Examination of Witnesses (Quesitons 20-39)
RT HON
JOHN HUTTON
MP
20 NOVEMBER 2007
Q20 Mark Hunter: To follow with a
linked supplementary, over the past year the department has substantially
underspent its estimate and exceeded its own efficiency targets,
to be fair. UKTI met all its targets under the 2004 spending review
and both organisations have been rewarded with real-term cuts
in the funding under the 2007 spending review. Do you think that
is the right message to send out across the rest of Whitehall?
Mr Hutton: Personally, I do.
Q21 Mark Hunter: So, across all departments
in Whitehall you think the fact we are spending less in these
crucial areas rather than more is a sign of progress? The aims
and objectives are achievable?
Mr Hutton: Obviously, we are not
spending less because there is a volume increase in public spending
but we are spending it more efficiently. I absolutely believe
that first and foremost one of the direct responsibilities of
ministers to the country is to spend money more efficiently and
more successfully, and in my case less of it.
Q22 Mark Hunter: I should like to
move to the issue of efficiency targets. DTI exceeded most of
its efficiency targets in many cases ahead of schedule. I appreciate
that for part of the time you were not there, but can you tell
us a little more about how those savings have been achieved?
Mr Hutton: I think the annual
report and accounts set out those areas, do they not? There are
a number of areas where we have been able to make quite appreciable
efficiency savings. We have achieved £18 million worth of
efficiency savings in our estates optimisation programme, which
is very welcome. The Nuclear Decommissioning Authority reported
net efficiencies of £56 million last year which again is
excellent news. That was achieved by requiring contractors to
make savings and deliver the NDA's objectives prior to the payment
of fees. That is a very important discipline. The regional development
agencies reported cumulative efficiency savings of £28 million
against a target of £31 million. We have tried to be clear
and straight about where we have made those efficiency savings,
and I think that an inescapable part of the discipline in trying
to manage government departments to strive to be as aggressively
efficient as we can.
Q23 Mark Hunter: I do not think there
is any disagreement by anybody on the need for efficiency savings;
they are a good thing. The question is: how have they been achieved?
Yes, we have had the report but, with respect, there is no point
in having the secretary of state in front of us if we do not get
the opportunity to press him further. We are interested to know
how those efficiency savings, valuable though they undoubtedly
are, have been made.
Mr Hutton: I think I tried to
answer that question in relation to the NDA. Specifically in relation
to the RDAs, I think that some of the efficiency measures included
the improved management of land and property; the consolidation
of accommodation arrangements, reduced spending on consultancy
and procurement and devolution of responsibility to local partners.
In relation to the estates optimisation programme I think the
key change in the way the department works has been greater flexibility
in supporting the delivery of outputs by a more efficient, joined-up
and customer-focused organisation. I am very happy to set out
more details if the Committee would like to have them, but those
would be headlines of where we have been able to make efficiency
savings in those areas without impeding the support services that
we want to provide for businesses.
Q24 Mark Hunter: Would it be fair
to say that you have no concerns that those efficiency savings
have been achieved with any loss of effectiveness of the work
of the department? On the contrary, you seem to think that that
discipline is a very positive factor. Is it fair to say that you
do not believe there has been any loss of effectiveness in the
department as a result of those savings?
Mr Hutton: I do not believe there
has been any loss of effectiveness. Am I saying that the Comprehensive
Spending Review does not raise significant challenges for the
department? Of course it does; it would be naive to pretend otherwise,
but it will have to be managed in a sensible way. It is my job
ultimately to be able to come to the House and explain what we
have done with the money and how in relation to the work of the
department we have prioritised services that matter. Those are:
improved support for business; safe and secure energy supplies;
the advancement of our enterprise strategy and all the other things
that we want to do; and support for manufacturing. It is tough,
but I am not going to sit before the Committee and say it is impossible
to do it; it can be done and it is my job to make it happen.
Q25 Mark Hunter: My final point is
related to the 2007 Pre-Budget Report which said that the department
would generate annual net cash-related savings of £307 million
by 2010-11. It then said that the run-down of legacy business
support schemes would generate annual savings of £7 million
and BERR's Fair Market Group and delivery partners would realise
savings of £42 million by 2010-11. Could you tell us a little
more about how the department will generate those remaining savings?
Mr Hutton: I cannot today but
I shall be able to do so in a couple of week's time when we publish
our value for money agreement with the Treasury. Obviously, copies
of that will be available to the Committee. It will set out in
detail where the £307 million worth of efficiencies savings
over the period will be found.
Chairman: We look forward to that. You
have set yourself some very ambitious targets. I am always nervous
about comparing chalk with cheese, but I think you are looking
to save effectively about 10% of your budget by the end of the
period which is quite a lot.
Q26 Mr Hoyle: I should like to move
on to science and innovation. Why does the annual report indicate
that the department is on course to meet PSA2 on science and innovation
when business R&D as a share of GDP still lags behind the
OECD average? We know there was a major dip and it has improved
a little. We just want to know your views on it.
Mr Hutton: This is a very important
issue because it is fundamental to our success as a trading nation
going forward. You will know that the science PSA2 has 25 separate
indicators, the large majority of which are positive, hence the
overall on-course rating, but clearly there is a series of quite
substantial challenges in there. It is worth reminding ourselves
that the Government's R&D target remains in effect as it is
part of the 10-year science and innovation framework which it
published a few years ago. Clearly, we have the objective of trying
to ensure that R&D spending rises to 2.5% of GDP by 2014.
Our estimate is that we shall need probably to get business R&D
to about 1.9% of GDP if we are to reach that overall target. At
the moment it is about 1.1%, so clearly we have significant ground
to make up. We are significantly behind the OECD average when
it comes to business R&D. The Chancellor, the Prime Minister,
and John Denham who has principal ministerial responsibility for
science and innovation—all of us—are committed to
maximising the potential for growth and development in this area.
Q27 Mr Hoyle: We have seen the targets
but we know there is no explicit target to increase the business
R&D as a share of GDP in the 2007 spending review. We have
not set a target for that, have we?
Mr Hutton: No, because the Government
already has a target to do that through the 10-year science and
innovation framework.
Q28 Mr Hoyle: Do you think we ought
to be moving in that way?
Mr Hutton: I cannot remember exactly
how many PSAs we have. There were over a hundred and we have reduced
them to 30. Some people would say that that is still far too many.
You have to exercise some discretion here. It is right to rationalise
the PSA targets and reduce them. Any organisation must have a
reasonable number of "must do" targets to reach, and
you diminish the value of them if you have too many. If we were
to have something specific or additional here we would probably
have to lose something else. The Government has looked very carefully
at all of these and I think the current crop of PSAs reflect the
right balance in the sense of identifying the right priorities
for government but also not to overload the system with too many
targets.
Q29 Mr Hoyle: R&D is absolutely
crucial, as you have pointed out. We have tax breaks and have
tried to make it good for R&D. We do the best R&D here
but unfortunately we create jobs abroad. What can we do to keep
the jobs in manufacturing in the UK for products on which we are
good at R&D?
Mr Hutton: Let me try to answer
that important, profound question at a number of different levels.
I do not believe that Britain has entered some post-industrial
era; that is a complete fallacy. You just need to look at how
strong UK manufacturing is. Yes, there has been rationalisation
in manufacturing and there have been job losses, but Britain is
still the sixth largest manufacturing nation in the world. The
total value of our manufacturing output is two-thirds higher than
it was nearly 50 years ago. I think we can junk the myth that
somehow Britain is not interested in manufacturing or that we
can have a successful future without it. It is true that the balance
between services and manufacturing has changed, but if you look
for example at some of our best aerospace companies they both
manufacture and service their products. That goes to confirm that
there is not as binary a line between manufacturing and services
as many people tend to think. If I am right that we should still
be aggressively pro-manufacturing—and we should be—then
we should look at our manufacturing strategy in government. I
think we should look again rather like we are with our enterprise
strategy at how we might want to refresh that. I want to make
an announcement about that shortly. With the Comprehensive Spending
Review we have prioritised new resources for what I described
at my party's conference as the new green collar jobs in environmental
technologies that we need to generate in this country in future.
That is now a massive industry which employs hundreds of thousands
of people in Britain. I believe that it has a massive opportunity
ahead of it to grow in size, to develop R&D here, to network
internationally and take the advantages that are out there to
move towards hopefully and globally a lower carbon economy going
forward. When it comes to manufacturing you have to approach this
at a number of different levels. Intellectual property is important
here. We do not have a terribly effective international regime
on IP and we have to see how that can be strengthened. Domestically,
we have to look very aggressively at how we can support technology,
particularly new technology, but I think it is a big mistake to
believe that some of the pseudo-science out there indicating that
Britain does not need manufacturing. Yes, we do. I feel particularly
strongly that right now we should look again to see what more
help and support we can provide. Obviously, that is help and support
that stays within the state aid rules. You may be able to succeed
in subsidising a few jobs today but only at the expense of more
in future if you are not careful. It will not be a return to the
days of the National Enterprise Board; that period has come and
gone, but we need to be constantly alert to the opportunities
out there for British manufacturing and pursue them aggressively
both at home and abroad.
Q30 Mr Hoyle: That is music to my
ears. We can now say that manufacturing is not a sunset but more
like a midday industry.
Mr Hutton: It is not a sunset
industry. That is one of the lazy myths of our political economics.
We should be aggressively pro-manufacturing and that is very much
what I want to do.
Q31 Mr Hoyle: We both believe in
manufacturing. Maybe you can help us about the meetings concerning
Jaguar and Land Rover. Can you share with us the situation? Does
it have a future? Is it a good future? Will it remain in the UK?
Will the components sector be supported?
Mr Hutton: The Government's interest
in this, as you can imagine, is to be satisfied that going forward
these very important companies have a long-term future. We have
made that position clear to Ford in a series of meetings I have
had with them individually and with the Chancellor. With respect
to Ford, I think it wants to make sure that Jaguar/Land Rover
has a strong future and it is in discussion with a number of bidders
at the moment to explore its plans for the future of the company.
I do not want to betray any confidence.
Q32 Mr Hoyle: We do not want you
to betray it but we would like an overview.
Mr Hutton: I think the prospects
for Jaguar/Land Rover look encouraging. The prospective bidders
have expressed a very strong interest in the company and Ford's
business plans for the company. Ford has developed some fabulous
products for Jaguar/Land Rover going forward. Some of the new
Jaguar range in particular looks absolutely beautiful. I say that
as a bit of a petrol head. I know that is no longer very fashionable.
But I do like those cars.
Q33 Mr Hoyle: You do not intend to
resign and go racing them, do you?
Mr Hutton: I am not thinking about
that, and no one has asked me to do that. I have never had a car
like that; it is bit beyond my reach. What interests me, the department
and government is to make sure that Jaguar/Land Rover, which are
massively important parts of our automotive industry, and in particular
to answer your point the supply chain around it, have every prospect
of success in the future, although it is quite clear—I am
sure you would accept it as a fact—that there will be changes
in the automotive industry. I do not think Ford is in any position
to say to people that it can guarantee supply chain jobs going
forward. No one can do that any more; those guarantees are simply
not there any longer. People will look to source components from
reliable and low-cost manufacturing countries, and Ford is doing
so now. Every motor manufacturer looks to do that. We have done
some work with Ford and the automotive industry on the supply
chain and what we can do to improve efficiencies in the UK and
I am very happy to share that with the Committee. I believe that
the prospects for Jaguar and Rover are encouraging. I have been
struck by Ford's commitment to the business going forward and
to find the right future owner of the business. It has been meticulous
in its discussion with us and I think it has been open and candid
with the trades unions, which is also very important. The one
thing that the business needs when final decisions are made by
Ford is a shared consensus about the future of the business. It
would be immensely problematic if that consensus was not there.
I think that Ford is doing all that it reasonably can and has
gone the extra mile in trying to be straight and direct with government,
trades unions and others about the prospects of the business going
forward.
Q34 Mr Hoyle: That is good, because
if Northern Rock is worth £24 billion to save I would not
like to think how much we would have to lose if we did not have
such a positive story to be told. My other concern is that government
and MoD are very big procurers of Land Rover. One hopes that in
future those contracts will remain. I understand that now tens
of thousands of public sector vehicles, including ministers' cars,
are foreign-built. That has nothing to do with the EU because
a lot of them come directly from Japan. Is it not absolutely absurd
that ministers in your department ride round in Japanese-built
cars that are shipped all the way here on the most polluting cargo
ships when we ought to have a playing field similar to that of,
say, the French, Italian or Spanish Governments which promote
vehicles built in their own countries? Why can we not do the same?
Mr Hutton: I do not think it is
wrong for ministers to choose vehicles that are low carbon emitters.
Q35 Mr Hoyle: They choose them.
Mr Hutton: They do choose them.
Q36 Mr Hoyle: That makes it worse.
Mr Hutton: I do not think it is
an inappropriate choice for ministers to make, if I am being absolutely
honest. People feel very strongly about this and want to exercise
choices. I think it would be good to see more British cars with
hybrid technology being manufactured; that would be a way of resolving
that problem. I drive a Jaguar.
Q37 Mr Hoyle: I know, and I am pleased
to see it.
Mr Hutton: That was my choice,
but people should be free to make the choices they want. I do
not believe it is ignoble of government or its car service to
provide ministers with hybrid vehicles. I think that is reasonable.
The problem is that we could not source them from a UK supplier.
Q38 Mr Hoyle: Maybe you have answered
the question. If we did not buy them we might have them produced
here. The fact is that we see government ministers who are willing
to buy Japanese-built vehicles. At the end of the life of the
vehicle it costs a lot more because of the batteries in it. Obviously,
it is not that much better than a diesel engine anyhow, and some
may argue that a diesel engine is better. It is all about balance.
I do not think the minister has got that information; I just think
it is not good policy. We ought to be backing British industry
and setting good examples like yourself.
Mr Hutton: Thank you very much.
Personally, I very much doubt whether any manufacturer in the
UK would base a decision to invest in hybrid technology on whether
or not the government car service would buy those vehicles. We
are not that big a source of sales, if I am being honest. Customer
preferences in automotives are shifting. There is a growing and
healthy awareness of the changes taking place to the planet and
atmosphere. Most people want to make a contribution in the way
they can. The difficult job for car manufacturers is to find a
way to do that without basically shoe-horning us all into little
bubble cars because that is not what consumers want either; they
want a proper choice. I had the very good fortune to be in California
a few weeks ago to see a fabulous company, which in part is sourced
by Lotus in Britain, that manufactures electric cars. As I said
earlier, I am a petrol head. This car is purely electric and emits
no carbon at all. It does nought to 60 in four seconds. That is
the sort of car I am very interested in having. If we can get
to a point where we have a broader range of choices for customers
that will be a very healthy thing in the car market. I take your
point, Mr Hoyle, but we probably disagree on the detail.
Q39 Mr Hoyle: Land Rover's four-wheel
drive technology is a world leader and yet we see Mitsubishi being
used by the Highways Agency which is not saving the planet in
any way whatsoever; it is destroying it because it has to be shipped
from Japan. There is something absurd there. You have the best
four-wheel drive technology. Some parts of the Highways Agency
discover Land Rovers and use them and yet others use Mitsubishi.
It just does not add up because even in procurement terms we are
not saving money by going to different companies. Can we have
a bit of joined-up thinking?
Mr Hutton: Was that in my annual
report?
Mr Hoyle: No; it is just a question.
You represent British business and car plants. I just hope that
you will look at it.
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