EXAMINATION
OF WITNESSES
(QUESTIONS 420-439)
CBI
4 NOVEMBER 2008
Q420 MR
HOYLE: Do you think part of it
is that we have been too reliant on the finance service sector
and we have not put enough emphasis on manufacturing—like
Germany and like France, who still believe in a very strong manufacturing
base—and that has been our weakness?
MR
CRIDLAND: We
have the economy we have. The capital intensity of our economy
is different and therefore that produces a different economic
pattern. We may subsequently come on to questions of innovation.
We are often criticised on innovation, but I think that we have
the R&D rates you would expect from the capital intensity
of our economy. But on your question "Should we be in this
position or should we have adopted a different approach?"
the CBI would not have wished to try to maintain a commodity-based
manufacturing economy based on high volumes of low value-added
labour. We think that would have been a short-term palliative
and be likely in the long term to have declined.
CHAIRMAN: We
are actually moving into Brian Binley's questions, so I think
what I will do is cut you off so that Brian can ask his questions
and make sure we shape the context of what he wants to ask.
Q421 MR
BINLEY: Can I ask you to explain
to us what the CBI's view is on government proposals to support
business so far in the short to medium term? What would you like
to see introduced in addition to what the Government has done,
or indeed taken away?
MR
CRIDLAND: The
most important thing the Government has done is the measures to
stabilise the banking sector, because that was a whole economy
problem and that was widely supported by all CBI members. There
was no criticism of the special help for the banking sector. I
think that now the Government needs to avoid trying to do the
same thing for the whole economy, because I think that measures
of that kind would be doomed to failure. Without repeating what
I said previously, that was behind my comment about public borrowing.
In some areas I am afraid that the die is now cast. We are in
for a prolonged period of zero or negative growth, and therefore
what the Government can do has to be carefully targeted, because
it is likely to be at the margins but none the less of importance.
We have welcomed the Government's focus on measures for help for
small businesses. That must be the right targeting of attention.
If you were looking for further things that the Government could
do, of particular importance going forward—and this is a
whole economy request—would be to reverse the Government's
decisions in April on empty property rate relief. I think that
there are large parts of the economy, both industrial and commercial,
that, in a grim 2009, will have empty property which they cannot
offload in a falling property market. That was our position when
the Government made what we felt were unhelpful changes to empty
property rate relief, and I think that it would help small, large,
manufacturing, and service companies if those changes were reversed.
Q422 MR
BINLEY: Are you happy with the
way the Government introduced its added liquidity into the banking
structure? Do you think that it received enough scrutiny? Do you
think that we ought to have looked at it in more depth?
MR
CRIDLAND: I
certainly think that it requires very close scrutiny. I think
that this is a long-term project, to ensure that it achieves its
purpose and that the taxpayer gets a proper return. At the moment
of crisis, we felt that it was appropriate for the Government
to take bold decisions, and those bold decisions have been supported
by the business community. We were not critical of the terms of
the package when it was announced, therefore, but you are absolutely
right: vigilance to make sure that this package achieves its original
objective; that money does flow to small businesses; that the
banks are able to restore liquidity; and that banking practices
are reformed such that the taxpayer receives the appropriate return
on investment. We will need to watch that extremely carefully.
Q423 MR
BINLEY: We are getting reports—at
least, I am getting reports certainly, and we have had some information
from the British Chambers of Commerce that this is so—that
the banks' relationship and their approach to SMEs has been very
ad hoc and not very sensitive. Would you tell us how we
might, in government, improve that scenario?
MR
CRIDLAND: I
think that it is difficult for government to improve that scenario.
We can all of us encourage the banks to move to previous practice,
but this comes right down to branch level and is actually an issue
of management practice and case officer practice—where,
with the best will in the world, requests from the Chancellor
to the chief executives of banks may get lost in transmission.
What our small firms are telling us is that one of the biggest
casualties of September was the relationship between bank managers
and small businesses; that bank managers would throw their hands
up and say that their discretion, their ability to use sensitivity,
had been removed in the moment of crisis by a centralised approach
from bank headquarters. One can understand why that would have
happened in the moment of crisis but, with the moment of crisis
past, we need to rebuild those relationships. The problem when
relationships are tarnished, when small business owners feel that
the bank has shut the door in their face—that is their perception,
I am not commenting on the reality of it—is that it will
take a long time to rebuild that mutual trust. Clearly what some
small business have done, believing that the banks were not interested,
is that they have withdrawn from asking the banks for finance,
which reinforces the problem.
Q424 MR
BINLEY: Can I put it to you that
in fact this is not a reaction in crisis, but this has been happening
as a matter of policy for 25 or 30 years with the banks? In fact,
the knowledge of local businesses that they used to have 25 or
30 years ago no longer exists with the banks, and therefore the
ability to impact upon a given precise situation simply does not
exist in the banking structure any more. Is that a fair comment?
MR
CRIDLAND: I
have sympathy with that view. We have both banks and many small
businesses in membership, and one of the services we provide by
having both people within the CBI family is a regular dialogue
over many recent years to try to tackle some of these issues.
However, I would suggest that, to the extent to which relationships
were positive, they were heavily dented in the late summer and
early autumn.
MR BINLEY:
A final question. Should the Government develop a national economic
strategy and, if so, what should it contain?
Q425 CHAIRMAN:
This is the point that you were beginning to answer with Mr Hoyle
and a point the TUC made play of in their responses to us.
MR
CRIDLAND: We
welcome the establishment of the National Economic Council. We
have received requests from many ministers attending those meetings
for our input on ideas to help with the economy and to help with
small businesses. I guess the difficulty in answering the question
is the definition of a national economic strategy. As I have already
mentioned, we do not feel that a comprehensive, economy-wide,
interventionist approach, as delivered with the banks, would be
appropriate for the wider economy. We do not believe that public
finances would allow for it; we do not believe that it would be
targeted; we do not believe that it would be effective. The limited,
at the margins but none the less important, measures that we have
seen from a number of government departments—on issues like
energy, on housing, on training, on skills, on public procurement—are
welcome, if they each pass a value-added test. I do not think
that we want to move back to a time when there is a single national
economic strategy. In preparing evidence for your inquiry, I think
that this is a moment when there is increased interest in, and
we use the words "an industrial route map", for the
future of the UK economy. I think that the earlier question on
whether we could have a stronger manufacturing sector is an entirely
legitimate one. We welcomed the Government's manufacturing strategy
when it was published recently. We felt that was a helpful step
in the right direction. We do believe that some of the important
business policy objectives that need to be achieved in the next
few years, particularly in the energy infrastructure arena—and
I think of renewables and nuclear new-build—provide significant
opportunities for a British manufacturing renaissance. It is appropriate
for government to have a strategy to seek to achieve that, but
I think that is one step short of what some people would look
for in a national economic strategy.
Q426 CHAIRMAN:
So you are not looking for another national plan, as we had under
George Brown?
MR
CRIDLAND: No.
Q427 CHAIRMAN:
Perhaps I could test this a little longer, because it goes to
the heart of the inquiry about value added and the point that
Mr Hoyle was making about the perceived imbalance in the economy.
NESTA have given us evidence saying that the Finnish Government
has very successfully had the kind of industrial route map you
are describing, identifying potential strengths in the Finnish
economy, which they can then shape the rest of public policy around
to enhance. Not just a strategy of picking winners but a greenhouse
in which the best fruits can actually grow strongest. Have you
looked at the Finnish experience and do you think that there is
anything we can learn from it?
MR
CRIDLAND: Yes,
I think that the Finnish experience is quite encouraging and there
are always lessons we can learn from international benchmarking.
An industrial route map seeks to specify areas where you can see
how, left to its own, business will not be able to deliver the
transformational change that is needed. If you look at the moves
required to deliver a low-carbon economy, the cliff-edge investment
required in carbon capture and storage, to take an example, is
beyond most private companies and their shareholders. That is
a legitimate area for government to focus, with the Technology
Strategy Board, the Energy Technology Institute, a certain amount
of public funding, to get demonstration projects up and running.
Otherwise, the private market will not be able to deliver. I think
that the area the Finnish example most clearly throws up is the
role of science. The Government is the prime funder of
science in this country and therefore it has a very significant
knock-on effect on industrial policy. We have always accepted
that that is a legitimate area of strategic government planning.
Q428 CHAIRMAN:
Do you think that there is any significance at all, therefore,
in the move of science away from the old DTI to BERR to the new
department of DIUS? Does that matter or is it just playing with
deckchairs on the boat? It does not matter where it rests, as
long as it is done well.
MR
CRIDLAND: The
CBI tends to be a little bit coy on making suggestions to government
on the machinery of government. Ultimately, every change produces
an upside and a downside at the same time. What we welcomed with
the creation of DIUS was bringing innovation, science and universities
together, because it was always slightly artificial to have universities,
which play such an important part in the debate we have just been
having, in a separate department to the department trying to promote
innovation and business-university collaboration. Clearly it is
now a cause of disappointment to us that the Department for Business
is no longer a main player in the science and innovation debate.
In a sense, if you improve one thing, you produce another boundary
line.
CHAIRMAN: It
is a matter to which the Committee may turn its attention. Mr
Hoyle?
Q429 MR
HOYLE: Does that mean it should
go back to the old DTI and we should change our name back to a
real name? Can I take you on to innovation? How can the Government
extend its support for innovations in the service industry and
beyond the science and technology R&D? Something close to
your heart.
MR
CRIDLAND: It
is close to our heart, yes. We have felt for a long while that
the way government was measuring innovation was leading to a set
of false assumptions and therefore sub-optimal policies. Their
tendency was to focus on research rather than development. Their
focus was on R&D rather than innovation. Their metrics were
not capturing the activity that I would consider innovation in
the broader economy. We were hugely encouraged by Lord Sainsbury's
most recent report and by his definition of the innovation eco-system.
For us it achieved two things. It explained why traditional R&D
was lower in this country than in Germany. It explained it on
the rationale that our capital intensity was lower and so we had
the traditional industrial R&D that was justified by the size
of the economy. However, I did not want to give a complacent message
because the second statement Lord Sainsbury made was equally if
not more important, which was that government needed to embrace
and encourage innovation in the service sector. I remember a chief
executive, who had come out of manufacturing and moved into the
service sector, saying to me that he had recently signed off £100
million worth of business development expenditure in his service
sector company—which nobody in that company considered research
and development but which he, as an engineer with a manufacturing
background, considered R&D. That has been the problem. Some
of the exciting innovation we have seen in supermarket logistic
chains, some of the exciting innovation we have seen in banking
practices, before the most recent challenges, have not been captured
in the way government has addressed this problem—until now.
Q430 MR
HOYLE: The big question therefore
is can the intangible innovations be accurately and meaningfully
measured now?
MR
CRIDLAND: I
believe that they can. I think that a value added approach is
a much better approach to capturing innovation in service sector
companies. I believe that there is still a lot to be done in widening
the definition of R&D within the R&D tax credit; so you
do something about the metrics and you then do something about
the policy measures. I think that the Technology Strategy Board,
which we are very greatly supportive of, needs to have that wider
vision and is now adopting it. I think that business-university
collaboration needs increasingly to be in the service sector as
much as it is in the manufacturing sector—and that is not
currently the case.
Q431 MR
HOYLE: We have had different views
expressed to the Committee and part of that view has been the
successful innovation networks clusters—as we know, the
big American theme of clusters. To what extent can this government
or any government's policies actually ensure that the impact is
there to help with their development? Can it be done? Is it being
done? If not, what should we do?
MR
CRIDLAND: I
think that we have most of the right tools in the policy toolbox.
The need now is to sustain them. It is our view that business-university
collaboration has much improved since the Lambert Report of 2003.
I think that we have transformed the spin-out of commercial activities
from universities. The permeation that I am looking for, rather
than new policy, has to be to reach small businesses. That is
difficult. It is difficult for all of us, but I think that we
still do not have enough capturing of the potential of smaller
businesses within the innovation eco-system.
Q432 MR
HOYLE: Do you believe that the
Government's mainstream pro-innovation policies cross all departments?
MR
CRIDLAND: This
is one of the areas where I think DIUS has a major challenge.
DIUS is the champion of innovation policy but it is a small department
in Whitehall. It is asking a great deal of DIUS to act as that
champion across the whole of Whitehall. We are getting there but
we are getting there slowly.
Q433 MR
HOYLE: Which department is the
enemy then?
MR
CRIDLAND: I
would not say there was an enemy but -
Q434 MR
HOYLE: All right. Who is the reluctant
one?
MR
CRIDLAND: Coming
back to my earlier comments about public procurement, I would
say that it was a cultural issue across Whitehall. Without being
in any way disparaging, if you are a civil servant in a non-economics
department and you are looking at a public procurement deal, your
main considerations will be the advice you have received from
the Office of Government Commerce, best value considerations and
whether, at some point in the future, might I suggest, you may
be before the Public Accounts Committee to justify the position
you took as an officer of the Crown. It is asking a lot of a civil
servant in a non-economic facing department to think about what
public procurement can do to achieve a low-carbon economy; what
it can do to promote equality; what it can do to promote innovation.
Permeating those cross-cutting themes, across all those many small
parcels of public procurement, is genuinely very difficult. It
is why it has proved so difficult to open up public procurement
genuinely to small businesses.
Q435 CHAIRMAN:
Mr Oaten is going to ask you about procurement, so we must not
steal all his thunder.
MR
CRIDLAND: I
suggest that it is cultural across Whitehall and DIUS has a very
big job to do to change that, alongside the OGC and the role of
the Technology Strategy Board.
Q436 MR
HOYLE: Do you think there is a
gap between innovation and getting that into manufacturing in
the UK and not overseas?
MR
CRIDLAND: Yes,
I think there is because there is ultimately a clash with OGC
guidance on best value. If you are being asked to justify why
you have chosen a more expensive procurement, because you believe
that procurement will promote a cluster of small companies in
the UK develop new technology, rather than buy an existing piece
of kit off the shelf from America, that is a big ask of a public
official.
Q437 CHAIRMAN:
You have sort of answered many of my questions implicitly. I was
going to ask about business-university links. You have talked,
though, about the need for a more effective intermediary between
universities and business. Do you want to expand on that theme?
MR
CRIDLAND: Intermediary
in which sense?
Q438 CHAIRMAN:
It is your evidence to us, as I understand it. You are suggesting
that there are still problems in getting the two sides together.
MR
CRIDLAND: The
CBI now has more than 60 of Britain's universities who have joined
the CBI because they believe they are part of the wider business
economy. With virtually all of those universities we have collaborative
projects on issues like employability or technology transfer.
I think the challenge is that there is no single portal, particularly
for small businesses who want to work with a university. Our concern
is that, for the large industrial corporate, they know who to
talk to and where to get access; but, for small companies, they
get passed round from one department to another department; not
all universities currently operate a single portal and not all
academics within universities necessarily have the incentive to
work with small businesses on short-term projects. I think that
limits the extent to which collaboration permeates down. I would
also suggest that if you said to a university "Give me five
examples of your best collaboration on research", they would
have no problem. If you said, "Give me five examples of your
best collaboration on skills or curriculum", the system is
less flexible. That is not a criticism of universities; it is
the way in which funding for teaching comes through to universities.
They have less opportunity to make it flexibly available for collaboration
with companies. It is in those areas, therefore, that I think
there is not sufficient collaboration and that the mechanisms
do not work.
Q439 CHAIRMAN:
So your solution is to encourage universities to have a single
portal for approach, a single area of responsibility?
MR
CRIDLAND: A
single portal approach. We currently have a task force on business
and higher education. It is a single Thought Leadership task force
the CBI is operating over the coming year, chaired by Sam Laidlaw,
the Chief Executive of Centrica, with three university vice-chancellors
sitting alongside 15 business leaders. One of the things we are
trying to do is identify a model for collaboration whereby, as
we move out of the downturn, the universities' position as the
outsourced provider of choice to business, in giving them the
high skills and the innovation collaboration that they may currently
buy from other parts of the private market.
| 
