House of COMMONS









Wednesday 16 January 2008


Evidence heard in Public Questions 1 - 86





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Oral Evidence

Taken before the Innovation, Universities and Skills Committee

on Wednesday 16 January 2008


Members present

Mr Phil Willis, in the Chair

Dr Roberta Blackman-Woods

Mr Tim Boswell

Mr Ian Cawsey

Dr Ian Gibson

Dr Evan Harris

Dr Brian Iddon

Mr Gordon Marsden

Graham Stringer

Mr Rob Wilson


Witnesses: Rt Hon John Denham MP, Secretary of State, Department for Innovation, Universities and Skills, and Mr Ian Watmore, Permanent Secretary, Department for Innovation, Universities and Skills, gave evidence.

Q1 Chairman: Could I welcome the Secretary of State, the Rt Hon John Denham MP, to his first visit to the new Innovation, Universities and Skills Select Committee, and welcome to Ian Watmore, the Permanent Secretary at DIUS. This is the last of the individual sessions which the Committee organised to get a feel for what the Department is about and to meet some of the key players within the Department. We are particularly grateful to you, Secretary of State, for coming along this morning. In a recent speech to the CBI you said that: "the formation of DIUS does not mean that past policies, past ministers, or any of the Department's key areas of work have failed". Why do we need a new department?

Mr Denham: What I meant by that, Chairman, was if you look at the three broad strands of work that have been brought together in the new department - further education, higher education and science and innovation - you would not look at any of those areas and say, "We have got a terrible university system", we have a very good university system, a good record of achievement of skills and obviously a very significant achievement in the science budget. The question is are we as Government and the country as a whole getting the most out of those three strands of work. There is obviously a synergy between them. Developing the skills of all of the population, which is everything from basic numeracy and literacy through to post-graduate research skills, having a very strong base of research and scholarship, and applying them to create the right environment for innovative businesses and public services means bringing them together. What you could say about past arrangements and what our job is to try and tackle is you have not necessarily had within one department the discussion between the education and skills side of government and the people working on innovation and working with business. Our challenge, if you like, Chairman, is to show that by bringing those strands of work together within one department we can make a greater picture than having them separately in government as they have been in the past.

Q2 Chairman: The impression or the feeling in some quarters that the Government wanted to set up a Children, Schools and Families Department and that what was left of that and the old DTI came together is not true, this is not a leftover department?

Mr Denham: No, it is not a case of, "We will put all those bits that are left over somewhere and we will call it DIUS". There is a logic behind both departments. There is a logic in having a department which is broader than essentially a schools department looking at 0-19 which is able to take a broader view over education, family policy, youth justice and so on. There is clearly a logic as well in having a department that is looking at the adult world, which has a strong economic focus about our ability to be competitive as a society but also has a strong social dimension, and particularly the development of adult skills is going to be the key to social inclusion and prosperity and security for many families. There is a logic to both departments, not just a logic to one and what is left over.

Q3 Chairman: What always amazes me, Secretary of State, is if there is such a logic why did it take ten years for this logic to become apparent?

Mr Denham: I do not live in a world where I think governments should always have got everything the way it should be on day one or they have failed. Things emerge over time. Obviously I was not directly involved in the decisions that led to the machinery of government changes, but I think it became clearer and clearer over the ten years that, for example, looking at young people's educational achievements without looking at broader issues was not likely to achieve what we want to do for young people. In my past role as Chairman of the Home Affairs Select Committee we produced a report saying just that sort of thing. Secondly, if you look at, for example, science and innovation, there has been a progression from initially investing substantially in science and building up that investment to recognising that we then needed to invest in universities through the Higher Education Innovation Fund to improve the interface between higher education and business, to the realisation that business wanted to talk about the whole range of its interaction with education. When I meet people from business I do not meet a separate set of people who talk about research or degree level skills or craft skills, the same business will want to address the whole agenda. I think it is a realisation that a great deal has been achieved but we could do more by reorganising in this way.

Q4 Dr Gibson: When the political gravestone is laid I would not like to see it just written with "John Denham" at the top saying, "He made a difference". What kind of difference do you aspire to? What would you like to see quite specifically? Your generalities are in tune with the nation and what we are doing but specifically what have you in mind that you would like to really achieve? Would it be on work in this country or developing countries in terms of innovation and sciences and the onward movement of knowledge?

Mr Denham: Come back to me, Dr Gibson, if I am saying things at too high a level.

Q5 Dr Gibson: I will understand!

Mr Denham: In terms of generalities, not in any other way. I think it would be to make a real contribution to the two areas of our future economic competitiveness and prosperity by making a success of the way in which we support innovation and bring science and the rest together to do that effectively. Secondly, it would be to demonstrate that we can make a real difference to social inclusion, social mobility, by raising the skill levels of people whose skills are poor at the moment and who will otherwise struggle in the labour market. Those are both areas where over a period of time, and obviously other government departments contribute to that, our Department ought to be saying that we can make a real difference. You can then break that down into how you measure it in the number of spin-off companies or the competitive success of our business or the number of people with skills or the number of people in work and all those sorts of things. Those are the two big areas where the Department as a whole will rightly be questioned. There are many other areas and I will be speaking later today about the way in which we use scientific evidence in government. I want us to be a champion of science within government. Yesterday we opened up a debate about informal adult learning, which is a very important area of human activity. There are many other specific areas where I want to move the agenda forward. It is those two big ones, our economic competitiveness and our ability to develop a more inclusive society, that seem to me to be the two big challenges.

Q6 Dr Gibson: At the same time as you have competitiveness you have got co-operation going on with China and India too in the exchange of students, ideas, work and so on. You cannot really compete, as it were, with the great continent of Africa and the problems there but you can add a lot to their culture. How does that gibe with the competitiveness agenda?

Mr Denham: This country has to build a strong economic base on the basis of the quality of the skills of the people we have on offer here, the quality of the research and the extent to which we create an environment for innovation. In practice, of course, these are not isolated activities. We are second only to the USA in the number of citations of our scientific papers and a very significant proportion of those are through international collaboration. The funding that goes into programmes like Science Bridges, the links that we make around the world through the Science and Innovation Forum are important globally but are also important to our national economic advantage and I do not think we should shy away from saying so. The truth is there are many situations, and if we take the UKIER programme with India, where it is to our national economic advantage to participate and it is to the Indian national economic advantage to participate and both countries will seek to be more competitive in the world but we will build stronger positions for ourselves by working more closely together. As far as Africa is concerned in terms of development, there is a substantial part of our research effort and our academic work which goes towards supporting work on issues which are going to be vital to development, whether that is in food science, dealing with the problems of climate change or understanding climate impact around the world, those are enormously important.

Q7 Dr Gibson: In terms of the two departments that were set up there is a kind of age specificity there.

Mr Denham: Yes.

Q8 Dr Gibson: Were other models considered?

Mr Denham: I would not know, Chairman, what other models might have been talked about, I was not responsible for the machinery of government changes.

Q9 Dr Gibson: You do as you are told!

Mr Denham: I do as I was offered actually! I did not actually say, "Prime Minister, why don't you think of doing it this way?" I do think there is a real logic to a department that brings together in a coherent way 0-19 policy, there is a really strong logic in looking at the adult world across all levels of skills, science and innovation. It does not mean that it has severed some sort of umbilical cord, there are clearly crucial areas of co-operation between the two departments, as there would be whichever way you cut the cake, but I think this is actually a very logical way of doing it.

Q10 Dr Gibson: Have you any evidence that there were discussions along those lines? I know you were not involved.

Mr Denham: No. I have not taken part in any discussions of that sort at all. What I would say on the more positive side, and Mr Watmore might support me on this, is that now we have a new department discussions do take place between higher education and science and innovation, further education and science and innovation, on a routine basis between officials who rarely met and worked together previously because they were separated. Now we have relocated in new headquarters you will actually see a much richer output from that work.

Q11 Dr Gibson: Perhaps you would know if there had been discussions, Mr Watmore?

Mr Watmore: No. Again, I was rung up three days before the machinery of government and asked would I be prepared to take this role.

Q12 Dr Gibson: Gosh, we will never know then.

Mr Denham: I just took it as it was offered as well.

Chairman: Do you think anybody knows?

Dr Gibson: Does anybody care?

Q13 Chairman: Can I follow up on Dr Gibson's question on the issue of structures between your group of civil servants and the one in Children, Schools and Families. What formal structures are there to ensure that there is that, if you like, seamless progression rather than two silos that sit side-by-side?

Mr Watmore: If I could broaden that slightly. There are four departments that work very closely together on interlocking issues because of work and pensions as well with the Jobcentre and skills and, of course, the artist now known as BERR, the former DTI, with all those interests in business, enterprise and growth. The fourth of us work very strongly together. At a formal level we have joint board meetings amongst officials. It is not the whole board because it would be unwieldy but with the key subsets and we look at issues of cross-interest. Similarly, there are regular bilaterals between the secretaries of state and our key ministers. We encourage right throughout the Department for people to interlock with their former colleagues on key issues and some ways in which we are achieving that are to create more formal structures, such as meetings on 14-19 agendas or whatever it might, and quite often informal as well. Literally last week I had a very free-ranging discussion with David Bell, my counterpart at DCSF, on a whole range of issues which we will pick up.

Q14 Chairman: Secretary of State, one of the casualties that there appears to be of the new arrangement is the FE sector. If we look at Lord Sainsbury's report, Race to the Top, he very interestingly makes a huge bid for the FE sector to be beefed-up in terms of providing much of the skills, particularly at Level 2 and 3 and into foundation Sub-Level 4. In order to drive that agenda, how do you and Secretary Balls organise the FE sector to make sure it is a dynamic vehicle rather than, if you like, a casualty of war?

Mr Denham: I am glad you put it as something to be avoided because I do not accept that it is a casualty. The reality is that we have to ensure that the FE sector colleges play precisely the role that you have said and our commitment to invest in them, not just in training programmes and training activities and educational activities but in capital terms is very big. Our capital budget, as you will know, is about £2 billion for the FE sector and that comes on top of £2 billion which has been spent over the past period, so that is a massive investment in a sector that ten years ago had no capital programme. What we have, of course, depending on how you look at the figures, is about 50 per cent of the 16-19 generation educated in colleges that are mixed to a significant degree, primarily FE colleges that are doing both 16-19 and adult, and a significant section of sixth form colleges which have some adult provision. What is absolutely key is that the funding arrangements from the two departments work at an institutional level. So although it will be the case certainly that colleges will receive funding for 16-19 which will be increasingly determined by local strategies for that age group, and they will receive adult funding from us which will become increasingly demand-led with the dynamic impact of Train to Gain as employers have more influence over the system and individuals have more choice, still some planned provision within that, we have got to make sure if you are running a college that works financially and gives you the flexibility and ability to innovate that you want. Where we are at the moment, Chairman, is we are aiming, we hope in February, to publish a consultation document setting out exactly how that will work. That is obviously something we are working on very carefully and I met with Ed Balls, with my colleague, Bill Rammell, and Jim Knight yesterday to go through it, and we are meeting on a very regular basis. It is a complex area but I do not think it is an area where it is impossible to come out with a very satisfactory solution.

Q15 Chairman: I think that is something the Committee will want to keep abreast of in the future.

Mr Denham: I would hope so.

Q16 Dr Harris: I think I read somewhere that you recognise that you want your Department to be a champion for the proper use of science across departments.

Mr Denham: Yes.

Q17 Dr Harris: Or maybe you just said that, and the use of evidence-based policy-making. What evidence was commissioned, gathered or used in deciding how to create your Department because you were not asked and your Permanent Secretary was not asked?

Mr Denham: No, indeed, and nor have I gone back through the archives to look at these things. I would not be able to tell you because it never really occurred to me as an issue where it was worth going back over the extent of academic evidence in this area. However, a considerable amount of evidence existed that informed the decision. At the time the Department was formed much of the work had already been done on Lord Sainsbury's report on innovation. I am sure that would have influenced thinking about the nature of the arrangements we needed in government in order to drive forward innovation successfully. We have the Leitch Report which demonstrated a pretty compelling case that we needed to increase the number of people skilled at every level in our society. If you take that sort of evidence together, and I would not know whether somebody then commissioned a separate academic study about the machinery of government, there would two pieces of evidence which would have made a pretty compelling case that something like DIUS would be a logical way of organising our activities. It is a very powerful case that the old arrangement where science was being dealt with over here and higher education was being dealt with over there was not the best way of achieving the culture of innovation that Lord Sainsbury was after.

Q18 Dr Harris: There is clearly a political argument for a new Prime Minister making some initial decisions that look as if they are, or indeed are, important and felt necessary and radical and stamping a new approach, but that does imply there are going to be some things that are done in government, particularly at the top, that are never going to be based on consultation, deliberation and evidence-gathering because prime ministers or ministers sometimes just have to look as if they are being decisive. Do you recognise that is an inevitable tension? Do you accept it is unfortunate within a department that is leading evidence-based policy-making you are formed from what looks like a decision that cannot clearly be seen to have been based on not just academic evidence but evidence of what might work?

Mr Denham: I do not think that is fair. I set out two major reports, one of which has been published and one of which would have been familiar at a senior level in Whitehall, the Sainsbury Report, both of which pointed very strongly in the direction of a department that was able to focus on the adult world and on the links between skills, wider economic activity and innovation. It is simply not fair to say there was no basis for it. Nor do I accept that the decision was taken cynically to show something was being done by a new Prime Minister. It makes sense in terms of the structure of government. There is a difficulty. When I was where the Chairman is, when I was chairing the Home Affairs Select Committee, there was a similar issue about reforming the Home Office and Ministry of Justice. When we looked back through it, I do not think any government has ever felt that you could go out for a massive public consultation about the future shape of the machinery of government without stopping Whitehall working for a very considerable period of time. It is a dilemma.

Q19 Dr Harris: If I were Mr Watmore I would feel a bit disappointed that I could not be trusted to be asked my opinion about a massive change like this, but I accept what you are saying. My last question is about science. The last Select Committee produced a report which made suggestions about putting "science" in the departmental title and I know that you responded to that recently and it has not yet been published by us but I imagine you would say it would be unfortunate to change stationery and stuff even if there was a case to be made, and let us say I accept that. What I would like to ask is whether in retrospect you think had you not set up the nameplates, the stationery and all that and started getting identification it would have been, as the President of the Royal Society says, better to have had "science" in the title, but we are where we are?

Mr Denham: We are where we are and it is a difficult one. I would say if "science" had been included in the title in a way that would have reflected the importance of science to the actual work of our Department we would also have had to include "colleges" in the title, who do not mount the same lobby but have often said to me they feel excluded because universities are in and colleges are not and they have said, as the Chairman said, they are very important. We would then have been "DISCUS" rather than "DIUS" if we had included science and colleges. We are where we are and I think it is a more manageable name. I would say to this Committee I need to demonstrate in practice that as a Department we are engaged in science, we want to lead on the science debate and that is why, amongst other reasons, I want to talk about the use of scientific evidence in decision-making tonight. We need to demonstrate through our commitment to the research budget what we are going to do about science. I hope that this debate about what is included in the title or not will go away because people will be comfortable with what we are doing as a Department. It is part of my job to ensure that happens, I think.

Q20 Dr Gibson: You talked about fragmentation, the ghettoisation of science over there and other things over there, but sometimes do you think it might evolve into a Ministry of Science in this country because you have still got that fragmentation in different departments, there are chief scientists here, there and everywhere? You say they meet for a cup of coffee now and again but do they actually form a joint scientific policy for the nation? In the past we have had a Ministry of Tech remember.

Mr Denham: My own thinking is that I would not be convinced about a Ministry of Science because we have to do two things. We have to protect the pure science, the research driven agenda, which is crucial to our future science-base as well as our economic basis, but we also have to have the links between science and innovation, the links between science and business and public policy, the links between science and the wider educational field. It will depend how you draw the boundary obviously but a Ministry of Science might institutionalise just one aspect of scientific activity. As far as chief scientific advisers here, there and everywhere, I am rather in favour of that. I think one of the significant achievements of recent years has been the development of the network of scientific advisers in government departments with the Chief Scientist. I know that Sir John Beddington, I do not know if you have had him as a witness?

Q21 Chairman: We have.

Mr Denham: I thought you had. I think he sees himself as leading that profession of scientific advisers within government. That is crucial, we do need that scientific advice embedded across government and not just within one department.

Q22 Dr Gibson: I think Dave King was a bit disillusioned that it did not really work as effectively as it might. Maybe it is an evolutionary process.

Mr Watmore: I think it is an evolutionary process about which I will say a few things tonight.

Chairman: Can I say, Secretary of State, we are very conscious of the issue and we are grateful for your support in putting "science" in the title of this Committee because it is a very, very important statement that this Committee will be looking at science across government in exactly the way to which Dr Gibson has referred.

Q23 Graham Stringer: I do not want to labour the point too much about titles because titles are titles and it is what you do, I accept that, but is it not rather surprising, given that Tony Blair said our party's priorities are "education, education, education", that there is no department with "education" in the title?

Mr Denham: I do not think it is. It is the case that for a long period of time, and this is my view of the situation, it was assumed that the spine of the system was lifelong learning and you therefore had an Education Department which was lifelong learning and other activities were organised around that. The insight that has led to the two departments is a recognition that although that strand of lifelong learning is absolutely critical, and that is why we have to liaise so closely with DCSF, there are different ways of looking at it and looking at a department which is looking in a broader way at families and children with education at its core is the right way to deal with 0-19 policy and looking at education in the context of scientific research, adult skills and innovation is the right way of organising things. That is a radical break with an assumption that had been made over many generations that you made education the spine and then hung everything off it. I think it is the right way to look at things today. What is critically important, and Ed Balls and I both accept this, is that there cannot be a severance, there still has to be a root of lifelong learning all the way through the system and that is where liaison between our departments is critical.

Q24 Graham Stringer: What is the cost of creating this Department?

Mr Denham: It has not been huge but I will let Ian talk about that.

Mr Watmore: In effect the cost is net zero because the money that was previously agreed as the two DTI and DfES budgets and settlements has been split between the three departments.

Q25 Graham Stringer: That is a simple accountant's answer, is it not?

Mr Watmore: There is no new money involved in the system. In reality, for creating our corporate structure on top of what we inherited from the previous department, we inherited 761 staff on the first day of the transition. We anticipate we will recruit not more than 900. We are up in the 800s at the moment, so we will add between 100 and 150 staff to the department. Offset with that we will be employing quite a broad shared service approach to our back office at the department and we think the two will net out so that we can afford to do the increase in staff to support ministers, do the communications function and have a core HR and finance function in the department, but we will allay the other costs by doing it through a shared service model.

Q26 Graham Stringer: That is a sort of bottom-line answer, is it not? There will have been the costs of creating new corporate logos. There will be the time costs of interviewing staff for different jobs and simply moving location, so there are real costs. While you are interviewing staff and moving offices you are not doing the core business of the department, so have you got an estimate of that cost?

Mr Denham: The corporate logo was less than £13,000.

Q27 Graham Stringer: We will not worry about that.

Mr Denham: No, but if that is an indicator of approach, we did not go out to an expensive corporate re-branding organisation. It was done essentially with in-house skills. One of the advantages of DIUS is that we have a range of organisations attached to us that have in-house skills so it was done very cheaply, and we have set out very carefully, and ministers have said this from the top, not to have undue expenditure in this area.

Mr Watmore: You are clearly right that there is effort in the creation of the new department and its culture. That is something that virtually everybody is involved in at some level in the organisation. Again, what I am finding with our staff is that this is enthusing and motivating them. They are in a new exciting world. They are getting more focused. They believe in the mission and the vision of what we are trying to do. I have a lot of people saying to me, "Initially we thought what was all this about and it felt very negative, and now we are beginning to see the value", and so they have seen the payback of that change, so yes, there is effort going into the change but we are already seeing some of the fruits of it.

Q28 Mr Boswell: Just briefly on what Mr Watmore said a moment ago, as I understood it, he said that he inherited the budget lines from the various departments' constituents. He also said that he hoped to recruit 100-150 new staff. I would just like to be clear in my own mind whether the costs of that are going to be absorbed into the existing budget provision or whether they will be provided for at a later date and, if so, what the implication of those extra costs will be.

Mr Watmore: They will be absolutely absorbed and, to be clear, what I got across from the two former departments was the budget lines for the people that transferred plus a contribution to this corporate change. The next budget that I received, when added up with their two net budgets, was the same as the two previous budgets, so there has been no alchemy here. We have just distributed the money differently between the three departments.

Q29 Graham Stringer: You have given the bottom-line answer and the positive sale, but I would really like you to be more explicit about the time costs and what is not being done, because if you are moving and you are interviewing staff some things are not going to be done, and I know you have put a brave face on it that everything is the same but it clearly is not. For instance, how many extra interviews have you carried out? That must delay delivering the basic service.

Mr Watmore: For recruitment purposes?

Q30 Graham Stringer: Yes.

Mr Watmore: I do not know if you know my background, but I have had a business background for most of my career. I have only been in the Civil Service three years so I am not a career civil servant in that respect. One of the reasons I was asked to do this job was that I have experience of building businesses and transferring and merging and acquiring companies and so on. You nearly always in such a situation divide the world into two - a business-as-usual world, keep the show on the road, keep focused on delivering what you need to do, whilst you put a relatively small team at the centre to start to build the corporate change, do all the interviewing and purchasing and finding of buildings and all of that sort of stuff. That was essentially the split that we made. The director-generals that we inherited from Education and DTI were very much empowered to deliver on the policy agendas and worked with our staff on the policy agendas whilst I recruited a small team of leaders at the centre and then we built up the corporate capability, so we have put a lot of time and effort into that but we have tried to involve as little as possible the front-line staff who are delivering the everyday services. Now what we have to do, as we bring the changes through into the business, is involve the front-line staff and gain their ownership for those changes and that is the period that we are now entering when we are into a lot more cross-departmental communication, networking, team building and all of those sorts of things. As I say, for whatever time they are spending on that we are getting a corresponding value because they are seeing the motivation and the connection.

Mr Denham: If I may add something from a ministerial point of view, because I obviously did about six years as a minister previously, ministers certainly feel that we have been able in six months to take policy forward, to open up new areas of policy, as we would have expected to in any other department, whether that is in the implementation of the skills agenda and our work with DWP, the extensive work that has already been done on the new Science and Innovation White Paper which we want to publish in the spring, or the framework we have set out for looking at higher education policy, so there has not been any sense from our point of view that we have not been able to do what we would have wanted to do as ministers because of the change. Probably the one area that everybody would accept is that the one thing you do not inherit with a new department is a fully formed press office and communications department, and so there was a period of time, and it probably would be about three months, until those functions were fully staffed and professionally led by new people, which was a difficulty from our point of view, but I would not say we have been in a position where Ian or other people have been turning round to us and saying, "Look: we just do not have the capacity to do what you want because we are still settling down".

Q31 Graham Stringer: When will the change be complete? When will you be a stand-alone department? When will your website be as you want it to be, because you have not reached either of those points yet, have you?

Mr Watmore: From 15 December or thereabouts we formally got the accounting officer changed, so until that point we were technically operating under the cover of the two previous departments, so that was the day when we were on our own two feet for the normal business management aspects of being a department. We are already in our new building. To go from creation to selecting a new building, moving everybody in and getting it working in six months is fast by anybody's record, and certainly by Whitehall's standards it is turbo-charged, shall we say. We have implemented a new IT system to enable us all to be on the same IT platform, which is completing this month with our Sheffield and Runcorn and Darlington colleagues, so by the end of this month we ought to be all on the same IT platform. That gets us the real basis on which we can move to the next stage of our journey and we have communicated with our staff on a blueprint for what the department looks like and our aspiration for what we want to do.

Q32 Mr Marsden: Could we have it?

Mr Watmore: Yes, you can indeed. It is one piece of paper as well. That is another innovation in Whitehall, to do things on one piece of paper. We anticipate that we will reach the end of that blueprint over a two-year cycle from here but with a lot of progress made this calendar year and in 2008.

Mr Denham: The other thing I would like to say, Chairman, is that if we are going to have "innovation" in the title we do not quite want to end up feeling like any other Whitehall department which has got "innovation" in the title and we need over that two-year period of time to experiment with different ways of working as a Whitehall department, so ministers have been discussing - and there are risks involved in it - the extent to which when we commission policy papers we do not just commission them from a narrow group of officials but send a wider signal out to people in the department that they can contribute to that. We are already trying to do that on the Science and Innovation White Paper. We want to create a floating policy call so that we do not just have policy made in the usual silos. We want to use the internal intranet to enable people from different areas of staff to be briefed to communicate constructively around policy in more new ways. Changing the culture to work in a different way is going to take some time. We are trying to organise - and Ian can say more on that - how we use private sector and public sector partners to see themselves as customers of the department so that they are coming in from outside telling us what it is like to be a user. It would be lovely to say you can just do all of that on day one but it is changing the culture of the department in a way that will take time.

Q33 Graham Stringer: I have got a sense of déjà vu here. Ten years ago, I think in this room, we interviewed John Prescott when DETR was set up and we wanted to understand how transport and environment would be integrated. He was slightly less articulate than you are, Secretary of State, but essentially we got the same answers, that they would be integrated and put together and yet, after the 2001 election when it was decided that transport should stand alone again, the Department of Transport came out almost unchanged and was set up independently and that department has been through that process at least three times. How can you assure this committee that Education and Skills and Trade and Industry will be an integrated department and in five years' time the Secretary of State is not sitting there saying, "Actually, we are recreating the DTI and there it is"?

Mr Denham: I think we both need to answer this. Ministerially I think we have to show a lead and not be prepared to accept ways of working that do not work across the department. For example, in developing the Science and Innovation White Paper ministers have to be insistent that the contribution of skills and higher education officials to that White Paper is built in from the beginning, that it is not just developed as a product of the team that might have done it a year ago. Political lead on these things, I think, is critical. A political willingness to ask questions and make sure people are involved is one part of it and for the organisational side I will turn to Ian.

Mr Watmore: Clearly, one of the general criticisms of Whitehall as a whole is that it operates permanently in silos and then when you get into a silo there are sub-silos. That is the kind of thing that I have heard almost from the day I arrived three years ago. I would say on the bigger stage that in the whole new Comprehensive Spending Review agenda, the PSA framework that has been laid out, there are 30 very big cross-cutting items, all of which have to be delivered by several departments working together, and this is going to have to change the way that Whitehall works en masse in terms of breaking down those traditional silo boundaries. In fact, there was a meeting under the Cabinet Secretary's leadership just before Christmas to work out what Whitehall needs to do differently in order to be able to operate on a much more cross-cutting basis. The same is true within the department. We will continue to have teams of people focused on FE, HE, science, innovation and so on. The important thing is that we get those people working together and joining forces to get the added value out of the creation of the new department. If that does not happen then it will just be a different holding company, if you like, of a series of sub-silos. What are we doing about that? The first thing is that we wanted to get under one roof, which we have achieved, and I know it is only about two weeks in but people are coming up to me saying they are meeting people informally and starting to have discussions on topics that they would never have had before and it is beginning to build that sort of informal networking. We are also most likely going to implement very strong professional skills and development agendas right across the department, so if you are familiar with the Professional Skills for Government agenda, policy delivery being one of the major professional skills, we will have a clearly identified head of policy delivery from a professional point of view and put all our policy delivery people on working through the same training and capability building programme so it does not then matter whether they are focused on HE or FE or science or whatever; they are all operating and building the same methods and professional disciplines and learning from each other along the way. Another example of what we are doing is that I used to run the Prime Minister's delivery unit from Number 10. I am taking those methods and disciplines inside the department, so we are going to have a ministerial delivery unit, if you like, and I have just recruited two very bright young people to come and head that up and work with our team of ministers to make sure a good delivery agenda right across the policy of the department is joined up and adding value. These are some examples of what we are doing to get that horizontalism to make sure that we do not just end up in vertical stagnation.

Chairman: Thank you. Clearly money is a very important ingredient and I will bring Roberta in here.

Q34 Dr Blackman-Woods: Does the Comprehensive Spending Review provide enough funding to achieve the aims of DIUS?

Mr Denham: I think we have got a good settlement. We have got a real growth settlement in every major area of activity from the science budget to the expansion of skills training to widening participation and increasing partnerships in higher education, so we have certainly got the money, it seems to me, to achieve the targets that we have set out for ourselves publicly in each of those areas. We have talked about increased participation in higher education, we have talked about research spending and guaranteeing the real terms rise and we have also set out in each area of skills activity the sorts of numbers of people who want to qualify at certain levels, so yes, I think it is a good settlement, particularly one coming against what is seen as a tight public spending round, to be enjoying real growth in each major area of activity.

Q35 Dr Blackman-Woods: You did mention earlier Lord Leitch, Lord Sainsbury and their reviews and the fact that you will have to implement those reviews and achieve the targets. Is it possible to plan accurately the implementation of those reviews in financial terms?

Mr Denham: It is to a considerable extent but we all need to recognise the things that we have to get right to achieve our targets. If we took, for example, over three years 1.2 million people of working age to achieve a first full Level 2 qualification, that comes over a period of time where we are roughly going to treble the amount of the adult skills budget that goes through Train to Gain, which is particularly responsive to employers' demands for training and requires FE colleges and training providers to change how they operate to deliver skills, particularly in the workplace. The money is sufficient to cover that level of achievement and that is what the CSR does. In delivery terms, which Ian has just been talking about, we have to make a success of the Train to Gain policy. We have to engage employers, we have to convince people that (a) they have a training need, and (b) they can work with their local colleges or training providers to do it. We have the money. The challenge now is to get the policy right in order to deliver it. That is our job, I suppose.

Q36 Dr Blackman-Woods: The CSR package also asks you to make annual efficiency savings of £1.5 billion by 2010/11. Are these savings realistic?

Mr Denham: Yes. To pick out a few examples, and Ian may add others, we are looking in higher education that procurement and shared services between universities could save, we think, about £150 million over the three-year period of time. A similar exercise in FE saves not so much money but about £40 million on non-pay spending of about a billion. There is similar co-operation taking place within the research councils to pool various services that they currently and have previously run separately and so on. We have not at the moment identified every single penny of the £1.5 billion but the initial look at this suggests that there are areas which are straightforward efficiency savings which ought to realise money that enables us to achieve that target.

Q37 Dr Blackman-Woods: Are you confident that in making these savings you will not damage the work of the department?

Mr Denham: Yes, I am. Some of them arise, in the way that these things are accounted for, from activities that we would want to be doing anyway. Train to Gain, for example, provides better value for money for the investment we have put into skills and some other ways of doing training, but we need to be doing something like Train to Gain anyway because training for vocational qualifications in a way which is not related to what employers actually want and is not delivering what they need in the workplace does not make very good sense, so there is a very good case where you have a more efficient way of spending your money in a way where the economic impact should be greater, and that is surely what the whole challenge of value for money is. It is not taking something which is a simple cut in service and trying to dress it up as an efficiency saving.

Q38 Dr Blackman-Woods: You mentioned PSA targets earlier. What input did you have into the development of PSAs and indicators for DIUS, and would you accept that they are quite challenging?

Mr Denham: They are challenging. It is fair to say that pretty much the skeleton of the PSA and the CSR had been settled by the time of the changes that took place in the summer but not all of the detail. There are certainly changes that were made to the PSA indicators and targets as a result directly of the intervention of this group of ministers when we took over. I think particularly that would be true not so much on the skills side where things really derive directly from Leitch and that agenda but certainly in the ways in which we wanted to monitor progress in the science and innovation field where we as a team of ministers very clearly came in and said we wanted to broaden the range of indicators. They had been a bit of a one-club measure as a proportion of R&D spend, which I think is widely accepted as an inadequate total measure of innovation funding, so we did have the ability to come in and say we did not like those. I said as a minister to the rest of my team, "Once you have got these things you are stuck with them. There are two things: one is, make sure they are measuring something real and, secondly, think about what the most perverse interpretation of this indicator could be and what the most perverse person might do with it and imagine that happens, and if you do not like it come back with a better indicator", so we did have some input on that.

Mr Watmore: The additional point I would make is that we created the thing that appears in the CSR as the departmental strategic objectives, and we created that in effect from scratch, taking the mission that we were given by the Prime Minister and converting it into an agenda that we felt was the richness of the agenda, and, speaking from the Treasury side, they were extremely pleased with the quality of what we did in a very short space of time, and they actually said to me privately, "One or two other departments could learn from you how to do this", because they came out very clearly - six punchy objectives with quite strong economic and social and cross-cutting government outcomes, so we are quite pleased with it.

Q39 Dr Blackman-Woods: So should we conclude that they were imposed by the Treasury or were they subject to negotiation?

Mr Denham: Clearly, in the areas where we tried to change things they were subject formally to negotiation. I think we were able to achieve everything we set out to do. In terms of skills, if you take that particular area, the Leitch report had been published the previous autumn. It had been endorsed by the current Prime Minister when he was Chancellor of the Exchequer. Obviously, the CSR settlement that we inherited was built around the implementation over the next three years of the targets that Leitch had set out, so in that area it would have made no sense to go back and say, "Thank you, but frankly we fancy doing something different". One of the roles of our department was to help implement the Leitch report and that was built into our PSAs and into the settlement, as you would expect.

Mr Watmore: I think the Secretary of State makes a very good point there, that the financial side of the settlement was previewed before we turned up, so the science budget had been announced in the Budget of 2008 and so on. Our objective in the period we had between then and the publication of the CSR was to get the indicators lined up where the Secretary of State has identified and to make sure that we had a full set of departmental objectives that reflected the new mission, and I think we achieved them and I think the Treasury were pleased with what we did.

Q40 Dr Turner: Just harking back to the savings which your department has to make in terms of the CSR 2007, it does imply that there may well be financial pressures within the department. I recall a year or so ago the DTI, when they were responsible for research council budgets, had a bit of a financial problem. I think it was not unconnected to Rover(?). In order to help fill their gap they raided as yet unallocated monies from research council budgets, which obviously caused a minor storm at the time. Can you give us an assurance that no such thing would happen under your stewardship?

Mr Denham: What I think the settlement does in science is restore the position, the commitment we have made to real terms growth, and that is what we will set out to honour. The issue about value for money savings is, I think, part of the overall approach across government to achieving value for money, so it does not apply particular pressures that are any greater or any less than other departments. It is part of the general central government drive for efficiency.

Q41 Dr Turner: So the research councils can be confident in their budgets?

Mr Denham: That is what we will set out to honour. These are always "When did you stop beating your wife?" types of questions. The position the old DTI was in was a position where there were unexpected pressures on their budget at a time when there was no other source of money available and for a short period of time they took money from the research council annotated budget. Clearly that is not what I want to do.

Q42 Chairman: Can you give us an assurance that that will not happen?

Mr Denham: Chairman, I will set out to honour it. That is the best I can say because my colleagues were in a position where they had no alternative way to approach it and that is not what I want to see happen. My commitment is to set out to honour that obligation. I think it is important to the research community for me to say that, but in real life I do not think anybody can ever say that there is no set of circumstances that could possibly arise that might not come up again. However, let me underline the strength with which I want to honour this commitment and it is that here we have made a commitment as a Government to increase science spending in line with the growth in the economy. If we were not to honour the budgets that we have put in place at the moment then we would not be honouring that or the commitment.

Q43 Chairman: Why we are slightly suspicious, Secretary of State, is that already under your watch MRC in fact have had their reserves raided with £92 million taken out. There is also a cut in the amount of money which the MRC commercial department can retain over the next three years, and that seems to fly in the face of what you have just said, and indeed is the background to what Des Turner has just been asking.

Mr Denham: No. Can I set your mind at ease on that, Chairman?

Q44 Dr Harris: You can try.

Mr Denham: The change in the accounting rules around the MRC research fund was known about within the Whitehall system prior to the CSR settlement, and therefore, having been through this, I am happy that the overall funding that is available to things the MRC would have funded is not different from what it would have been if the accounting treatment had not changed.

Q45 Graham Stringer: So you are happy that the £90-odd million has been pinched by the Treasury?

Mr Denham: Because that was known about before the overall CSR settlement, if the £90 million had appeared there it would not have appeared somewhere else. The crucial thing from our point of view is whether the MRC is in broadly the same position as it would have been to see activities supported in its field of interest over the next three years, and I believe the answer to that is yes, partly because we have made it clear that things like the molecular biology laboratory at Cambridge, which was one of the things to be funded out of the research fund, is, according to RCUK, at the top of the list for the large facilities capital programme. I think at the end of the day what scientists want is make sure the investment that they were hoping would take place would take place, so this was not, if you like, a post-CSR adjustment to the resources that are available to research.

Q46 Dr Harris: So what you are saying is that it was taken and it is going to be given back to the MRC in another form?

Mr Denham: Effectively. We have worked to ensure that the MRC does not suffer as a result of that change. The way it came to public light is in a different sequence of events; I entirely accept that. We then need to discuss with the research councils the framework for future income from intellectual property.

Q47 Dr Harris: But it does have an impact because I thought the understanding was that if the MRC does well, gets IP, it is innovative, it is inspired to do this, then it has an incentive because it can retain later proceeds, and now you are saying that there is going to be a cap on that, a cap on ambition, a cap on the funding they get from that.

Mr Denham: The historical position is that the MRC fund had been treated for reasons (which, as you will understand, entirely predate my involvement in this) outside the normal accounting rules, which is how the funds accumulated in that way. That is not how similar funds have been treated by the Treasury elsewhere in government. The Treasury, from their point of view at least, not unreasonably wanted to have a consistent accounting treatment across the piste and that is what they have done. We have worked very hard, and I think this would have happened before I was in the department, to ensure that the actual activities on the ground that would have taken place have not been affected. You then, Dr Harris, raise, I think, a very important issue for the future. The MRC's funds, and therefore the same for all the other research councils, are being treated under a Treasury rule which essentially enables you to agree what you think you are going to earn and then retain some extra income and so on. I think there is a debate, and far be it from me, Chairman, to suggest whether the committee might want to look at this at some point -----

Q48 Chairman: We are looking at it.

Mr Denham: Great. I think there is a debate, but this is only from me as a departmental minister, about how you structure the returns from research in order to incentivise innovation. Clearly, on the one hand this is public money in which there is a public interest and an expectation of a public return, and so there is going to be a debate about what comes back to the central exchequer that paid for it in the first place and how you stimulate innovation. On the other hand it is clearly in our interests to have a structure which maximises the incentive to good scientific innovation and translation. All I would say today is that I think we are where we are at the moment, but this is not a debate that I would want to discourage taking place. This is not entirely within my gift, you understand that?

Q49 Chairman: Yes.

Mr Denham: However, I think it is worth having a discussion about how you in future treat research funds to maximise the incentive to good innovation.

Chairman: Okay. I have got two colleagues that want to come in on this particular issue but, Secretary of State, I do not really want to pursue this at great length today because I think you have been very straight and open with us on that.

Q50 Mr Boswell: It is in fact structural organisation rather than financial, but Mr Watmore a bit ago was talking about the six objectives and he is right to take some credit for that, if I may say so. Can we have the Secretary of State's assurance that, as he knows he has to deal very largely through buffer, intermediate bodies, like the Learning and Skills Council, the Higher Education Funding Council for England and so forth, and these are normally validated or driven by guidance letters or remit letters, in drawing these up in the future, instead of the somewhat diffuse documents which we have probably all either produced or have to read, we can have a fairly salient set of cardinal objectives rather than a long list of things that it would be really nice to do, if you understand the point?

Mr Denham: I do understand the point and, of course, the nature of the relationship is different in each case.

Q51 Mr Boswell: Indeed.

Mr Denham: So the letter that we sent to the Learning and Skills Council is far more detailed and far more prescriptive than the letter that will be sent to HEFCE in the very near future about higher education, which is different again from the nature of research councils, but if you are saying, Mr Boswell, that what you would like us to do is write a letter where it is pretty clear what it is we are trying to achieve, -----

Q52 Mr Boswell: That would be very helpful. It might even be an innovation.

Mr Denham: ----- whatever might go in the annexes, I am absolutely happy to try to achieve that.

Q53 Dr Turner: John, you said that clawback of the £92 million MRC technology money would not affect MRC's activities, but in fact it does directly affect them because MRC is trying to put together a financing package for the new research institution at St Pancras, of which that would have formed a part. It simply means that now the MRC will be forced to come to the large facilities committee for that money, again, from another source, so it does have an impact.

Mr Denham: Except that the assumption you were making was that if the MRC had its own resources to pay for it it would also have had a similar amount of money from the Large Facilities Capital Fund, and I am just suggesting to you that that may not actually be the case.

Q54 Dr Turner: But then it would require less.

Mr Denham: There would be other priorities within the system. There are many projects but the two key projects, I think, for the MRC in this sort of area of discussion are the Camden project and the National Molecular Biology Centre. We have worked very hard to ensure that, subject to the business cases and all the usual things we have to go through, there is funding in the system to enable those projects to proceed as they would have done had there been no changes to the accounting rules.

Chairman: We are going to return to this but thank you for that.

Q55 Mr Cawsey: I would like to move on to some policy issues now, particularly skills policy. The former Education and Skills Committee expressed concern that "finding out what was available in terms of skills training was often not a straightforward task" and went on to say, "Proceeding down a policy route which treats skills as an 'independent variable' is unlikely to lead to the hoped for levels of economic prosperity and sustainability". It is talking about skills needing to be one part of the wider issues in developing economic prosperity and building businesses, so what consideration is going to be given to wider issues such as capital investment, innovation, workforce planning and management skills in developing a skills policy for the department?

Mr Denham: I would hope that we are trying to embed all of those wider issues in what we are doing as a department at the moment. We have, if you like, technical and measurable objectives in terms of the numbers of people who achieve different types of qualifications, but we set up the Commission for Employment and Skills, chaired by Sir Mike Rake, to bring a very strong employer focus into the development of our skills policy and we hope they are going to advise us on issues as varied as the simplification of the system, the role of the sector skills councils and the issue of soft skills and employability, so we are trying to bring a practical perspective from those areas in. We are within our policy looking to develop an advancement of the adult careers service so that individuals have got guidance around the system, not just about their skills needs but also about many of the other barriers which exist to somebody moving from perhaps a poorly paid unskilled job to a better skilled job. I would hope, Mr Cawsey, that we are trying to address most of those issues in the way that we are developing our policy.

Q56 Mr Cawsey: When you have these discussions with employers are you told about some of the problems they are finding? I was meeting with some employers in my own constituency just before Christmas in the oil industry who were saying that they were very worried about the age profile of their skilled workforce. What they were finding was not so much that they could not attract young people to go into apprenticeships or whatever, but that retaining them was quite difficult because there was job mobility and they could move to other jobs that at this stage of their life paid better, even though they might not have a skills career path for them to follow in the future. In other words, youngsters were choosing the short-term gain, not necessarily their long term interests.

Mr Denham: We certainly hear those sorts of issues and we certainly hear issues about the strategic need for skills within the economy. One of the things that we need to do more effectively over the next year or so is to build a system that is more responsive to employers, is more demand-led, that creates the ability for employers individually and collectively to shape training provision in their area, and so if their need, for example, is to raise the skill levels of their existing older workforce, which is often the case, not necessarily those about to retire but those in mid-career, to bring them up to the standard, then it ought to be possible for employers to engage with providers in the area, and indeed with the LSC, for the development of specialist provision to make sure that people can grow the workforce that they have got. Train to Gain has only been going for a year and we have not yet got to a stage where the employer community is using the power it gives them to get what they want out of the training system. I hope that as we do that that will be part of the answer to the problem that you raise. I hope that also, employment and skills boards, which we are not mandating people to have but which we are encouraging people to have at their local level, will give a forum in which some of these issues can be discussed more widely. Clearly, retention issues are issues that to some extent employers have always had to deal with through their own HR policies and they need to look at their own career structures and so on, but we are doing what we can to make the training system as responsive to employers as it can be.

Mr Watmore: Could I add something to that? I sat on one of the sector skills councils as an employer for five years and it was the one that deals with IT and telecommunications, which needs skills and which I think (fortunately, given my current job) is soon to be one of the better ones and it would be embarrassing if it was not. What we did on that council was come together as employers of all the big IT firms in the country and we looked at two different topics and initiatives. First of all was the training that was available to people inside the corporate sector, and we found that big companies were doing very strong training programmes but smaller companies did not have that access, so we looked at ways in which we could find that smaller IT firms could get access to the bigger, more broad-band training programmes. We looked secondly at the fact that what was coming out of the higher education sector was not what we regarded as right for our industry and we got all the vice-chancellors from the universities and talked to them about things like computer science degrees not being fit for our purpose as employers, and out of that has come a lot of work on new forms of IT qualifications and new diplomas and IT-for-business-type degrees and so on. Now we are starting to see people taking those things through and coming into the workforce much better trained. The third thing we did was that we recognised that we had a massive gender imbalance in our industry. We were pretty much an 80/20 male/female industry and it was true all the way down the organisation of every company, and we went back into the universities and the courses were 80/20. We tracked it back and it was actually around the early teenage period where the interest waned and there were lots of amusing comments about spotty boys and geeky boys doing nerdy things in bedrooms and stuff, and we all looked at each other rather embarrassedly, but the consequence of it was that we went out there and started to form computer clubs in schools, particularly, initially, aimed at girls, to try to get the interest level up in careers in IT and telecoms, and now that is five years on it is beginning to bear fruit. I use that as an example of a very engaged employer base in shaping the training that they give to each other and to the rest of the sector, and which could then be developed in Train to Gain in terms of shaping the curriculum that is coming through from higher and further education and going right down into the age range in terms of inspirational leadership. That is a model which I think we could apply more broadly on a number of topics and it is one which I aim to expand on.

Q57 Mr Cawsey: Engaging with employees can be difficult. I have seen it in my area and over the years there has been a lot of downsizing and a lot of skills training has stopped and we are paying the price of that now. If I were to speak to the people at the management end they would say, "It is easy to say we should have been paying for training when we are trying to survive to the end of the year, let alone talking about ten years down the line". We spoke earlier about public service agreements and the role they have to play in all of this. A number of them have the theme of social improvement which employers often express concern about. What is the priority for the department's skills agenda? Is it economic prosperity or social improvement?

Mr Denham: Both.

Q58 Mr Cawsey: Both are priorities?

Mr Denham: Yes. The thing about economic prosperity and social improvement is that, particularly in the skills area, what we need to do for economic prosperity is the biggest contribution we can make to social inclusion. I often find that when I am talking to a business audience I am able to make the point that there are huge benefits to individuals and families from raising skills levels. Not only is the family better off; individuals also have higher aspirations, and children will probably have higher aspirations at school and do better at school. Not only are there benefits from raising skills levels but actually we do not need to ask businesses to raise skill levels as a matter of corporate social responsibility. We only ask businesses to do what it makes sense for them to do as businesses, so we can say, "You can have economic prosperity and social inclusion". The same things need to be done to guarantee both and that is why the two objectives of the department fit together. I cannot overstate that principle. There are probably some areas of basic skills where business may not be pushing us as strongly as in other areas but ultimately the two fit together very well.

Q59 Mr Cawsey: You spoke briefly earlier about the complexity of the system. How much of a focus is it for you to try and get the skills programmes much more easily understood by both employers and, course, the beneficiaries of them?

Mr Denham: One of the top issues that we have asked Sir Mike Rake from the Commission for Employment and Skills to look at is the simplification of the system. It is a shared objective. We recognise that the system is incredibly complicated. It is difficult to understand who is meant to be doing what within the system and that has an effect on the ability of employers to understand it. Whilst we can try to simplify the infrastructure of the system we also need to make the system as simple as possible for people to use. The aim of the Train to Gain system is very much that employers do not need to understand the whole of the skills system but they should be able to talk to a skills broker who is able to talk through their skills needs and put them in touch with the training provider or college that can meet the skills they need, and so the employer should not need to understand how the whole of the system operates.

Q60 Mr Cawsey: The Chairman mentioned right at the start of this session the role of FE, which you have described as not being a casualty, which I would agree with, although it often feels a forgotten sector, particularly if you compare it to HE. Again, I think of my own community where we have an HE college and an FE college, both of which got government beacon status, yet I still think that it is often thought that the achievers go to HE and FE deals with what is left. How are you going to break down that sort of barrier and raise the prestige of that sector and what is likely to emerge from consultations on the college of the future?

Mr Denham: We want to raise the status of colleges in a number of ways. Incidentally, if you ask people in the college sector I think they would say that they have been very happy with the amount of time that ministers have personally engaged with college leaders over the last six months. We are involved in a major future scenario planning exercise with nearly 200 college leaders in Birmingham towards the end of February, so we are involving ourselves personally in those face-to-face discussions with college principals at a level that perhaps has not happened previously. The critical thing here is to get the colleges in a position where they recognise that they need to serve the needs of employers and individual learners and that is how their status will rise. When employers say, "People are providing what we want", as they do in many cases, and particularly in colleges with beacon status, that is how they have helped to achieve that. I think it will be helped in addition by the work of the other departments in improved 14 to 19 planning where it will be very clear what role colleges play for younger learners, and in our area, as I say, it is the success of Train to Gain and of the development of the skills accounts for individual learners which give colleges a central role. What might we see in the future? I think that we want to see colleges that have a core of activity which is uniformly good. I think we need at sub-regional level to see colleges that have probably different areas of specialist provision which are necessary within the sub-regional economy, and at regional and national level concentrations of particular specialist skills which we are already beginning to see develop with national skills academies. What I think that will do is give colleges both their important broad general role within the local economy and a clear specialist status in the areas where they have developed particular areas of expertise and strong links with employers. I think the large capital programme that we have got, £2 billion or so over the next three years, enables us to make the investment to make that happen. If we go round the country, Chairman, the extent to which the FE college estate has been transformed over the last few years is quite remarkable. Ten years ago it was very often the broad school from the 19th century (in my own case the old workhouse) that was still the core building of further education. Now they are already taking place in smart, bright buildings and contributing massively to the regeneration of poorer areas. That will continue on a very significant level for the next few years.

Q61 Mr Marsden: Secretary of State, can I take you back to implementing Leitch? In your department's paper in July, Implementing the Leitch Review, you talked about a demand-led skills system, but let us take the example of a woman in her thirties returning to work after raising a family, a relatively low-paid, low-skilled job and she wants perhaps to get extra skills and move out of that job. Her demands and the demands of her employer and the demands of many employers are not necessarily the same. Where in this demand-led skills system is the biggest pinch-point between the desires of individuals and the desires and demands of employers?

Mr Denham: We have to keep both routes open. One of the reasons for developing the idea of the advancement in careers is that the sort of woman you talk about would be faced with that obvious dilemma, "My employer is not going to offer me the training that I want. Does that mean that I have to train on my own account separately? Does it mean that I should look for a different job which would offer training?". All of those will probably have implications for things like in-work benefits or tax credits, for child care arrangements and whatever, and we need to have a level of careers advice that enables that individual to make the right choices. The second thing we have to do is make sure that the individual who is not supported by their employer has the ability to go and get the qualifications they want, and the whole idea of skills accounts, virtual accounts, is to make it clear to that individual that it is not quite so much in some mysterious way going along to the college and signing up for a course, but that they are getting money from the state, from the public purse, which enables them to, as it were, buy what they want and that is a very empowering message. The third thing, of course, is to minimise the number of situations where that arises. One of the reasons for the Skills Pledge, the general drive around Train to Gain, is to persuade the vast majority of employers that they will have a better business and make more money if they invest in the training of their staff.

Q62 Mr Marsden: I want to come back to the nuts and bolts of how Train to Gain is working in a little while, if I may, with Mr Watmore, but can I move you on from there, Secretary of State, and talk about the relationship between employers and apprenticeships? I know that the promotion of apprenticeships, not least adult apprenticeships, is something that you have taken a particular focus on. The previous Education and Skills Committee, in its post-16 skills report, a committee of which I was a member, raised a number of concerns about the current structures of apprenticeships and their fitness for purpose in terms of what we are doing today. One example is in the construction area where there is a real problem with completion because students start off, they do very well in the apprenticeships and they then get snaffled for the Olympics projects or whatever. Are you beginning to think yet about really radical changes in the structures of apprenticeships that will meet the needs both of employees and employers more in the 21st century?

Mr Denham: We will, we hope, by the end of the month publish the results of our apprenticeship review. That will, I think, do a number of things. It will clarify this confusion about whether apprenticeships are generally work-based or not, which clearly, in any sensible use of the term, need to have work-based training opportunities. We will address issues raised by yourselves and in the House of Lords report about the leadership of the Apprenticeship Service, and we are willing to look at, including the fact that we have provision, as you know, in the Queen's Speech, for a draft bill, the legislative framework around apprenticeships. I have to say, Chairman, that we would be very pleased to hear ideas from this committee or elsewhere about things that might be included in that approach. We have done a lot on apprenticeships. The idea that they are in decline is wrong, but they need to be a really powerful, well recognised and well respected option for young people and for older workers.

Q63 Mr Marsden: My understanding is that this committee has already expressed its interest in being involved in important pre-legislative scrutiny on that.

Mr Denham: Yes, and we welcome that.

Q64 Mr Marsden: I need to move on, but just one last bit on apprenticeships. In the 2006 White Paper there was an entitlement to free training to Level 3 for 19 to 25 year olds and the LSC has given £30 million to provide apprenticeships for those over 25. Are you convinced that the 25 cut-off in general terms is anything other than an artificial division which you need for financial purposes?

Mr Denham: I think there is a logic to it and the logic is recognising the reality that not everybody is achieving a Level 3 at the end of their school/young college career, and extending the period of time in which financial support for that is guaranteed. There is also a logic in our broad policy within Train to Gain that Level 3 qualifications, because they bring the most immediate returns for employers, should be a shared financial responsibility, not a pure state subsidy, so I think that, as a step beyond where we have been, giving the 19 to 25-year olds who are not getting training through work full financial support, is the right step forward. Yes, of course, if there was more money on the table one could always look at more but I think there is a logic to concentrating those funds that we do have in the 19 to 25 group rather than not having any type of guarantee and merely spreading it across the system as a whole.

Q65 Mr Marsden: I entirely agree and I am not in the business of wish politics without on-costed funding, but do you not accept that as the imperatives on re-skilling become stronger there may be a case for looking at an application which is not simply based on an age division?

Mr Denham: Of course we need to look at re-skilling. The evidence tends to be that people, once they have got that level of qualification, get themselves in a job where it is more likely that they will be re-skilled with support from their employers, but of course it does not apply to everybody and, of course, we will always need to look at the issue of re-skilling as well as first qualifications.

Q66 Mr Marsden: Mr Watmore, can I take you back to Train to Gain? In its previous life the post-16 skills and other reports of the Education and Skills Committee were highly critical (admittedly given it was a relatively short period of time) of aspects of Train to Gain and the take-up, and particularly the issue of dead weight. Are you confident that the issue of dead weight, which was admitted by your predecessors, is beginning to be substantially addressed and that we are not simply adding on a layer of extra bureaucracy or funding things that employers are already funding?

Mr Watmore: We are effectively in the first year of the new system operating and there has been good progress but we need to see the thing bed down over a longer period.

Q67 Mr Marsden: That sounds as if you are not confident.

Mr Watmore: No, no. The issue, which you rightly raise, is to make sure that as we move towards a demand-led system, which Train to Gain and apprenticeships and other products are representatives of, we really are hitting the needs of individuals and businesses, as was discussed earlier, and are not just replicating stuff from the past. This is something that our team are very focused on. Am I confident that we will get there? Yes, I am, because we appreciate the issue and we are driving it out. The general strategic direction that we have taken on the skills policy is to move towards that demand-led system and that if we do not solve that problem we will not get there on the bigger picture.

Q68 Mr Marsden: And I take it you would be happy to come back in oral or written form at some stage when you feel you have something substantive to say about the further progress of that?

Mr Watmore: We are absolutely happy to do that.

Q69 Mr Marsden: That is really helpful. My colleague, Ian Cawsey, referred to his experience in his constituency with employers. In my constituency, in Blackpool, of course, we do not have a large number of large employers. What we have is a very large number of small and medium sized employers and you yourself acknowledged one of the problems there have been in the IT industry in respect of that. Given that you have this new commission being set up, are you confident that small and medium-sized businesses will have a sufficient crack of the whip in terms of developing the needs that they have for Train to Gain and the support because in the past that has not always been the case?

Mr Denham: One of the things we have done, and it is built into the programme, is increase the funding for the management training for small and medium sized enterprises from, I think, £4 million a year to about £30 million a year, and this is very directly reflecting the experience that one of the major problems with engaging small and medium sized employers is a lack of capacity to understand the skill needs of their business. There will be, we think, a considerable time lag, possibly as long as 18 months, before investing in the leadership and management of a small business and enabling it to understand its skills needs and people turning up to use Train to Gain. We are quite realistic about the time lag that will be there. We are convinced that investing in the capacity of the leadership of small businesses to understand their skills needs is the key in this area, and if we do not do that then we will run a system that is theoretically open to small businesses but where they never turn up.

Q70 Mr Marsden: Can I have a quick question to Mr Watmore? You said that you found your experience of serving on a sector skills council very productive and useful and all the rest of it, and presumably it contributed to you finding your present job, but one of the things that has been said generally is that the performance and structures of the sector skills councils have been highly variable and that indeed there may be too many of them at the moment. Okay, you have got a new badge, the new commission is going to oversee their performance, but how can you be confident that you will have enough of the employers who are doing innovative things in those sector skills councils rather than some people who simply shout louder or network better?

Mr Watmore: That is a very good question. In the IT one that we did we started off a bit at the negative end of your scenario. We made sure that it was only the chief execs of the companies themselves who turned up and if they did not turn up they were not at the table and it became a kind of badge of honour to turn up. I think it was when we got the real top end engagement that we started to get traction. The variability in performance in sector skills councils is an issue and it is one that in moving to the new commission we want to drive up the rest and best. That, I would say, starts with one called governance skills , which is closer to home and where we have a new and vibrant chief executive who is really making quite a difference on that, and we can start to apply what I call "practise what you preach" approaches to our own skills development within the public sector.

Chairman: That is going to make you very popular.

Q71 Dr Iddon: John, the Office of Science and Innovation, previously in the DTI, appears to have been divided between mainstream DIUS and the Government Office for Science, the trans-department called Science and Technology Group, for example, going to GO-Science. Was there a rationale to divide the OSI in that way?

Mr Denham: Yes, I think the rationale was that the Director-General of Science and Innovation within DIUS is clearly a senior official responsible for the research councils and also, in the way that we have started off, the TSB and so on, part of that area of ministerial accountability to me as the Secretary of State and to the ministerial team. The office of GO-Science, with its critical work in support of the Chief Scientific Adviser and being a support and challenge on science across government, if you like, hosted with us, provides enormous support to us but has a degree of autonomy from us because it has a cross-government role, and so I think that what was done was to create a division which reflects essentially the difference between those functions which are cross-government and those which are within DIUS as a department.

Q72 Dr Iddon: The previous Science and Technology Committee, on which some of those on this committee sat, always argued that the Government Chief Scientific Adviser should be completely independent of state departments. Could I put it to you that this suggests to me giving the Government Chief Scientific Adviser more responsibility within DIUS and embeds the GSA further in a state department and makes the office less independent?

Mr Denham: No, I think the opposite, and I am happy, Chairman, to put on record the discussion (which was a private one but I am sure he would be pleased to have it on the record) that I had with Sir John Beddington when he started, which was that in his role as Chief Scientific Adviser I respect absolutely his complete autonomy in his role of giving advice to the Prime Minister, giving advice to Government as a whole, and that there is no sense in which, in playing that role, he is expected to come through me to seek my leave or to discuss what he is intending to do. In my role as the ministerial champion of science, as I see it, within my department and across Government, it is much better, I think, to have the Chief Scientific Adviser on the patch and available and his staff available to work with because we need to work closely together in doing that. I believe that if GO-Science is in the Cabinet Office it will be a less good outcome both for the Chief Scientific Adviser and for me as a department. If I can give you an example which is in a speech I will be giving later tonight about science in society I have been able to draw both on Sir John's expertise and that of the people around him, and we know the way things are in Whitehall. If it is all over there somewhere it is harder to build up the relationships which enable you to draw on it, but I did want to put on the record this morning my support for his professional autonomy and his professional position as the professional leader of the science advisers across government.

Q73 Dr Iddon: I think that is important and I welcome those remarks. The CSR announced interdisciplinary programmes in "key areas". Obviously, the seven research councils will be responsible for delivering a lot of that interdisciplinary research. How will DIUS be influencing that?

Mr Denham: I am not sure that DIUS itself will be influencing the detailed delivery of that interdisciplinary work. It is a different relationship with the research councils, for example, from the Learning and Skills Council where there is a much stronger degree of performance management across the piste. Clearly the research councils are delivering interdisciplinary work in areas which the Government also believes are areas of great importance and where the science from different fields needs to be brought together to achieve results. I think it would be giving the wrong impression if I gave the impression that we were sort of performance managing that work because that is not the way it works.

Q74 Dr Harris: Can I just come in here on this question about the Haldane principle, because on 10 January you referred to the Haldane principle and you said that that says that ministers should not intervene directly in the funding decisions of research councils, but then you cited that to say that it was inappropriate for you to vie between budgets because you then said it would not have been appropriate to breach the Haldane principle to step in and take money away from the MRC and give it to the STFC. There are two questions. Are you saying that Haldane prevents you from allocating money differentially between research councils, because that is the implication?

Mr Denham: No. Clearly, big decisions are taken and they are taken in the CSR and we made the CSR announce how much money the MRC and the HRC were going to get. That is a decision that is signed off by ministers, but we do not get involved in saying to a research council, "We want you to fund this particular research project" in a way that you might in another area which was not to do with the research councils, and we do not involve ourselves in the detailed activity in the same way. The one exception that I would put on the record here today is that there are some areas where research councils are involved in projects which have much wider implications than just the activities of the research council itself, where inevitably discussions take place at official and ministerial level. The research project centre in Camden, for example, which was discussed earlier, could not feasibly have got to this stage if we had just said to the MRC, "That is an interesting idea. Go and get on with it". There had to be discussions across government departments and with the MRC, so sometimes what a research council is doing has a much wider implication and it is appropriate to have a ministerial or official discussion at that level.

Q75 Dr Harris: But the general point is that if a problem arises between CSRs it is quite possible for you or the Government to take money from one area and put it in another. That is not affecting how it is spent; it is just money, because you could take it from the MRC's Innovation Fund and stick in the Large Facilities Capital Fund, and no-one is arguing that you have that power so you cannot say you are powerless not to ensure that a problem arising is not funded, like the STFC, arguably.

Mr Denham: That is probably technically true, but it is important that we try to limit how we do that, and if a problem arises it is very often the case that my response is going to be to say, "Look: there is a problem here that I am concerned about and it would be good if this could be addressed", rather than me stepping in and saying, "I think this is a solution". Let us take one particular example. Because of the implications of some of the decisions that were taken I was concerned about the possible implications for the health of physics as a discipline across the system as a whole, but obviously, talking about STFC and some of their decisions, I did not feel that it was my job, given that lots of physics is supported very healthily within this budget, to step in and say, "I think this amount of money should be taken from the MRC and put in to plug this gap". For a start I would not have known which piece of research I was changing in the MRC. It seemed to me that the appropriate level of my intervention was to say, and I think this was initially done to Ian Diamond, the Chairman of RCUK, "Can we have a review of the health of physics as a discipline?", so that if there are consequences of these decisions which are wider than whether just this particular research project is going ahead but are about the health of the subject that is highlighted to us.

Q76 Dr Harris: I understand.

Mr Denham: If I may just follow the point through, that seemed to me to be the right thing to do. We do not know what Bill Wakeham's report will say. Depending on its conclusions though, it is perhaps more likely that I will go back to the research councils and say, individually or collectively, "Can you address the issues that Bill has highlighted?", than I would be likely to say, "He says we need £10 million here so I am going to take £10 million from there". Do you understand the level of intervention that I am talking about?

Q77 Dr Harris: I want to deal with the middle way. Health of physics, yes, that is fine; the research councils deciding to fund or withdraw funding from individual research projects for presumably scientific reasons, fine; I would strongly endorse your interpretation of the Haldane principle there, but if a research council suddenly says, "Right, we are going to have essentially random calls for voluntary redundancies, not based on science but on who happens to want to leave", that cannot be your idea of a rational approach to arranging science to have, "Gosh, we have got a black hole here. Who is coming for redundancy?". That is not planned, is it? That is panic and cannot be ideal.

Mr Denham: Part of the proposal from the STFC is undoubtedly the closure of SRS, which is taking place according to the schedule, whichever way has been publicised and always been planned and where it was always anticipated that redundancies would take place. I understand the point you are making, Dr Harris. I have to say, and the committee may disagree with me and may need to say so, that I do not think we will help the situation we are in if ministers intervene on a very specific basis to say, "You must withdraw the call for voluntary redundancies in this particular area". I think the relationship between our department and the research councils needs to be strategic, and that is why understanding the consequences of what is being proposed for physics seems to me to be the right level on which to respond. It is certainly true that in relation to Daresbury this was one of those areas where what a research council was proposing went beyond simply the allocation of research funds because we have an enormously strong commitment to the development of that science and innovation campus in the national interest, and it is only one of the players there. That is why, amongst other things, we expressed concern about plans to close activities artificially early, which could have sent a very damaging message about the commitment to Daresbury, and why we have also asked Sir Tom McKilloch(?) and the North West Regional Development Agency to produce a report for ministers about securing the future of Daresbury as a science and innovation campus. Again, I have tried to judge my intervention in this at the appropriate level. I have to say, Chairman, that as a Secretary of State, if the committee were to express a view on whether Secretaries of State should intervene less or should intervene more, I would not find that unhelpful at all.

Chairman: I am going to leave that if you do not mind because we are returning to this with the Minister of Science and therefore will be able to explore those issues in greater detail, but I do not think we as a committee would in fact disagree with the fundamental principles that you have set down, recognising that there are times when clearly strategic national interests have got an important requirement of science but that that should be open and transparent in that way.

Q78 Dr Turner: The responsibility for Government's involvement in the innovation process used to rest entirely within the DTI, and it is not unfair to say that the UK's record in terms of outcomes of innovation is far less impressive than our record in terms of outcomes on basic science in the UK. You have now got a part of the responsibility in DIUS. Can you tell us what you are going to do to stimulate better outcomes from innovation in the UK?

Mr Denham: You will not want me to go on too long, Chairman, and we will produce a White Paper in due course, but one of the direct responsibilities we have, like the Technology Strategy Board, the Energy Technologies Institute, which are places that bring together public and private money for particular investment in the translation of research into innovative products and services of companies, is that we have got to run those well and support them properly. Secondly, we need to do a lot to build on the growing interface between business and higher education in particular, which is, despite what you say, Dr Turner, much better now than it was five years ago, and there has been a considerable improvement in our innovation record but we can go a lot further there. Thirdly, and I think crucially important, we need to be a department which is able to inform the whole of Government about how to create the environment for innovation. As David Sainsbury has said, what we do with our £125 billion procurement budget in government is as significant as what we do in direct investment. If the Government creates a market for green energy through its energy policy that pulls through innovative energy supply solutions every bit as powerfully as the fundamental research that we do. One of the things that we will set out in the White Paper is how we intend to introduce our annual innovation report which will be our report on the whole of government's innovation record. One of the big challenges to us is bringing together the direct investment in things like TSB or the research council work in that broader environment in which innovation can take place. I think it is very clear that unless we get all of that working together we will not get the innovation environment that we want.

Q79 Dr Turner: There must still be a need for the involvement of DBERR in the total process.

Mr Denham: Yes.

Q80 Dr Turner: Liaison at different parts of the innovation process was not all that it might have been when it all happened but in DTI. What steps will you take to ensure that there is a smooth interface between yourselves and DBERR in innovation?

Mr Denham: I will bring in Ian on the structural solutions but, to give you examples, areas we have a common interest, for example, the innovation and service sector, those are very clearly run as joint projects between the two departments reporting to ministers. In areas, again, where there is a huge overlap between DBERR's role as an industry sponsor and ours in innovation and skills like manufacturing, those are things that we do and work jointly together with as a department, so we understand the point you are making.

Mr Watmore: One of the significant structural changes we made was to appoint officially a director of innovation who reports in effect direct to me within the department official-wise and through to Ian Pearson as Minister, and that is David Evans, if you know David Evans. In the past he very successfully set up the Technology Strategy Board and I think has a very good track record. He is now the lynchpin around which the innovation official work is now happening. BERR have an innovation adviser, whose name has gone straight out of my head but who is part of David's extended team for shaping the policy. We are also, interestingly, in shaping the policy being much more open in the way that we are doing the policy-making. We are trying to be innovative in the making of the policy and so we have thrown it open to a very broad church of people to contribute, not in the post-policy consultation phase but in the formulation of policy itself. For example, we recently held a very successful workshop on public service innovation at which we had people like NESTA and the Design Council and the Innovation Unit and all sorts of people from a social entrepreneurship and social innovation background contributing to the debate as well as private sector companies. That is the way we are trying to have a clear focus on innovation, connect with it and be much more broadly connected as well.

Q81 Dr Turner: One of the other difficulties that we have in this country, and particularly it relates to the innovation process, is the lack of appeal of engineering to young people and the entrants into engineering as a career, which really exercises the Royal Academy of Engineering which wants to see that children right from primary school see engineering and science as a key 21st century career choice. How are you going to be able to help in this process to make it apparent to young people that engineering is an attractive and sexy career choice because it is vital for our economy?

Mr Denham: There are many different strands to this and one of the things that David Sainsbury has asked us to do is rationalise the many hundreds of initiatives around stem subjects, including engineering, down to a few. One of the ones which I think is of proven worth is the STEMNET ambassadors, which gives a great many engineers who are going into schools talking about modern engineering as a profession. I am very keen that we look at the whole situation from schools through university and into employment because it is also the case that we train four engineers for every one who goes and works as an engineer. That is partly because engineers are really good. They are problem-solvers, they are project managers, they have a scientific background. They are therefore attractive to a lot of employers who are looking for those skills who do not need them as engineers but I think we need to increase the supply, and I think there is also an important discussion with the employers about capitalising on the investment that we make at the moment.

Q82 Mr Boswell: I have two completely different questions on higher education, Secretary of State. Can we start with students and, leaving aside the observation that perhaps being the first badge minister for students is about as short-term an activity as being an England football manager, can you tell us what is happening in student consultation? There are, I gather, to be five student juries, there is going to be a national student forum. Maybe you can even tell us who the new student minister will be.

Mr Denham: No.

Q83 Mr Boswell: Is it all going to make a practical difference to your informing your policies?

Mr Denham: Some of the student juries have taken place, some have yet to be completed. I think the last one is on 4 February. The national student forum we hope to launch I think in the next couple of weeks, so I need to check for the committee on that. The practical effect I think it is going to make is that when you get into these discussions students raise different issues. Students raise issues like contact time, students raise issues like the contrast between the wealth of information on the choice of undergraduate degrees and the paucity of information on masters degrees. Many students are now choosing to do masters. Students, because we have gone outside (and the NUS has been very supportive on this) the traditional NUS catchment area; raise all the issues of part-time students, people with families, people working from home. In other words, it is broadening the agenda and I think it will enable us in our discussions about higher education to put forcefully on the agenda for providers and ourselves issues that I would not say we would not know about but that probably would not come through as promptly if we were not talking to students directly.

Q84 Mr Boswell: And no name yet?

Mr Denham: No, no name yet. I think we need to be careful because I think you will anticipate what is going to happen. I think today is the day that any possible change in the fortunes of the student minister would be confirmed so we need not get ahead of ourselves.

Q85 Mr Boswell: Thank you for that. Now I have an even naughtier question. We generally expect the Secretary of State to give us the whole bang, but he will know, quite apart from the short term worry about ELQs which we will discuss in another context, it is now next year that the whole review of higher education student funding will take place. I would ask him to give us a brief take in conclusion first of all on the recommendation of our predecessor committee, Education and Skills, about looking at part-time and full-time students to be treated as one group. Secondly, is there any insight he can give us, given the emphasis in further education on employer-led and demand-led activity, on the extent to which he sees any scope for tweaking the financial envelope for higher education between what might arguably be called useful subjects and those which are of more general interest? The third point is within contrasts between higher education and further education, and indeed skills training and apprenticeships. For most students at HE you have to pay to some extent, although you may get a rebate, of course, for it. For most FE activities the students themselves are not involved but in some respects the packages, including, of course, the public support package to the providers of the FE services, are less generous than they are to HE. How is all that going to be factored into the review?

Mr Denham: Let me say, Chairman, that my approach has been to say very clearly that I am not going to engage in a debate publicly or privately about the fees review until 2009 for the very good reason that all of the other issues - widening participation, links between business and higher education, the internationalisation of higher education, the relationship with FE provision, yes, undoubtedly issues about what is likely to be a growing proportion of part-time students, not least because of demographics and the need to raise the skills of the older workforce - I really want to work through with the university sector to form a vision of where we want to get to and then put the fees review in the context of that vision as a strategy for higher education.

Q86 Mr Boswell: Does that mean we may get a document in terms of the vision thing?

Mr Denham: I do not want to commit myself but I would not want to rule it out either. I think we need to look at that, even within our existing resources. You have raised the point about tweaking resources to encourage business and higher education links. You made a suggestion, Mr Boswell, that we do that in terms of distinguishing between courses. There are other ways in which the links can be enhanced. We have already announced a £100 million package for employer co-funded courses with higher education to encourage more engagement and there may be more things of that sort that we need to work through. My personal view, Chairman, is that the last time round when we debated fees, when I was a protagonist from the back benches, as I recall, all of these issues got mixed up together and so the question about what you were trying to achieve with higher education got entangled with what you were going to going to pay for it and how. If I could achieve a situation where we could have a consensus about what sort of higher education we want and the role it should play and then we have the focused discussion about how we pay for it, although I accept that that you cannot divide things quite that simply, I think we will have a much more constructive debate next year when the fees review takes place.

Chairman: Secretary of State, on that note, that was déjà vu for 1997 and Lord Dearing's report, which did in fact try to do that but it was the fees issue that got hijacked on that occasion, so we wish you well on that particular review. Could I say that it has been a pleasure this morning meeting you, Secretary of State, and indeed Mr Watmore, and we wish you both well in your posts and we feel deeply envious that we have not got them.