigger and not easier.
I think there are some important and welcome signs on the horizon
about the attitude particularly among young people towards enterprise
which I think should give us all encouragement. There is growing
evidence that more young people are setting up businesses, and
we see that also reflected in the statistics for the number of
businesses that have been formed and go on to register for VAT.
They are still there in the system 18 months or two years later.
There are some good signs, but we are not where we need to be
on enterprise; we need to be up there on a comparison with the
US. We are not. We are doing very well in Europe but that is largely
because others are not doing well. We have to be ambitious.
Chairman: I think the Committee would
be interested to see what added value the Business Council offers.
It may be a very good idea, but we shall want to look at that
at some stage in future and see what it is achieving and how it
helps the machinery of government processes.
Q15 Mark Hunter: I want to take you
to departmental budget issues. Some of us have difficulty in reconciling
rhetoric and reality here. I want to quote from a government press
release: "The 2007 Comprehensive Spending Review underlies
the Government's commitment to business and enterprise."
That is pretty straightforward. Can you explain to us how you
reconcile that statement with the real-term cuts in funding facing
the department over the same period of time?
Mr Hutton: I will do that. I understood
that it was your party's policy to scrap the DTI altogether, so
we need to take any criticism from your party with slight caution.
Q16 Mark Hunter: I think it is our
job to ask the questions today, with respect.
Mr Hutton: It is but it is also
my job to defend the decisions of government and the decisions
to be made particularly in relation to budget. As to the CSR,
it is impossible to argue that any department, with the exception
of health, defence and education, should not take its fair share
of the smaller cake that is available for distribution among the
public sector. I do not think it is necessary to take the pro-business
or high ground and argue for huge increases in departmental budgets.
Those are the old economics, not the new economics. I want to
do more with less. I think we should be pursuing efficiency savings
aggressively. I do not make any excuse for that. That is our responsibility
to the taxpayer. Our discipline will have to be to do more with
less. That is a discipline that companies have to deal with; it
is the same discipline that government should have to deal with.
Q17 Mark Hunter: But on that basis
would we not expect to see spending reductions across all government
departments?
Mr Hutton: No. I have just made
the point that I think there is a strong case in health, education
and defence for increases. That is a political judgment and I
think it is the right one. It means that it is appropriate for
every other department—DWP, my other department, is taking
a larger share of reductions in spending than my new one—to
show financial discipline and not imagine that the only way they
have discharged their wider responsibilities is to go to the Chancellor
every year and ask for more money. I do not agree with that.
Q18 Mark Hunter: Are you entirely
happy that the aims and objectives of your department can be met
with a budget that has been agreed at the time of the Comprehensive
Spending Review?
Mr Hutton: Entirely.
Q19 Mark Hunter: You did not press
for a bigger allocation of resources because you did not feel
it was necessary?
Mr Hutton: I was Secretary of
State for DWP at the time of the CSR settlement, so that would
have been a difficult thing for me to do. I am happy with the
settlement. Is it problem-free? No. But it is my job to sort out
those problems; I am not going to whinge that I have been left
with challenges. You have to get real. Government is not about
getting everything you want all of the time with loads of cash
to spend.
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