CORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 143-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

BUSINESS & ENTERPRISE COMMITTEE

 

 

THE WORK OF THE DEPARTMENT

 

 

Wednesday 14 January 2009

RT HON LORD MANDELSON

Evidence heard in Public Questions 1 - 179

 

 

USE OF THE TRANSCRIPT

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Oral Evidence

Taken before the Business & Enterprise Committee

on Wednesday 14 January 2009

Members present

Peter Luff, in the Chair

Mr Adrian Bailey

Mr Brian Binley

Mr Lindsay Hoyle

Miss Julie Kirkbride

Anne Moffat

Mr Anthony Wright

________________

Witness: Rt Hon Lord Mandelson, a Member of the House of Lords, Secretary of State for Business & Enterprise, gave evidence.

Q1 Chairman: Secretary of State, welcome to your second visit to this Committee. We are very grateful to you for the promise you gave, and have kept, to come to us regularly. I am sorry about the slightly overcrowded room, which was a feature of our last meeting, but there is competition for rooms in this place and other committees had booked into the other rooms. We will try and make sure we have more space for your next appearance. I am also sorry that one or two colleagues are not here this morning, one has had a bereavement and one has another parliamentary engagement he cannot get away from, so it is no discourtesy to you but competing pressures of personal and parliamentary life. We intend to structure today's session in this way: we would like to begin by asking you some questions about the structure of the Department and the new ministerial appointment made this morning; then we would like to do the Royal Mail Group; and then we will turn, as it were, to the main agenda, the economy, and in that we are particularly looking at the automotive sector and your announcement this morning about a new support scheme for small business. That is the structure we hope to follow, if that is helpful. I think you have indicated you have got two hours with us, which is much appreciated, so we will see how it goes. Can I begin by saying that I am very pleased about this morning's announcement about Mervyn Davies as a minister because I was concerned about pressures on your time. We know you are doing a lot to help your party ahead of the next election, you have got a very major economic crisis on your hands as well and you promised us that you would be a Trade Minister flying the world selling UK plc. Those are three full-time jobs, so I am glad you have given up one of them. I think you are going to India next week, is that right?

Lord Mandelson: I am in India next week, yes.

Q2 Chairman: I am glad you are giving up one of them, but I am concerned that another Lords minister has been appointed. I do not want to be too prissy about this, in a time of economic crisis I am glad that UK plc will have another effective salesman, but we have four Lords ministers, three Commons ministers, two full-time Lords ministers, one full-time Commons minister. This is not the USA, this is the UK, and ministers are accountable to the Commons above all. I welcome the appointment in the sense it gives more resource to a very important subject but I am concerned about the issues of accountability it raises, which we raised in our report after our last meeting that we are waiting for a Government response to when it was only three Lords ministers.

Lord Mandelson: I hope that when you assess the ministerial team you will look at the quality rather than the quantity of Lords ministers. I think that Mervyn Davies joining the Government is a huge boost for us in a whole number of different ways. Mervyn Davies, Chairman and previously the Chief Executive of Standard Chartered, more than any other person made Standard Chartered what it is today. I think it is interesting to note that the bank has weathered this storm better than some others. He will bring a wealth of experience and expertise on economic, financial and banking matters. He has a huge international network. He will be joining my department as Minister for Trade and Investment, he will be flying the flag for Britain around the world, but he will also be putting at our disposal his expertise on banking and, as we know in view of the global banking crisis, that expertise is at a premium, so I really do welcome him. Can I just say it means that Gareth Thomas, who was filling the trade promotion spot, will be freed up in his time to concentrate more both on the consumer affairs and other activity that we are doing to support business and to get firms through the economic downturn and, of course, will be more available to spend more time in the Commons, so I am sure you will welcome that.

Q3 Chairman: Yes, but he is a shared minister with DFID and I think he was outrageously overloaded before. He is not a full-time Commons Minister. We had Pat McFadden as the one full-time minister. At a time of economic crisis we Members of the Commons need access to ministers to discuss our concerns and we need to hold you to account on the floor of the House of Commons. You now have a very unbalanced ministerial team.

Lord Mandelson: You have Ian Pearson, who, yes, is shared with the Treasury.

Q4 Chairman: And will be very busy when the Finance Bill begins.

Lord Mandelson: Yes, but it brings a big advantage, I must say, for my Department to have a shared minister with the Treasury. It means that co-ordination is undertaken more efficiently and seamlessly between these two Departments, which is always welcome.

Q5 Chairman: We might return to that subject later.

Lord Mandelson: I take your point, Pat, Ian and Gareth are good House of Commons people, they are good House of Commons Ministers and, as you have been kind enough to point out, I make myself available to this Committee, as is right. I do not think for this reason alone we should deny ourselves access to that talent pool which membership of the House of Lords brings when we are able to recruit people of the calibre, quality and experience of Mervyn Davies, to name but one.

Chairman: I would feel more comfortable if we had at least one more full-time Commons minister. I should put on record that this Committee shares a very high appreciation of the work of each of those ministers. I think you have a strong team, but an unbalanced one.

Q6 Mr Hoyle: The gene pool can exist in the House of Commons as well, it is not just something you keep for the Lords. Much as we do enjoy having you before the Committee, Lord Mandelson, what we have got to get across is that the House of Commons is the place for scrutiny and it is about accountability. There is nothing wrong with the person you brought in, absolutely correct, the right person, they are going to bring a lot to the table, but the table exists in the Commons and we do not feel that we can reach the table in the same way that we used to be able to do. I just wonder if we can look to ensure that we have another full-time minister on your team in the Commons just to get a bit of balance back. That is what we are looking for and that is what we need. It is about accountability, it is about scrutiny. We feel that has been taken away a little bit and we want to bring that back.

Lord Mandelson: I understand that and I respect the point of view that you are expressing. I think that to acquire another minister might be challenging. I think that some of my colleagues think I am already being a bit greedy with the number I have. What do you do? You have a guy like Mervyn Davies, who is outstanding, and short of standing in a safe Labour seat at the next General Election or at an early by-election how else do you bring him into the service of the Government and of the nation when he wants to do that other than bringing him in via the House of Lords? I know that this has an implication for the Department's relationship with the Commons, I am very mindful of that. I hope that we will be able to keep up our level of responsiveness and accountability to the Commons and if ever you feel we are slacking in that then you must pull us up sharp.

Mr Hoyle: There may be another way of doing it, of course. They might claim that you are being greedy with the number of ministers, but instead of having shared ministers in the Commons maybe we could reverse that a little bit and have a shared minister in the Lords and that would give you the same team but with better representation in the Commons.

Q7 Chairman: Two Lords ministers are already shared, of course, Baroness Vadera and Lord Carter.

Lord Mandelson: But both doing tremendous work. What Baroness Vadera does on the small business competitive side and on the banking side, she is worth her weight in gold. Yes, in a sense she is shared with the Cabinet Office and Number 10 but, again, that is a boost for our Department. Lord Carter, when he produces his interim report on digital Britain, and I hope you might consider having him before you, you will see the quality of the work he is undertaking; he really is first rate.

Q8 Chairman: The Prime Minister certainly likes using appointments to the House of Lords, does he not, so he might be changing his mind about reforming the Lords.

Lord Mandelson: He likes getting the best in harness to serve the country and all these Lords ministers are doing precisely that, but not to the exclusion of the Commons.

Q9 Mr Binley: Your reputation for being involved in all sorts of things and being able to carry them off and work very hard at those things is pretty well-known. However, my concern is that people are saying that you have been deputy prime minister to the Prime Minister, and some are saying you have been prime minister while he has been Chancellor. How much time do you actually spend on this particular Department? Could you be honest with us and tell us?

Lord Mandelson: I would say that I am working on my departmental responsibilities, on the economy as a whole as a member of the National Economic Council, full-time. Chairman, you suggested in your introduction that I spend a proportion of my time, in some people's view as much time, on preparing for the next election. I am not. Should my call come at some time in the future I hope I will be able to make a contribution, but in the meantime I am concentrating exclusively on my day job.

Q10 Miss Kirkbride: The new minister who is coming to the House of Lords, do we assume that he is a member of the Labour Party this time?

Lord Mandelson: Yes, he is going to join the Labour Party, he is taking the Labour whip. It is not obligatory, but he is very enthusiastic to do so.

Q11 Mr Hoyle: We are learning from our mistakes!

Lord Mandelson: Not as counterintuitive as you might think.

Mr Binley: It is the only way you are recruiting now!

Q12 Miss Kirkbride: Just as a point of clarification, is he being paid?

Lord Mandelson: No. He is doing this as a public service.

Chairman: We do not want to labour this point, there are more important issues to discuss today, but we have produced a report on the accountability of the Department for the Commons and we are waiting for the Government's response to that. What has happened today has increased those concerns, not diminished them. Royal Mail.

Q13 Mr Hoyle: A great subject. I think it is top of our agenda.

Lord Mandelson: Certainly top of yours!

Q14 Mr Hoyle: I am hoping it is top of yours.

Lord Mandelson: It is vying.

Q15 Mr Hoyle: Okay. Maybe we ought to drop it down, maybe that is the secret!

Lord Mandelson: No, no.

Q16 Mr Hoyle: What is the timescale for response to the review?

Lord Mandelson: We have made our initial response. Richard Hooper and his colleagues made three principal recommendations. One is to transfer responsibility for the regulation of Royal Mail from the existing regulator, Postcomm, to Ofcom in order to place regulation in the wider context of communications developments, and I think that is right, and the Government has accepted that recommendation. Secondly, in view of the burgeoning deficit in the pension fund of the Royal Mail, the Hooper Review has recommended the Government should take on a measure of responsibility for that fund and its deficit, and in principle we have accepted that recommendation and will consult on how that might best be done. His third principal recommendation was to attract a minority stakeholder into the Royal Mail, a stakeholder with a track record in postal operations, with expertise and experience of turning round a postal operator. We have had an indication of interest from one such postal operator. This will bring us not only investment resources, necessary cash, to modernise the Royal Mail and increase its efficiency and enable it to withstand competition in the market, but also bring a breath of fresh air - breath, well, hopefully gale force fresh air - into the management and culture of the Royal Mail because I think that is needed in order to continue modernisation. The Government is accepting those recommendations as a package, we are not going to select from one at the exclusion of another. We will go forward together and we will introduce legislation to enable us to do so.

Q17 Mr Hoyle: Obviously there is going to be some big discussion before we get to that.

Lord Mandelson: Yes.

Q18 Mr Hoyle: Obviously it is about taking people with you and a lot of people are not convinced with what you are suggesting today. Can you tell me how much money is actually needed into Royal Mail?

Lord Mandelson: Hundreds of millions of pounds of additional investment to modernise.

Q19 Mr Hoyle: So is that more than a billion or less than a billion?

Lord Mandelson: I am not going to pluck a figure out of the air. One thing I do know is the taxpayer alone cannot be expected to foot the bill for that modernisation. We have got huge demands and calls on the Treasury, on the taxpayer. We are doing so much to pull Britain through the economic downturn, to get the banks back on their feet, to do what we can to enable struggling firms to get through this downturn, that to ask us to take on both a potential £8 billion deficit in the pension fund plus provide all the resources needed to bring about much needed modernisation is too much to ask from the Treasury and from the taxpayer alone. That minority stake will enable us to get much needed additional investment resources as well as management expertise. Let me just emphasise that this will not make a difference to the fact that the Royal mail is part of the public sector, will remain part of the public sector, and in my view must do so if we are going to sustain the Universal Service Obligation, the delivery to all parts of the country at one price. I do not believe that it will be practicable at the end of the day to sustain the universal service provided by the Royal Mail, its letters delivery in the way it does which is so essential in my view both to our economy and our society, if a future government were to privatise the Royal Mail. I think that is a bad idea, it would undermine the universal service and, as far as I and this Government are concerned, it is a non-starter.

Q20 Mr Hoyle: We have mixed a lot up, but what we are saying is hundreds of millions is needed to ensure that we invest in modern machinery and plant in the future of Royal Mail. What we are saying is we are taking the pension fund out, that liability is going to remain with the taxpayer, in order to acquire interest from foreign companies who will take a minority stake, and I presume a minority stake is 30%?

Lord Mandelson: I do not think you can assume anything at this stage. This is something that we need to discuss both with the possible candidates but also we will take a view and I suspect the House of Commons will take a view on what ceiling it wants to place.

Q21 Mr Hoyle: How can you say it is a minority stake if you do not know what the minority is?

Lord Mandelson: Because it will not go above 49.

Q22 Mr Hoyle: So I could well be right, it could be 30%?

Lord Mandelson: It could be. It could be 25%, it might be 33%.

Q23 Mr Hoyle: What we are saying is we need hundreds of millions, I understand that, but can you tell us ---

Lord Mandelson: Hundreds of millions which at the moment are being drained from the revenues of the Royal Mail into ---

Q24 Mr Hoyle: It might be helpful if I finish the question rather than you prejudge it.

Lord Mandelson: ---servicing the deficit in the pension.

Q25 Mr Hoyle: You are having a good run, but please let me finish the question. It will be helpful to both of us because I think we both want to be constructive on how we help Royal Mail, help the British taxpayer and see how we can go forward. I agree with you that hundreds of millions are needed, but the fact is they were given a grant of £1.2 billion of which only £600 million has been spent and £600 million remains unspent within Royal Mail for modernisation.

Lord Mandelson: Why?

Q26 Mr Hoyle: Just bear with me. What we can say is that we have money there. The strange thing is the liability for the pension remains with the taxpayer. We have opened up the market and said ahead of everybody else in Europe, "Come to the UK and we will allow you to bid for bulk mail contracts where the profit is and we will deliver it - Royal Mail - by the Universal Service Obligation, we will deliver your mail under that access agreement". The fact is that the taxpayer is subsidising every letter that is giving money to foreign shareholders and foreign governments because we are losing on every letter we deliver under that access agreement. Surely the best way forward is to actually renegotiate the access agreement, make sure that we make a profit on every letter we deliver rather than subsidising foreign shareholders and giving them profits, in which case Royal Mail becomes profitable, and we ought to spend the £600 million they are already sitting on. If we are only talking about hundreds of millions, why do we want to give somebody 30% of the company? We have already given them the business, please do not follow that by giving them a stake in Royal Mail. Surely the answer ought to be let us make a profit on delivering other people's mail. That is the way that we can invest in Royal Mail, that is the way Royal Mail can have a future, and that ensures there is real competition in the market. The other way, of course, is to say to these foreign companies, "You also should have a Universal Service Obligation" and then we are on an equal footing. The fact is they are cherry-picking at the expense of our company and our taxpayers are subsidising it. It is unacceptable.

Lord Mandelson: We are talking about a single minority stakeholder partner, we are not talking about a range of foreign companies.

Q27 Mr Hoyle: One foreign company then.

Lord Mandelson: Had it occurred to you in your analysis that should this partner be, for example, the Dutch postal operator TNT that would at a stroke, should they become the minority partner, eliminate the very competition to the Royal Mail in our market that you are taking exception to.

Q28 Mr Hoyle: No, it would not. Well, it would do but would only take one of the competitors.

Lord Mandelson: It is quite a big competitor.

Q29 Mr Hoyle: It is one of the competitors. What we are saying is that Deutsche Post would still have the same access agreement and it would allow TNT and ourselves to also lose money on the delivery. It seems an absurd situation. Why do we not put the money in or spend the money we have got to modernise and charge the going rate to TNT? Why should we want to subsidise their letters?

Lord Mandelson: What you want us to do ---

Q30 Mr Hoyle: Is not subsidise.

Lord Mandelson: --- is to fork out taxpayers' money to invest hand over fist in the Royal Mail as we have been trying to do for the last ten years without, as you acknowledge, success, because as you readily acknowledge £600 million of investment that the Government has made available has not been taken up for the very modernisation which is vital to the survival of the Royal Mail as a commercial concern. Something is going wrong. Something has been missing during the last ten years, during the time we have been in government, that despite our best efforts, despite our commitment to the Royal Mail, despite all we have tried to do to invest, turn it round, raise efficiency, has not been as successful as we would have liked. I think that the missing ingredient has not only been the additional funds for investment that the Royal Mail will need increasingly in the future, not less in the future, but also difference to its management, its culture, the ethos of the company, including its industrial relations. If whilst retaining Royal Mail firmly in the public sector, as will happen, we can bring about some of those other much needed changes I think we are more likely to see that sum of money which you have described, which has so far gone wasted in investment, in modernisation of the Royal Mail, being better picked up and used for the benefit of the company, the people and the companies it is serving. Now, you might say that all the Royal Mail needs is for the liberalisation, to the extent that it has occurred, to be reversed, for the competition to Royal Mail to be withdrawn. I am not an unqualified admirer of all aspects of the regulation and liberalisation of this market, I have got my own ideas about that, but I think in the course of transferring responsibility from Postcomm to Ofcom it would be desirable to take a look and possibly make some adjustments in that. Simply to say that removing the competition alone is going to make all the difference that we want to see to the Royal Mail is, I am afraid, unsupportable.

Q31 Mr Hoyle: That is absolutely not what I said.

Lord Mandelson: You were nearly at that conclusion.

Q32 Mr Hoyle: No. You are taking it completely out of context. What I am saying is, and you can play it any way you want, and I will spell it out quite clearly so we are both absolutely sure what we mean, you have competition there, that is not a problem, but what you should do is ensure that you make a profit on the delivery of your competitors' mail. What we should not be doing is using the British taxpayer to subsidise foreign companies and foreign governments. What you are saying is that we should give a stake of our company to a foreign government. I do not believe in that, I do not think it is the way forward. What I am saying is we should make a profit on the mail that we deliver for our competitors. That is how we reinvest in Royal Mail and that is how Royal Mail will have a healthy future. The only reason it went wrong was when liberalisation came in ahead of the rest of Europe and we put an access agreement in and there was an unhealthy situation where you lose money on every letter you deliver. It was an absolute nonsense to begin with, we have not addressed it since, and that is the part that needs to be addressed. Why do we not address that first and see if that works? That is the way forward, that is what I am saying. I do believe in competition.

Lord Mandelson: There seems to be more common ground between us than I originally thought.

Q33 Mr Hoyle: But of course, with these new Socialist principles you have brought to us since you came back I have got to be an admirer.

Lord Mandelson: Even New Labour has to keep rethinking and modernising.

Q34 Mr Hoyle: We are even thinking you are old Labour these days!

Lord Mandelson: The point I am making is this: I do not know what the foreign government is that you think is being subsidised.

Q35 Mr Hoyle: TNT and Deutsche Post both have stakes in the companies, do they not?

Lord Mandelson: I do not think the German or Dutch Governments would see the operation of their postal operators and their relationships to our markets as subsidising those, but put that aside for one moment.

Q36 Mr Hoyle: They get a take of the profits.

Lord Mandelson: The reason why I think there is greater common ground between us is I happen to believe and agree that if you are going to open a market, if you are going to liberalise it and open it to greater competition, then the existing player has to be in a position to take on that competition. It has to have levels of efficiency, productivity, introduction of technology that enables it to compete with the new players who are being admitted to the market. I regret that the modernisation and increased productivity and efficiency of the Royal Mail has not gone ahead as speedily as we would have liked which would have better equipped it to take on that competition in a liberalised market, which is why I think these things have to go in tandem. We will not go in tandem or get that stronger, more efficient Royal Mail without the investment, the introduction of the technology, the reform of working practices which everyone, including the CWU, the union, accepts because they say the status quo is not an option as well. They are not dyed in the wool people who want to keep the Royal Mail as it is, they accept that change and modernisation must come about. All I am saying is we need help in bringing about that change, in my view as Hooper has argued from a minority stakeholder, another postal operator with experience and a proven track record in turning round their own postal operation and making them competitive players in the European and international markets. If you look at the Swedish or Danish experiences, but I could point to other areas, in the international postal market you need some team playing, some alliances built between postal operators. That is the trend, that is the way in which the international market is going. If we want to see Royal Mail becoming a real serious player in that international market underpinning its revenues, its profits and its commercial success then, in my view, we have got to see it teaming up with another postal operator in order to deploy that strength in the international market from its starting point and its finishing point of remaining in the public sector. That is the unchanging condition in my view because, as I have said to you, I do not think it would be easy or practical to sustain the Universal Service Obligation with a Royal Mail that had been privatised because the commercial pressures and profit-making pressures in the company would be too great to sustain the USO. That is my own view. No doubt another government of another political colour would take a different and respectable view, but it is not one I share.

Mr Hoyle: I think you have touched on the point that we believe, and quite rightly, in the Universal Service Obligation. We believe that wherever you live in the UK your mail will be delivered and there is only one company that will do that and there is only one company that has got the USO, that is Royal Mail, therefore you start off on a different playing field, you are at a complete disadvantage. We understand why we do that and it is something we are committed to, there is not a problem in that, but in that case why do we believe that we should deliver other people's mail under the USO at a loss? Why are you not saying to me, "I'm going to renegotiate it. I'm going to make sure that they paying the going rate and that profit will go into investment"?

Chairman: I think we are getting into a bit of a circle here.

Q37 Mr Hoyle: Do we agree on that, that is the question?

Lord Mandelson: I am not saying that I am not going to review it.

Q38 Mr Hoyle: Are you saying you are going to do it then?

Lord Mandelson: I am not saying that I am not going to look again at how the liberalisation has worked and how the regulator has performed. The regulator, Postcomm, in a sense has had two competing responsibilities. One is to uphold the USO, the six day a week delivery to every address in the country at a single price, and its other responsibility has been to introduce competition, to oversee liberalisation of the market. I think there has been a tension between those two responsibilities, those two aims, and we need to look at whether that tension has been managed in quite the ideal way we would like to see it. I certainly believe that to withstand that competition, to become a real strong player in any liberalised market, the Royal Mail has to be strengthened first. It needs to be modernised, a further introduction of changes in technology and working practices, and that is my priority, which is why I am so keen on implementing the Hooper Review recommendations as a whole.

Q39 Mr Hoyle: I think the things we do agree on are we believe in modernisation, we believe in a strong future for Royal Mail and we believe in it making a profit for the taxpayer. We absolutely agree on those. The only thing we disagree on is how we achieve it. My way to achieve it is to stop subsidising foreign companies and those foreign companies will pay the going rate to ensure that everybody's mail is delivered, that Grandma Smith in Chorley will get her mail delivered in the way she always had and that will continue.

Lord Mandelson: Whilst this Government is in office I can assure you Grandma Smith in Chorley will continue to receive her mail unfailingly. I am sorry, I just have to point out, Chairman, if it were as simple as Mr Hoyle suggests I think we would have achieved what he has sought to create during the last ten years of the Labour Government, but we have not. We have not and there still remains £600 million of unspent investment ---

Q40 Chairman: I think we are beginning to go over the same ground and we have got other things to discuss.

Lord Mandelson: --- which is a real loss to the Royal Mail and the people who depend on it.

Chairman: We will be looking at this issue again with Richard Hooper.

Mr Hoyle: If I could finally have the last word on it. I would say that quite rightly we had the same disagreements on the Post Office Card Account, he came round to my way of thinking and let us hope he can come round to my way of thinking on this.

Q41 Chairman: Can I just ask one technical question. When do we expect to see legislation giving effect to any changes necessary?

Lord Mandelson: Not before too long.

Mr Hoyle: About the same measure of a minority stakeholder!

Chairman: I think that is a helpful answer, I will reflect on that.

Q42 Mr Binley: We have been talking about structure, we have been talking about alliances, we have been talking about modernisation, yet the very heart of the business is about the quality of top management.. Is not the conclusion to your analysis, Minister, that the top management has failed over recent years? What are you going to do about quality top management in Royal Mail, can you tell us that? Will an alliance bring in the level of quality of management that the service clearly is crying out for?

Lord Mandelson: Well, no single organisational set of managers can take the blame for the challenges which the Royal Mail is facing. The company does have a plan for modernisation which it is taking forward, but it faces new constraints and progress is too slow. Royal Mail has got to change faster in order to keep up with the competitive pressures it is facing. I would say this: the chief competitive pressures come as a result of competition from digital media, not TNT, Deutsche Post or whatever. The loss of operating profit to the Royal Mail last year from developments in technology, the spread of digital media, was five times the amount of loss that ensued from postal competition. Whilst I am acknowledging the point that Lindsay has made we do have to see it in perspective. The greatest challenge to the Royal Mail does not come from a liberalised postal market, it comes from the growth of digital media, texts, emails and the rest.

Mr Binley: So we need not think about a change in the senior management in the coming couple of years?

Chairman: The chairman is going anyhow.

Q43 Mr Binley: Yes. I want to know what your plans are for the management of Royal Mail which has been totally not in keeping with a modernised postal business.

Lord Mandelson: I think you are being a little harsh.

Q44 Mr Binley: Well I would be, I am a customer!

Lord Mandelson: You are a very demanding customer.

Mr Hoyle: I am a shareholder, Brian.

Q45 Chairman: It is a matter of fact that you have to appoint a new chairman, do you not?

Lord Mandelson: We are just about to appoint the new chairman.

Mr Binley: We look forward to that. What about the rest of them?

Q46 Chairman: I think we will leave that for another day.

Lord Mandelson: That is a matter for the chairman of the board, not the Government shareholder.

Q47 Chairman: I think that appointment is a very important appointment.

Lord Mandelson: It certainly is.

Chairman: And a very generously paid appointment, by the way, as well.

Q48 Miss Kirkbride: I just wondered why the Minister thought the Labour Party was so neuralgic on the issue of the Post Office and Royal Mail.

Lord Mandelson: Why is it?

Q49 Miss Kirkbride: Yes.

Lord Mandelson: I think it is principally because they see that public business is best served by a Royal Mail that is in the public sector and able to sustain the very tough Universal Service Obligation that is imposed on the Royal Mail. I think it is a pragmatic view taken by the Labour Party and it is one I happen to share. I do not think the Royal Mail and its customers would benefit from privatisation, which is why I am against it. I think also there may be a concern, as was expressed to me by some Labour MPs recently, that you take one step in introducing a minority stakeholder and it is not then such a big leap to seeing the ownership of the Royal Mail going into the private sector so that the public sector ownership and control is lost. I refute that. I do not believe that we are looking at incremental steps, let alone a slippery slope to privatisation, I completely reject that, unless, of course, by some misfortune for the country this Government were to be replaced by an alternative after the next election with different views on what it might do to the Royal Mail. What a misfortune that would be!

Q50 Mr Binley: Some say.

Lord Mandelson: Some say. Let us not look forward to that unlikely event.

Q51 Miss Kirkbride: Through gritted teeth, for those who did not notice it! Do you regret that there was this promise made in the last Labour Party manifesto which you are going to break the spirit of with your proposals?

Lord Mandelson: No, no, absolutely not. There is absolutely no question of breaking the letter or the spirit of the manifesto which committed the Government to retaining Royal Mail in the public sector, but making sure that it is restored to health and has a strong successful future. We are able to achieve both those things in implementing the Hooper Review's recommendations, keeping it in the public sector but turning it round, making sure that it has a strong successful future by bringing in the investment, the new ethos and management expertise and experience that I believe the Royal Mail badly needs. Both of those things are in the letter and spirit of the manifesto.

Q52 Mr Wright: Surely we were aware we needed that expertise ten years ago. We knew there were going to be difficulties. Certainly the pension deficit was brought to our attention probably four, five or six years ago when we realised there was a particular problem and we did everything we possibly could to help and assist Royal Mail. In terms of what Brian Binley said on the management, I think we have been badly let down and badly served. Here we are again talking about trying to reinvigorate the Royal Mail when in actual fact I believe the management over years and years have badly served the company itself. I think that is where the root cause of the problem is. To go down this particular route, to look at the possibility of bringing in private investors, in my opinion, if that was to go ahead, in two, three or four years' time we will be revisiting this and examining whether or not we are going to have the Universal Service Obligation in terms of the mail service. I have been looking at that particular viewpoint. We have looked at the question of the one price in terms of the postage. I think the most important thing, and we talk about taxpayers as a separate entity from the consumers but every single taxpayer at some point has used the Royal Mail, is I believe they would have been prepared ten years ago to pay a little bit more on the postage service to protect the universal system. I believe management have badly let this Government and the taxpayers down in running this particular business and I think there will be more of the same in the future unless we are very careful.

Lord Mandelson: As I have said, I half share your view but I think you are being a little unfair to the present management who have constructed and introduced a modernisation plan. As I have said, it has not been implemented fully, it has not been implemented quickly enough and it needs more capacity, more capability introduced into the Royal Mail to do that successfully. That is what I think our proposals will achieve. As I say, we have not achieved those goals successfully in the last ten years, that is why we need to look at different ways of doing so now. When you talk about the taxpayer, I just ask you to bear in mind what the taxpayer is being asked to take on in implementing these Hooper recommendations. We are talking about a liability, a deficit in the Royal Mail's pension fund which has grown from three and a half billion to five billion and some predict will reach somewhere in the region of eight billion this year. You are asking the taxpayer to take on a great deal now in underwriting that pension fund deficit. If, in addition, you are asking the taxpayer alone to foot the bill for the investment in the modernisation and at the same time losing Royal Mail's access to that much needed, in my view, management expertise and experience of turning round the postal operator that a minority stakeholder would bring, I think that is asking too much and I do not think the public would stomach our cherry-picking the Hooper Review recommendations and saying, "We will take on the pension deficit, we will fix the regulator, but broadly speaking leave the Royal Mail operation as it is". I do not think that is an acceptable deal or an acceptable bargain for the taxpayer.

Chairman: I think you sense Mr Hoyle is going to disagree with this, but I really do want to move on.

Q53 Mr Hoyle: I think we are in danger of misleading the public. The public will think we are absolutely foolish when what we are saying is we are going to give the £9 billion deficit to the taxpayer and, on the other hand, going to leave the £600 million we have got there to spend on investment within the company at the same time we are probably going to give around 30% to a foreign company. The taxpayer will think we are absolutely bonkers.

Lord Mandelson: That is what we are getting back from that partner, cash and expertise and a good track record in turning round a postal service.

Mr Hoyle: And leaving nine billion with the taxpayer.

Q54 Chairman: We will explore these issues again on Tuesday of next week when we have Richard Hooper and the Communication Workers' Union in front of us. Let us move on now to the main economic questions facing the Government in the country. You have made a major announcement this morning and kindly sent me just before this meeting began a fuller statement about what it involves. I have not had time to digest it fully yet. What do you want to say about the nature of that general statement before we begin specific questioning on support for businesses?

Lord Mandelson: I think what I would like to say, Chairman, is at the heart of the economy's ills is the credit crunch, is the banking crisis, which is not restricted to this country, it is global as we know. The Government intervened last autumn to save the British banks from collapse. Many smaller, foreign-owned banks have now departed the marketplace here leaving a slightly reduced capital pool on which the banks can draw in order to service the needs of the corporate sector, homeowners and others. The banks are not yet back on their feet, they are not yet back to the lending behaviour and performance that we need to service the needs of the economy. The Government continues to keep under review the measures it has already taken in relation to the banks. We are in intensive discussions with the banks now with a view to making further refinements to those measures, those interventions that the Government has already made. In the meantime, the Government also has a responsibility to the corporate sector, smaller businesses in particular which are viable going concerns which have strong prospects but which are finding it a real struggle to find the credit that will enable them to withstand the pressures of the downturn and to get through it and out the other side. That is why since the Pre-Budget Report, when the Chancellor announced our intention to introduce these measures, we have been in intensive consultations with the banks. A lot of very careful planning has gone into what we announced today: the Enterprise Finance Guarantee, which targets help for small businesses; the Working Capital Scheme that will liberate working capital within the banks and enable them to sustain existing credit lines as well as introducing new lending; and the Capital Fund to the tune of £75 million that will enable companies benefiting from it to convert their debt to equity provided by that fund. I make two points. These schemes are tailored very specifically to the needs of small and larger firms alike, to those which have low and relatively medium risk, and, secondly, there is a very strict conditionality attached to these schemes. For the banks to benefit from the resources and the guarantees we are making available they have to negotiate with us how they will use those opportunities to benefit firms in the country which provide the backbone of our economy. That is what is different about these schemes and that is why I am confident they will deliver the results designed for them.

Q55 Mr Binley: I am delighted that the Government has recognised the importance of the SME sector and particularly the small business sector because money has not been getting through to them and I think we are all aware of that. What you are saying is you are going to work with banks to find more effective ways of getting money through. Can I ask if you would give us some idea of how many of the packages of support announced in the Pre-Budget Report are in truth now available? We have heard a lot of fine words about schemes to help small and medium-sized business but much of that has not started to take effect yet. Could you tell me what is available at this very moment.

Lord Mandelson: The one billion of guarantees supporting £1.3 billion of lending to smaller businesses under the Enterprise Finance Guarantee is operational and live as from today. The Working Capital Scheme is also live today, although we need to introduce an amendment to the Banking Bill in order to give effect to it. Our implementation of the Working Capital Scheme with the banks will start today and I believe the first tranche of the £10 billion that the Government is making available under this scheme, which will support £20 billion worth of lending, existing and new, will come on stream in a month or a six to eight weeks' time. We need to negotiate that. The banks will bring to us a portfolio of loans which our guarantee will remove, as it were, 50% of the risk from which will then free them up to make other capital available. That negotiation with the banks will start taking place as from today. We have to make really sure now that we are going to hit the mark, we are going to hit the target with this scheme. There has to be genuine additionality in value, performance and result from these schemes in what we see from the banks and I am absolutely determined to take the time to undertake the painstaking negotiation to make sure we do get those results.

Q56 Mr Binley: Can I pursue that about hitting the target because one of the problems is the difference between loan and overdraft has not really been understood by the Government in this marketplace to date. Are you saying you are going to help small businesses which run their business on an overdraft facility rather than loan?

Lord Mandelson: They will also have the chance as part of this guarantee scheme to convert overdraft to loans.

Q57 Mr Binley: You do know that the Federation of Small Businesses reckon when small businesses looked at loan, about 40% of those people were thinking of packing up their business instead of getting themselves committed to putting their house on the line? You know that, do you not?

Lord Mandelson: I do, and I am very strongly aware from some of the data I have seen from a couple of the banks that the number of overdraft limits being reduced by the banks is certainly significantly higher than a year ago.

Q58 Mr Binley: Exactly.

Lord Mandelson: It is precisely to address that need, both the shortage of capital available for lending in the market as a whole, which the Working Capital Scheme addresses, but also the greater difficulty that companies have in sustaining or acquiring new credit lines because the banks treatment of risk is changing given the new conditions operating in the economy. Even where capital is available, lending is available, it is harder to get hold of by companies in particular, but not only small firms. I would just enter this note of caution. I think we will find as the year goes on and as larger companies seek to renew their own lending and credit lines that they will face difficulties which the banks are going to have to address and I suspect the Government is going to have to address with the banks.

Q59 Mr Binley: I am encouraged. I could not describe myself as a small businessman but I am certainly encouraged by what you are telling me. Can I go on to ask how you are going to monitor and assess the effectiveness of the schemes you have just announced?

Lord Mandelson: Closely.

Q60 Mr Binley: Closely is good. So your newly made Lord from the banking profession is going to do the monitoring. Tell me how that is going to work?

Lord Mandelson: That will not be his primary responsibility. There will be a team, not to say a squad ---

Q61 Mr Binley: A squad!

Lord Mandelson: --- of people who will be monitoring this. I am not going to see the taxpayer taken for a ride in the operation of these schemes only to find they are not hitting the target, they are not delivering the results for which they are intended. We will make sure that does not happen.

Q62 Mr Binley: I am delighted. When you have set up these squads, will you let us know how you are going to do it and give us a report?

Lord Mandelson: Teams, teams, teams.

Q63 Mr Binley: Teams, we are changing the name again. Will you tell us how you are going to do it so we can keep an eye on it too, bearing in mind you are in the other place and we work in the Commons?

Lord Mandelson: I am sort of here today, with you tomorrow, but never left your side.

Q64 Mr Binley: That is most reassuring!

Lord Mandelson: I will make sure that the information that I have that we are accountable for I will report regularly to you.

Q65 Mr Binley: The Committee would appreciate that enormously. Can I ask the extent to which the Secretary of State believes the credit crunch is preventing sound companies from getting access on reasonable terms and the extent to which difficulties are caused by changed bank lending practices? May I introduce into that the level of knowledge owned by banks at the coalface? Thirty years ago bank managers really were at the coalface, they were members of Rotary, they knew what local business was all about but my feeling as a businessman is that skill and knowledge is much less relevant today, much less in operation. How are you going to change that round?

Lord Mandelson: The skill?

Q66 Mr Binley: The bank at the coalface in the High Street knowing exactly what is happening in local business terms so that real risks can be assessed in the sense of a given business. That is no longer in place as it was 30 years ago. You need to rectify that, how might you do it?

Lord Mandelson: I think you touch on a very important issue. When I became Secretary of State I set up the Small Business Finance Forum which brings together actual but also representatives of small businesses, together with the main business organisations, the CBI, the IoD, et cetera, and the senior representatives of all the main UK lending banks. We met a number of times. What have been the problems that we identified? Obviously that whilst the overall stock of lending has remained stable, this masks a significant decline in levels of new lending and the cost of finance also appears to have increased and there has been an upward movement in margins on the variable rate market. The measures that are going live today seek to address those issues. There was another issue that emerged very strongly in our Forum, that customer relationships were not being conducted in the way that the banks' customers are entitled to expect. Rather than local managers, if they want to review lending facilities, getting in touch with businesses, talking through their balance sheets, their orders and prospects, making a real-time assessment, that a sort of blanket approach has been taken to lending, particularly in certain sectors, and letters have arrived or, worse, emails have been received which have given companies a short time in order to respond to new arrangements and, indeed, new arrangement fees which have been required from them for the privilege of the banks summarily rearranging their lending facilities. The banks are very sensitive to this criticism. They strongly contest that this practice is extensive. They say they take very seriously indeed their customer relationships and if particular firms feel they are being inappropriately or poorly treated in the conduct of this relationship the banks have agreed, at my request, to set up a sort of hotline that companies can use to make an appeal to a higher authority or central unit of the bank so that their needs can be reconsidered if they think they have been subject to summary judgments and poor treatment. The other thing I have stressed is that in some cases within the banks and their management structures, I think at local level managers have become more risk averse ---

Q67 Mr Binley: Very much so.

Lord Mandelson: --- than they need to be because they get the feeling their jobs and reputations are on the line and if they take any risk at all, their heads are going to be on the block and the area director, if not somebody higher, is going to come down on them like a ton of bricks and they are not going to take that chance. I also feel, from some of the anecdotal evidence I have picked up from small businesses, the message has been passed down the line that everything is bleak, everything is grim, banks have to take a zero risk or a zero tolerance attitude to lending and local managers have interpreted this in too sweeping and blanket a way. The senior managements say they have not been sending that message, that the stock of lending has been maintained and that those banks that benefited from re-capitalisation by the Government are standing by the commitment they originally made last autumn, which was to maintain the availability of resources for lending at the level of 2007 and that this availability has been reflected in instructions which have been passed down the line. All I can say is, if that is the case, it fights with a lot of the anecdotal evidence we have been receiving. The Chancellor and I have set up a high-level lending panel to review all the data from the UK lending banks, which was given to us in confidence and enables us to draw conclusions about the lending policies and behaviour of all the banks, both in respect of the corporate sector and homeowners. We have had one meeting with that panel. In my view, the information we received was somewhat partial. We will be having another meeting with the panel shortly in order to review the further information and evidence which will be submitted. We will be able to draw conclusions from that information given to us in confidence, although I am not saying the conclusions we draw and the measures we think we need to adopt will be kept in confidence, they will become public.

Chairman: That was a very interesting answer but if we could have slightly shorter answers, it would help enormously, but it was a good answer.

Q68 Mr Binley: Can I say, without wishing to contradict the Chairman, I have been very encouraged by your depth of knowledge of the small business area and I think that is good for the sector. There you go, there is praise, indeed, from the other side, as it were. Can I raise briefly the price of money at the level we are talking.

Lord Mandelson: Of credit?

Q69 Mr Binley: Yes. Overdraft prices, I heard of a company who thought they were doing very well getting 9.7% and another one said, "Well, we topped you, we got 9.1%", that is a sizeable rate above the rates you want to lend. Can I ask what you are doing about that? It is a difficult situation for the banks, they are being pulled in two ways. They have got fixed-term depositors at 5% and 6%. You are demanding about 12% a year from them, they have got to rebuild their asset base, LIBOR is still a problem for them. How do you overcome that in real terms for small business?

Lord Mandelson: These dilemmas are real; the banks are being pulled in different directions. They are being asked to recover from the excesses of the past, to de-leverage their balance sheets and draw in their horns somewhat, at the same time maintaining lending and credit availability across the economy. This dilemma and these tensions were described rather eloquently by the Liberal Democrats' spokesman, Vince Cable, on the radio yesterday. He then jumped to the conclusion that these dilemmas would be eliminated, these tensions would be removed at a stroke simply by the banks being nationalised. Whilst there are some, indeed some in my own party I hear, who still aspire to the nationalisation of the commanding heart of the economy, indeed, whilst, in a sense, we have partially nationalised certain banks, I do not believe that as things stand at the moment wholesale nationalisation is going to provide the silver bullet, the magic wand and is going to eliminate those tensions with a stroke in the way that people want. They will remain in whosever ownership the banks remain. We have got to climb back stage by stage, bit by bit, instrument by instrument and measure by measure. I am afraid it is going to take time, and quite a bit of time, before the banks are fully restored to health, but that is not a reason or an excuse for the Government to sit on its hands and do nothing, as some would suggest. We have got to keep acting, managing and intervening in order to steer the banks back to health and to the position we need them in because they are absolutely fundamental to the running of our economy.

Q70 Mr Binley: The others, you say, were doing nothing and, of course, you adopted their schemes, so I find a slight dichotomy there?

Lord Mandelson: With the greatest love and respect to George Osborne - who I know I have met from time to time - what does he call it, his national loan guarantee scheme, it is a scheme in name only. It is unfocused, untargeted, unfunded and, I suspect, imprudent in anything like the operation that he has currently described for it. He bases his scheme, of course, in name, at any rate, on the announcements that the Chancellor made last November in the pre-Budget Report, so let us get our sequence right.

Q71 Mr Binley: He will be delighted with your terms of affection, I have no doubt, but having talked with him before Christmas, I can tell you there was much more detail to the scheme than you are willing to admit but that is another matter.

Lord Mandelson: No, I have looked at it.

Mr Hoyle: Brian, can you enlighten us all because we do not know anything?

Q72 Mr Binley: I am more than happy to afterwards.

Lord Mandelson: Is it funded?

Chairman: Secretary of State, we will ask the questions.

Q73 Mr Hoyle: Brian, where is it coming from?

Lord Mandelson: I thought, once again, I was on the floor of the House of Commons recalling my better years!

Mr Hoyle: A bold statement, so back it up!

Q74 Mr Binley: Having been nice to you and congratulated you, let me now move on to ask about the relationship between the Treasury and your department because that is a very important relationship in terms of the work you are doing. Can you give us a little insight into how that is going, recognising that the Treasury have always seen themselves as the rather isolated and superior ministry in this respect?

Lord Mandelson: You mean a little haughty?

Q75 Mr Binley: If you think so.

Lord Mandelson: No, no, no, of course not. I have to say, I take my hat off to the Chancellor and his team. They are across the issues, they have devoted enormous hard work and a great deal of wisdom and good judgment, in my view, and not a little bit of political courage in the way they have taken on the banking crisis. I am pleased to work closely with the Chancellor. I always find him responsive and flexible within the limits of Treasury finances and prevailing orthodoxy. Whenever I come with an issue or a need or a fresh challenge that some part of the economy faces, which I am speaking up for, he is a good team player. That is how I would sum him up.

Q76 Mr Binley: You are perfectly happy with the relationship and you think it is going to benefit the people we have just been talking about because that is what they are bothered about?

Lord Mandelson: Yes, I really do because he talks in real terms and in real time about the real needs of homeowners, companies and small businesses. He is right across these issues. He is completely familiar with the problems and the needs and he is always willing to listen to a new idea and measure about how we should address them. I really mean that. There is nothing Snowden-esque about Alistair Darling, with great respect to the former great Labour Chancellor.

Q77 Chairman: Can I ask some technical questions. I am a bit confused about the Financial Times report today. The Financial Times suggested that the Enterprise Finance Guarantee would be targeted at particular sectors seen as vital to rebuilding the economy. Is that the case? Is it a targeted scheme?

Lord Mandelson: It is directed at smaller businesses.

Q78 Chairman: Generally.

Lord Mandelson: Of not the lowest risk but not the highest risk either.

Q79 Chairman: By risk and size, not by activity?

Lord Mandelson: Activity, how do you mean? I am looking at the Financial Times here. Do you mean a particular sector?

Q80 Chairman: The Financial Times' report said it would be targeted at particular sectors, that is not the case, it is a general scheme across all sectors?

Lord Mandelson: No, important sectors of the economy will benefit. For example, people are rightly concerned about the automotive sector, which I think we are going to come to, and the very important and very large supply chain underpinning the automotive sector will be able to benefit.

Q81 Chairman: There is no deliberate targeting of that scheme to any one particular sector?

Lord Mandelson: No.

Q82 Mr Hoyle: Chairman, to put the question the other way around, are there any sectors you will not be funding?

Lord Mandelson: I am not excluding any.

Q83 Chairman: The same is true of the rather modest equity capital fund you have announced as well. Again, the Financial Times said it will be targeted at strategically important sectors.

Lord Mandelson: I would describe them not as strategically important so much as innovative growth companies. You describe it as modest, I would say from small acorns great ideas are born. Remember, after the Second World War the ICFC was created by the post-war Labour Government as part of its industrial strategy then, I choose to describe my own approach more as an industrial activist than interventionist. I think it may well be that from the small acorn of our capital for enterprise fund a large oak tree might grow.

Q84 Chairman: You are dropping a very interesting and intriguing hint of precisely what I want to ask you. I heard that the Government is considering the establishment of some kind of new equivalent of a 3i organisation. There are large amounts of private equity capital floating around which would dwarf the £50 million in this scheme. The private equity industry had a very benign financial tax environment for years. Of course, companies do not need more debt. One of the problems of the British economy is the public sector, the private sector and the corporate sector are all over-leveraged already. One of the reasons why the problem here is so serious is the over-leverage of every sector, so what the private sector needs is more capital. I am very encouraged by what you are saying about these small acorns and great oaks. Are you saying there is a germ of an idea in your mind for a more ambitious equity fund here?

Lord Mandelson: Yes. I do not want to go too far in advance of Government policy but, yes, I do have an ambition, I do have a vision for this fund. I would like to see it grow, I would like to see its extended role, not because I believe that debt or credit are wrong, of course they are not, they sustain a modern economy, but the provision of equity finance, particularly for innovative, higher technology growth companies, is very important, they need that for their investment. We will see, I am not going to anticipate where these new ideas might lead.

Q85 Chairman: I think it would be unfair to push you on that, you have been very honest to the Committee. Can I welcome that suggestion and say how much we look forward to hearing it develop. I think it is a very important suggestion indeed.

Lord Mandelson: If you could pass that on to the members of your party's front bench!

Q86 Chairman: I do not think they will be opposed, I could be wrong. Given the way you mis-described our policies earlier, I could have a lot of discussions with the frontbenchers!

Lord Mandelson: Whoever the members of your frontbench may be!

Mr Hoyle: This week!

Q87 Miss Kirkbride: Minister, I think it is the Government that normally pinches the Opposition's policies, but we will leave that aside. What assessment has your department made of the cost to the British economy of the credit squeeze on both GDP growth and jobs?

Lord Mandelson: I think it is unquantifiable, to be honest.

Q88 Miss Kirkbride: You must have some assessment.

Lord Mandelson: No, I do not. The ramifications are so huge because credit underpins activity throughout the economy. If you think of every part of the economy where credit is essential, you have to conclude that almost no sector of the economy is going to be untouched by the implications of that.

Q89 Miss Kirkbride: You must have some idea. Some of the people have made a stab at it, we are told that 100 businesses were going bankrupt every day because of it all, so surely your Department has some assessment. If it does not have an assessment, how are you going to assess how well your schemes are managing to involve them?

Lord Mandelson: To be honest, I am less concerned about assessing what is going wrong as devoting my energy to what we can do to make things go right.

Q90 Miss Kirkbride: How are you going to know that it is getting better from you schemes if you do not have some modelling?

Lord Mandelson: I will know where the loans are going, I will know where the guarantees are having a positive effect, I will know what additional working capital is being brought into use in the banks, I will know how the Enterprise Finance Guarantee is being used and who those loans are going to, I will know how the capital fund is being used and I will know all those things in due course.

Q91 Miss Kirkbride: From your very bureaucratic scheme that you are setting up at the moment.

Lord Mandelson: Is it bureaucratic?

Miss Kirkbride: On the face of it.

Mr Binley: Evidence?

Q92 Miss Kirkbride: On the face of it.

Lord Mandelson: Sorry, I should say, the banks with whom we have been talking about this and negotiating this have expressed all sorts of concerns about how it might operate and we have been able to smooth out those wrinkles and concerns, but none of them has said they think it is overly-bureaucratic, that is not a criticism I have heard.

Q93 Miss Kirkbride: As a member of the Opposition, I think I am probably allowed to express a view that in general I find that Labour Government meddles a lot and, once again, we see the way you are operating these schemes seems to me to be over-bureaucratic.

Lord Mandelson: With respect, I know you might expect us to meddle, as you say, or intervene, as others would say, less, but I do not think that is what the economy needs just at the moment. They do not need us to sit on our hands, sit back and do nothing.

Q94 Miss Kirkbride: No, we need a National Savings loan guarantee scheme in which the banks share the losses, in which case you can perhaps use them a little bit more clearly. However, you are talking about a six to eight week delay before any of this money will be forthcoming. The credit crunch started last October and, as I have said already, some people think that 100 companies are going bankrupt every day. Do you really think you are moving fast enough on all of this?

Lord Mandelson: Yes, I do think we are moving fast enough. I was struck by the Deputy Director of the CBI who remarked that monetary measures like this require careful planning because they have not been used in a generation, if at all.

Q95 Miss Kirkbride: Six months later.

Lord Mandelson: Not six months later, no.

Q96 Miss Kirkbride: By March it will be.

Lord Mandelson: As John Cridland was saying, we are in uncharted waters here. We are designing new financial and monetary instruments which have to, firstly, meet their target, secondly, cater to the organisation and business model of the banks because we have not nationalised them, thirdly, give value for money to the taxpayer and, lastly, enable us to give a proper account for how these schemes are operating, ie we have to know what is going on. You do not design an instrument like that overnight. You do not do it unilaterally and you do not put it into operation before you get it right. The Chancellor announced his intention to introduce this scheme at the end of November. We have had Christmas and New Year intervening, it is now mid-January and it is going live, I think that is pretty good going.

Q97 Miss Kirkbride: The money will be coming through in March.

Lord Mandelson: I am sorry, you have made a point and I have got to respond to that.

Q98 Miss Kirkbride: You said six to eight weeks which is now.

Lord Mandelson: You are talking about very, very large sums of taxpayers' money, you are talking about £10 billion. Do you expect us to go out and just throw it into the high street, throw it at the banks and say, "Take it up and get on with it and do as you will with it", of course not. This is a transaction between the Government, on behalf of the taxpayer, and the banks to deliver real benefits to small and medium sized businesses in our economy and we are going to get it right.

Q99 Miss Kirkbride: I am sure they will be very grateful, better late than never; I am sure in that sense it is a good idea.

Lord Mandelson: Or not at all as your party would have us do

Mr Hoyle: Do nothing, do nothing!

Q100 Chairman: Just to say on the record, we did hear evidence from the SME sector in December, a month ago, that officials in your Department and the Treasury were making it very clear that the Christmas and New Year holidays would delay consideration of it and they expressed real concern that they sensed a lack of urgency.

Lord Mandelson: That is why our holidays and officials' holidays were caught short whilst this work was going on throughout the holiday. If you heard the representatives on the radio this morning of all the small business organisations congratulating the Government, firstly, for what we are doing and, secondly, the speed with which we are doing it, I do not think you would take us and our officials to task in quite that way.

Q101 Chairman: I am just repeating what the small business sector said before Christmas.

Lord Mandelson: They do need Christmas Day and Boxing Day.

Q102 Miss Kirkbride: From a Government that is going to double our national debt to a trillion pounds, we are very grateful that you are taking such care over public money. You did just say that the Government does not want to spread money around, you did give £12 billion in the VAT cut before Christmas. I want to take you up on something you said this morning on the radio, you said that was £270 for everybody.

Lord Mandelson: Average.

Q103 Miss Kirkbride: Yes, exactly, but it will not really help that many pensioners or low paid people because that equates to around £15,000 of VAT-able spending and I doubt very much whether very low paid people would spend that much money on VAT-able goods. I am not sure that was terribly well directed either to the people who need it the most.

Lord Mandelson: I do not agree.

Q104 Miss Kirkbride: But you agree it is £15,000 of VAT-able spending?

Lord Mandelson: With respect, I do not agree with you that it would have been better to spend that money on income tax cuts or raised tax allowances when so many more people will benefit from the VAT reductions who do not pay tax at all. I strongly agree with Kenneth Clarke whose views on the VAT reduction were made absolutely clear. He said in November, advocating what the Government should do, "I would look at a temporary reduction in value added tax which is the best way of stimulating spending".

Q105 Miss Kirkbride: A great many business leaders do not agree with him because he is a past chancellor. I think this is diversionary tactics. Chairman, I do not think we need to hear anymore of this.

Lord Mandelson: He went on to say in November, "As far as I am concerned, as far as this fiscal stimulus is concerned, I would go for a VAT reduction". Well, hear! hear! Kenneth Clarke!

Q106 Mr Hoyle: We are backing Clarke, absolutely!

Lord Mandelson: On this matter, as on other matters, for example, to do with Europe and his commitment to Europe, I strongly back him. Bring back Ken, please!

Q107 Miss Kirkbride: One other question I would like to ask you, Secretary of State, on the basis that there does not seem to be a sense of urgency in your Department, was what you called earlier 'refinements', by which I think you were talking about Basel II and the return to the banks on the money that the taxpayers have given them. You are talking about refinements, but that goes to the heart of the credit crisis and why the banks are not lending money because they are required to build up their balances, both by the Basel II arrangements and by the preference share issues which were given by the Government, so they are caught in a cleft-stick. You call these issues refinements like they are not a major issue, like they are not the thing which needs to be sorted out today because that is why they are not lending money. They could lend a whole host more money than is on offer from your scheme if these issues were sorted out. You call them refinements like it is something that we will worry about come the summer when we have got nothing else better to do. A sense of urgency, Secretary of Stage, what do you have to say about that?

Lord Mandelson: I would say you are talking about apples and pears. Basel arrangements are rather more fundamental than, for example, the capital ratios required by the Financial Services Authority or the premium attached to the recapitalisation that was introduced, apples and pears.

Q108 Miss Kirkbride: They all add up to the same problem though.

Lord Mandelson: Some can be addressed rather more easily and quickly than others.

Q109 Miss Kirkbride: But none of them is being at the moment.

Lord Mandelson: I think I said that they are being addressed, you have dismissed them.

Q110 Miss Kirkbride: But when? Can you give us a timescale on when they will be addressed?

Lord Mandelson: You have dismissed them as refinements.

Q111 Miss Kirkbride: No, you called them refinements, Secretary of State, not me. Those were your words, not mine, I took it down as you said it.

Lord Mandelson: No, no, you dismissed the refinement. I did describe them as refinements, you dismissed it.

Q112 Miss Kirkbride: A curious word.

Lord Mandelson: Let us call them adjustments, let us call them revisions, call them what you want, all I know is we have got to keep looking at this and making any changes needed in order to get the results that we need. We are active on the case. The Chancellor is actively talking to the banks at the moment and has been for a few weeks now. These are very complex technical areas of possible adjustment and when conclusions have been reached, announcements will be made.

Q113 Miss Kirkbride: You ridiculed the Liberal Democrats' spokesman earlier, as is your want with any of your Opposition, do you rule out nationalising the banks?

Lord Mandelson: I did not ridicule him, I actually described him as eloquent.

Miss Kirkbride: Do you rule out nationalising the banks?

Mr Hoyle: We have done.

Q114 Miss Kirkbride: Just yes or no.

Lord Mandelson: Do you mean fully nationalise?

Q115 Miss Kirkbride: However you choose to term it, do you rule out nationalising the banks?

Lord Mandelson: You are asking the questions, not me.

Q116 Miss Kirkbride: Nationalising normally means the public owns 100%, so do you rule out nationalising the banks?

Lord Mandelson: It is not on the Government's agenda.

Miss Kirkbride: Thank you.

Chairman: We have got some other more detailed and important questions to ask as well. Adrian wants to ask about HM Revenue and Customs.

Q117 Mr Bailey: In fact, this is a supplementary to an earlier question by Brian about your working relationship with the Treasury and we quite understand that you have a very good relationship at ministerial level. However, the supposed flexibility of HMRC in dealing with tax issues with regard to small businesses, I have got a particular horror story in my constituency which I will not go into in detail at the moment.

Lord Mandelson: Share it with me or with Alistair.

Mr Bailey: The thrust of my question is what are you doing with the Treasury and HMRC to ensure that an almost cultural change which should be taking place on the ground is actually happening in their dealings with small businesses?

Q118 Chairman: Can I add to Adrian's question as well. I have been talking to representatives of the small business sector, the impression they form is there is a great deal of regional variation in the action of HMRC, some are being very co-operative, very helpful, fully flexible, others are falling back to the bad old ways of the Inland Revenue. I think Adrian is right, there is a cultural problem in some parts.

Lord Mandelson: I was not aware of that, that is new to me and I did not know that. I will pass it back and look into it. As you know, some time ago the Government talked to HMRC about their attitude to companies which were struggling, that had cash flow problems and having trouble getting cash in and wanted the cash out to, amongst others, the HMRC to be slowed down on deferral. HMRC responded very positively to that, certainly as an organisation as a whole and I know in many parts of the country. I will look at what you say about this being rather patchier than we had realised. This is a major contribution that the HMRC is making. It represents a couple of hundred and more millions of pounds' contribution by the HMRC in deferred tax-line abilities which they are making to struggling businesses to enable them to get through the downturn. They are making their contribution, it is a real one. I know it is greatly appreciated by many companies, but if it is patchy, then we will look at that.

Q119 Mr Bailey: I notice in your written statement today you have got a business payment support line number, which is very welcome, but one of the problems I have found with this company in my constituency is their attempt to enter into a dialogue with HMRC. They have been passed from pillar to post. Again, I would emphasise the need to monitor this to see that it is working effectively.

Lord Mandelson: Adrian, I absolutely take what you are saying. I do not have direct ministerial responsibility for this or for HMRC, but I will make sure the Chancellor and his colleagues are aware of what you have said.

Q120 Chairman: Were I not a mutual Chairman, of course, who does not do party politics on occasions like this, I would point out the Conservative Party had the scheme to give automatic VAT relief, which would have avoided these difficulties, but that would be inappropriate for the Chair, of course!

Lord Mandelson: I will study it very carefully!

Q121 Chairman: Can I ask about the complexity of some of this. For the small business sector, obviously a lot of what we are hearing is very welcome, and whether it is building on a Conservative policy or Government thinking, it does not matter, it is very welcome. There is a concern in terms of the SME sector that understanding what the Government is doing is actually quite difficult. What are you doing to communicate with the SME sector about the initiatives you are taking?

Lord Mandelson: I am looking for the website, the single portal by which companies can access the Business Link's organised support. I think it is realhelpnow/finance-businesslink, I cannot remember what it is.

Q122 Chairman: I am sure they can navigate from the homepage, do not worry.

Lord Mandelson: In a flash, it is www.businesslink.gov.uk/realhelp-finance.

Q123 Chairman: Business Link is the answer to that question.

Lord Mandelson: And the single portal through which to gain access to the variety of schemes and offers of help that we are making.

Q124 Chairman: It is very important, but I think Tony Wright will be asking about RDAs later and it may be something he will want to explore. Can I ask about ten day payments quickly as well. This is a very welcome initiative. I do not know how good Government is at meeting the targets imposed on it but local authorities are very variable. I have heard accounts from contractors in the civil engineering sector, for example, some are doing a tremendous job, Berry, for example, are bending over backwards, others really not offering it at all. What can you do to encourage independent local authorities to do all they can to respect the ten day payment deadline?

Lord Mandelson: Keep reminding them of their obligation and their responsibility. This is not the end of the problem because what I am finding is where the ten day payment limit is being operated by central Government, NHS trusts, local authorities and others in the public sector, this is not being taken up universally by large companies in the private sector. Secondly, where the initial payment has been made, it is not then passed on subsequently down the supply chain with that ten day limit also being observed down the chain. This is of concern to me. I publicly express that concern and encourage people and firms and those in the supply chain, as well as everyone across the public sector as well as bigger operators in the private sector, to rise to the standards of the best.

Q125 Chairman: What about credit insurance? At least your announcement today did deal with credit insurance, an issue which has concerned this Committee.

Lord Mandelson: Provisionally it did.

Q126 Chairman: Yes, provisionally. It recognised the potential concern. Can you tell me a bit more about the Government's and the Department's attitude to the credit insurance issue?

Lord Mandelson: Yes. The concern is that the credit insurance companies, of whom there are three, are responding to the credit crunch and the new conditions operating in the economy rather as the banks are. They are reducing and in some cases withdrawing credit insurance. This is very important. As you know, credit insurance insures suppliers of goods against the default to those companies that they are supplying on the payment for those goods. Without credit insurance you find suppliers are stepping back and companies are not being supplied with the goods they need. That is placing those companies in immense financial distress. I have made it clear that I am very concerned about this development. I am examining ways with Treasury colleagues to see how the Government may intervene in order to make a difference. I want us to make a real difference in this. We are not going to be able to transform the operation of the credit insurance market, far from it, but I want to make sure that the instrument we craft, and I think we can do this, and we are reaching the closing stages of our look at this, makes the sort of substantive difference we would like to see for what we would be putting in in accepting, what, up to 50% of the risk, say, with credit insurers in some cases. I want to make sure that really delivers results and, as I said, we are nearing the end of that examination.

Q127 Chairman: I had a major manufacturing business in my constituency threatened with closure just because of the withdrawal of credit insurance and it was an entirely viable business, so I am glad you say that, Secretary of State. What about the over-cautious audit opinions and the modification of accounts because of the fear that bank leading will not be sustained for the following year. There was a possible concern here that sound businesses could experience difficulties as suppliers and others express concerns about the viability of businesses where accountants modify the accounts. Is that an issue you have got on your radar screen? We were encouraged by some of the dialogues that were taking place by the accountants and banks before Christmas, I hope that is continuing.

Lord Mandelson: There is a dialogue going on between the Department and the accountancy and auditing professions. They have a job to do, they have responsibilities to discharge, they have to be prudent, but not raise unnecessary alarm or send wrong signals.

Chairman: I hope it is an issue which is being addressed because potentially it was very serious.

Q128 Mr Hoyle: You have mentioned the problems, quite rightly, about ten day payments, it was absolutely critical that the Government sent all the right messages out. The Chairman has touched on the trickle-down effect, which is that you pay the main contractor who then does not pay the sub-contractors or suppliers down the line, but what worries me is how can we get them to pay more quickly? Also, what they have been offering is to say, "We will pay you quickly if you will give us a discount on the amount that we owe you". There are real nasty things happening there to the small businesses in that supply chain and I wonder what pressure we can put on. If it is local government, maybe we can put some kind of rule in to say, "You must try and ensure that you pay within the ten and 20 days" and whether we can do that knock-on effect to a main contractor, "If we pay you well, will you ensure that your sub-contractors are paid?". I wonder if you can have a look at that and try and stop the arm twisting that is going on.

Lord Mandelson: I will. I would certainly be very disappointed to learn of any local or public authorities engaging in the sort of arm twisting or pressure that you have described.

Mr Hoyle: It is more the main contractors who have been paid back.

Chairman: It is an issue this Committee may take up with the Local Government Association, for example.

Q129 Mr Wright: To go on to the Regional Development Agency and the importance of the RDAs, it is certainly an area I consider as being one of our successes in terms of the economy and obviously in terms of the regional aid that is required, but there is huge disparity amongst the regions in terms of the amount of grant they receive. It has been a bone of contention for many, many years since the inception of the development agencies. For instance, my development agency, in the East of England gets the lowest level of support amongst all of the development agencies. In actual fact, it is £24 per head, whereas the One North East, for instance, gets £97 per head of population. Why is there that disparity amongst the regions? Is it less important within the East and the South East?

Lord Mandelson: Certainly not. The East of England Agency does a very, very good job. I have visited it in going to the region and I know that they are very ably led and managed. This funding is based on assessed need and conditions operating in the region. If you think that we have reached an unfair assessment, I will be happy to look at it again. One general observation I would like to make is, I am a great believer in the RDAs, I think they do a first rate job and a job which is becoming all the more important in the economic conditions we are facing in the country now. It requires an even closer collaborative relationship between central Government and, in particular, my Department and the agencies. I spelt this out in remarks I made in Manchester in a speech last Thursday. What is important about the RDAs is not only their focus in real need, real time on the economic needs of their regions, but they are business-led organisations, unique amongst public authorities. It makes them different from other parts of government and, in my view, uniquely suited to cope with the regeneration and investment which happens across local authority boundaries. I think their close working with local authorities is important and I have emphasised this, but there are some things that agencies operating across a region can only do. Their role is going to become very much more enhanced as we get through the current downturn.

Q130 Mr Wright: I would certainly welcome the comments and, indeed, when you last visited this Committee you certainly said that they will play a crucial role in the coming months and years ahead as: "They have proven their ability to intervene to operate with flexibility, to deliver resources, to underpin the work of other public sector bodies and to work very closely with the business community in order to safeguard jobs and generate new ones". That does not sit comfortably with the fact that we have cut the budgets. It sends a different message out to say, "Because of difficulties we are going to have to make cuts in your budget". Surely at this time what we should be saying to the RDAs is, "Look, you're going to play this important strategic role, therefore part of the package that we're putting in in terms of the economy is going to be put more down to local decision-making process to the RDAs to increase their budgets so they can deliver more locally financed packages to the small and medium enterprises in particular, but obviously in some cases to the larger ones". In our case, certainly in the Eastern region, a budget of less than £130 million does not go that far. Indeed to double that would certainly deliver what the Government is seeking to do on a national basis.

Lord Mandelson: In principle I do not disagree with you, but I am only in charge of dividing up the cake. I think they have a crucial frontline role. They are supporting and nurturing businesses and they are working in particular with the SME sector. It is not true to say that we are cutting the RDA budgets, we have dipped into their budgets from time to time for specific tasks and reasons. That is not quite the same.

Q131 Mr Wright: Their ability to spend has been diminished by the fact that we have been dipping into the budget. Whatever way you look at it, they have got less than they were predicted to have this time last year because of the Comprehensive Spending Review.

Lord Mandelson: I think this dipping in has become a bit habitual.

Q132 Mr Wright: Is it not about time then that we give them more prominence. If we genuinely believe in the RDAs and the job-and everything you have said indicates to me that you are a supporter of RDAs, that they have got to play this crucial role in the economy, certainly in these difficult times, they are more focused within their regions, they know the needs of their regions, they know where the resources need to go - surely we should not be cutting their budget, we should be increasing their budget at this difficult time and give them more access. You mentioned Business Link and other avenues of support which are coming through, surely we can divert some of those resources directly to the RDAs, even at this stage to say, "We are going to increase your budget for the next financial year".

Lord Mandelson: I will communicate your view to my colleagues, to the Chancellor in particular and the Chief Secretary. I have some sympathy for what you are saying. Let me give you an example of the transition loan funds. In the case of the West Midlands, I announced last autumn that they would provide a transition loan fund for viable small and medium sized businesses facing financial difficulties. The transition fund can give them some temporary assistance, securing new loans for a period of up to six months. It is not designed to replace traditional borrowing, but designed to work in an emergency to tie the SMEs over for that short period where they need it. Those transition funds are now being authorised and set up in regions around the country. I think that is a very good example where a public authority, an agency, on the ground close to the coalface, as it were, is in touch very quickly in real time with particular companies facing difficulty being able to give flexible help where it is needed. I must say, given that and all the other things the RDAs do, the last thing anyone in this country should be thinking of is winding up the RDAs. It would be a huge setback.

Q133 Chairman: I am glad to say no-one is thinking of doing that, so it is very good news.

Lord Mandelson: Let us hope they escape the cuts.

Chairman: The dipping in!

Q134 Mr Hoyle: We do not believe in dipping!

Lord Mandelson: I do not believe in dipping.

Q135 Mr Wright: In terms of the development agencies, what level of interference or, should I say, consultation is there with the Department when an RDA comes up with a particular scheme? I know a scheme in my own constituency from its application for a level of grant took seven and a half years, from the conception to realisation that they were going to do it.

Lord Mandelson: A private sector initiative?

Q136 Mr Wright: It was a private sector initiative supported strongly by the Regional Development Agency, but there was this level of questioning and interference from the
Department. In terms of a Regional Development Agency coming up with a particular scheme, is there this consultation or is there a process they have to go through for every scheme?

Lord Mandelson: There is consultation, there is close working, but I hope it does not amount to bureaucratic interference. If it does, I will resist it, I do not want it. I believe in the maximum amount of decentralisation of decision-taking, the maximum amount of autonomy which is consistent with RDAs working together in pursuit of national objectives and goals and in keeping with the needs, the ability and value for money.

Q137 Chairman: Secretary of State, we will move to the last area of questioning, which is the automotive sector but before I do that, I will just make clear, we had thought of going through some more sectors with you in some detail and discussing industrial strategies and green priorities and so on. We understand what you have said about that, we can save it for another occasion, possibly. One other sector, which is the automotive industry. We welcomed unreservedly the Government's acceptance of a recommendation from this Committee last year on the establishment of a post of a chief construction officer. The construction industry is hurting particularly in this recession and we know you are consulting on the establishment of the post. There is still a feeling in the industry that although it would not solve all the problems the industry is experiencing at present, to have that co-ordinating role there sooner rather than later would certainly help. Can you give us an update on where we are on the establishment of a post of a chief construction officer?

Lord Mandelson: "I welcome the Committee's continued interest in the establishment of the role of a chief construction officer", it says here! The role envisaged by the Committee is a broad one. It requires consultation and there are quite a lot of people and organisations with whom we have to consult, but we are very clear where and how the potential role may create added value. I do believe it is possible to secure the sorts of changes the Committee and the industry are seeking. We are on the case.

Q138 Chairman: Can I inject some urgency into that; I did not sense urgency in that response. I think the industry would appreciate sooner rather than later.

Lord Mandelson: I hear what you say.

Chairman: Thank you. We will turn to cars.

Q139 Miss Kirkbride: We understand that you are thinking about offering support to the car manufacturing sector and I wonder if you can give us any ideas as to how that support might be structured or what you have in mind to do?

Lord Mandelson: Did you have any particular intervention or support or subsidy in mind that I could consider?

Q140 Miss Kirkbride: We are interested in your ideas, Secretary of State, as to whether or not you think there is a need to do so and, if so, what that might be?

Lord Mandelson: What are the subsidies you think I should consider which you would like a response on?

Q141 Miss Kirkbride: We were led to believe by the press that you are considering it, so we are interested in what your ideas are.

Lord Mandelson: I am glad to have had that encouragement from you for more and extensive intervention in industry and subsidies for important sectors in the economy. As it happens, I happen to share your concern about this sector. I think it is a really important employer, a really important researcher and developer of new technologies, a really important practitioner of advanced manufacturing technique and skills and I want to see the automotive sector remain an essential part of Britain's manufacturing base. I acknowledge, of course, that this sector is experiencing real difficulties. They are facing a serious loss of demand which, in the opinion of some in the industry, will never fully be restored because of changes which are taking place in the levels and pattern of demand for these products. Be that as it may, and I cannot speculate on that, we need to do what we can appropriately take on to enable this sector to get through the economic downtown. I am currently holding discussions with the industry representatives. I saw them before Christmas and I am going to see them again at the end of this month to see whether there is appropriate help or interventions that we can make. Of course, their main issue is the credit crunch, the shortage in the availability and reasonable pricing of credit. The schemes and initiatives which the Government has gone live with today will help companies in this sector, in the very important supply chain for this sector as for others and I hope they will take advantage of it. As I say, if there are other things we can do, then we will consider those in discussions. Before Christmas I asked the European Commission to take a Europe-wide view of what is going on in this sector. They are holding an important meeting this Friday, for which I am travelling to Brussels to represent our country and our sector. In the light of what I hear at that summit from ministerial colleagues amongst other Member States as well as from the industry, I will continue my discussions with my colleagues.

Q142 Miss Kirkbride: Do you think it is a problem that France and Germany have already gone ahead to help their car sector because obviously that creates an unlevel playing field in terms of if our Government was to choose to do nothing?

Lord Mandelson: I understand why they have gone ahead. They are both trying to give some help to the finance arms of car companies as well as underwrite the investment in their R&D and new green technologies. I know why this is attractive, why these approaches are attractive to many in Britain and that is why we are keeping them under review.

Q143 Miss Kirkbride: The fact that others are doing it, therefore, it becomes a problem if we do not, does it or does it not?

Lord Mandelson: Given Europe's single market, I think it would be better if the same rules, standards, benefits and advantages were applying across the EU.

Q144 Chairman: This does look to be strangely like state aid issues are being raised here by some of these steps that are being taken in individual markets. Julie is right to highlight France and Germany, but also Italy, Spain, Sweden, Portugal and Romania are all doing or thinking about doing things which look very much like state aids to me.

Lord Mandelson: Of course, as you know, the state aid rules in the EU have been somewhat relaxed. They have been made more flexible and more rapid in decisions that are taken. I think this is inevitable in the economic circumstances, although I hope it will not remain permanent. One European-wide initiative, of course, which has been taken is in relation to the European Investment Bank.

Q145 Chairman: Clean transport facility.

Lord Mandelson: Yes. A major sum of money has been set aside by the bank for investment. It is not acceptable, in my view, either that the EIB discriminates in its investments and its favours between the sizes of company or between EU Member States. I will be looking very carefully at the practices of the EIB to make sure there are fair shares operating across Europe where there is need.

Q146 Miss Kirkbride: If you were to create some form of scheme in the way you have done schemes to date, would it be important that all car companies in the UK could apply to it or are you really just thinking about Jaguar Land Rover, which is the one that has been mentioned in the press?

Lord Mandelson: Which one of the schemes today that we have announced, do you mean the loan or the working capital or what?

Q147 Miss Kirkbride: What I am asking is, for the car manufacturers not the supply people who you have mentioned that you have dealt with today, if you were to come up with some financial support, that kind of scheme, would it apply to all car manufacturers in the UK or are you really looking at Jaguar Land Rover and specific car manufacturers?

Lord Mandelson: It depends on their need.

Q148 Chairman: Can I put to you what their need might be, for help in research and development. Jaguar Land Rover account for something like half of all automotive R&D investment in the UK. Making sure the Technology Strategy Board focuses its funds properly on its green automotive projects, for example, would be a way of giving help to the UK industry which would not fall foul of state aid rules and might help JLR very considerably.

Lord Mandelson: This is one such idea that is under consideration by the Government. Here JLR's performance is very strong. We are talking about something in the region of £480 million spend on R&D by the company investing heavily in low carbon technologies, in hybridisation and light-weighting. This is very important, not just for the company but for the sector as a whole, but also for our manufacturing future in this country. I do not believe it would be right for anyone to stand by and see this sort of investment going to the wind just because of the current economic pressures we are experiencing.

Q149 Miss Kirkbride: You are more attracted to areas of supporting R&D and perhaps green industries than you are to supporting more directly the manufacturing jobs base?

Lord Mandelson: I need to look at the impact of any large-scale redundancy or potential business failure on a region's economy, employment base and skill base. I also have to look very carefully at what sort of contribution we think a company which is under threat in that way will make to Britain's future manufacturing strength and economic success. We have a major challenge in this country, a very beneficial challenge, in converting our economy to low carbon production, low carbon technologies, low carbon goods and services. This is going to be a major generator of business growth and job creation for the British economy. We are talking potentially of millions of jobs. In my view, we should not be prepared to see the downturn that we are currently experiencing setting back or even jeopardising our ability to convert to a low carbon economy in the ways that I have described. If it means taking action now, both through a low carbon industrial strategy, which I am working on closely with my colleague, the Energy and Climate Change Secretary, Ed Miliband on which ---

Miss Kirkbride: With whom you are getting on very well, we hear!

Q150 Chairman: From the Guardian this morning.

Lord Mandelson: --- plans and measures will be laid before you or in respect of particular areas of research and development which we need to support, you will find the Government paying very close attention, within the financial means and limits we have, to doing what we can to take forward this goal.

Q151 Chairman: Just to intervene for a second, as you raised this.

Lord Mandelson: I have not read the Guardian this morning.

Q152 Chairman: The headline here says, "Miliband and Mandelson battle for top staff to back rival green agendas. 'Clash of generations over pro-industry policy bias; credit crunch pits jobs against climate change".

Lord Mandelson: I do not think I am that much older than Ed Miliband, what do they mean by that!

Q153 Chairman: I am afraid you are!

Lord Mandelson: These young Turks!

Q154 Chairman: You can assure us there is no truth in the Guardian's suggestion that you are at war with the Department of Climate Change, you are working co-operatively with them in every way possible?

Lord Mandelson: I do not understand what the story is about, we are competing for top jobs?

Q155 Chairman: You are fighting over the whole agenda and the people who will implement it. Hundreds of civil servants are swishing around between your two Departments as you argue over the turf wars as to who does what in Government.

Lord Mandelson: Absolute and complete stuff and nonsense. Who wrote the story?

Q156 Chairman: David Hencke.

Lord Mandelson: No further comment!

Q157 Miss Kirkbride: Secretary of State, I was wondering whether TATA'S sponsoring of Formula 1 has helped their case?

Lord Mandelson: I do not think it is the biggest factor.

Q158 Mr Hoyle: Obviously you have touched on what part of the West Midlands will benefit Liverpool, Jaguar Land Rover, but we have got more vehicle production than that. I understand you have met with Leyland Trucks, which is very important to the North West, the last major truck builder in the country. Also, we have got van production with Transit and LVA. What can we do to ensure they have got a future? What support we will give to the car industry presumably can be replicated across the van and truck industry as well. Have we thought about the biggest problem we that are facing within the truck industry is people are frightened about replacing their vehicle fleets and I wonder if we can do something with tax breaks to encourage people to replace their fleet or even spending some of that £600 million within Royal Mail because they do buy Leyland Trucks and they buy British built vans and I wonder if we can do something there. The other key is, of course, you talk about playing fields, but when I look at Europe: Italy, Germany, France always manage to buy their own built vehicles. What can we do through procurement to ensure that we buy British built vehicles and that your ministers - I know your claim to fame the last time you were here was you quite rightly ride around in a Jaguar - your great team also rides around in British built vehicles because I think if we are going to flag wave, let us do it with our ministers as well.

Lord Mandelson: I am still driving the Jaguar.

Q159 Mr Hoyle: I know, I watch your car go out with great interest!

Lord Mandelson: And support?

Q160 Mr Hoyle: Of course.

Lord Mandelson: Waving the flag!

Q161 Mr Hoyle: Very much so. Can you get the ministers to back them?

Lord Mandelson: However, I have nothing against the other hybrid cars that they others have.

Q162 Mr Hoyle: Well, I have because we both know that is the problem, is it not? It is built in Japan, shipped to this country with no British parts whatsoever on it and no British jobs. The fact is the Australian Government have done a deal that you build hybrid in Australia. If the Australian Government can do that, why can we not do it?

Lord Mandelson: We may well yet.

Q163 Mr Hoyle: It is too late when ministers are already buying them. The answer is do not buy them, then they will build here.

Lord Mandelson: This was either before my time or above my pay grade or both, I do not know! I just want to make this point. If you could have had more success than I did in producing a major Royal Mail van order for Leylands, I wish you had come to this earlier.

Q164 Chairman: I hesitate to direct Lindsay, but he asked a very important question which he has not asked before, unlike the one about procuring cars, about the tax treatment of commercial vans, which is an interesting question.

Lord Mandelson: The Chancellor made some adjustments at the time of the PBR on vehicle excise duty to help. If there are further specific proposals, I suggest you let me have them and I will pass them on to the Chancellor personally as he prepares for the Budget.

Q165 Mr Hoyle: What can we do to ensure that Government procurement does support the British truck, van and car industry?

Lord Mandelson: We can juggle the competing demands of hybrid, low carbon, environmentally friendly and British first. The way to do that is to make sure the hybrid environmentally friendly low carbon are being produced in Britain. That is what Ed and I and others are working on a strategy to help achieve.

Q166 Mr Hoyle: But there is a great myth about the hybrid car anyway.

Lord Mandelson: I think you are pushing me to the bounds both of my knowledge and Government policy here.

Q167 Mr Hoyle: If a Jaguar is good enough for the Secretary of State, let us see the rest of the ministers in British built cars. Can you work on that?

Lord Mandelson: There are competing pressures and obligations.

Q168 Mr Bailey: You touched earlier on, I think the words were, examining or considering what could be done to assist the finance arms of the motor manufacturers. We have given billions to help the banks supply credit and we are aware of the failure to do so and the issues which arise from it. It seems to me totally illogical that we do not take steps to help non-banking funders, such as the finance arms of the motor industry where you could reasonably expect a very positive dividend in terms of stimulus of demand for key manufacturing products. I would welcome your thoughts on why we have not done it so far.

Lord Mandelson: This is one of a number of issues raised with us by the car industry. I accept one route for us to help could be to see how the motor finance arms can be assisted in terms of their additional liquidity needs and this is something we are looking at. However, this has to be set alongside a number of competing requests from the car industry and we need to decide where to target resources and where to prioritise. We are not yet at the end of that consideration.

Q169 Chairman: There are more jobs in the automotive distribution and retail sector than there are in the manufacturing sector, so, in fact, supporting sales does not just help the manufacturing sector.

Lord Mandelson: And 10,000 more according to Tesco's yesterday and Sainsbury's the day before.

Q170 Chairman: No, we are talking about the car sector in particular. There are a lot of jobs at stake in the showrooms and the garages of this country.

Lord Mandelson: Of course, I accept that.

Q171 Chairman: Can I ask two or three final questions. Firstly, the possibility of looking at the whole supply chain rather than just the tier one organisations. The kind of R&D support we are talking about with Jaguar Land Rover might also be appropriate further down the supply chain because losing major suppliers, of course, decimates the ability of a manufacturer to manufacture in this country.

Lord Mandelson: Okay, but how far do you want Government intervention, bailing out and subsidy to go?

Q172 Chairman: I think the industry's view needs to be listened to very carefully on that point to make sure they sustain their supply chains.

Lord Mandelson: Do you think it would enjoy all-party support if we were to do so?

Q173 Chairman: Pass, I am asking as a neutral chairman, I do not know! I will happily speculate about that with you privately, Secretary of State. What about what the French are doing, a scrapage allowance for older and more polluting vehicles, for example. The French are doing that on 10 year old vehicles.

Lord Mandelson: A possibility, slightly overrated, tends to favour imports.

Q174 Chairman: One last question from me. The industry came to see you in November. I have been told by some members of the industry that they have had no formal response to that meeting yet, they sense they have not had a closure on that meeting yet. You told us they are having another meeting later this month.

Lord Mandelson: Yes.

Q175 Chairman: That is when they will get the formal response of that meeting in November?

Lord Mandelson: We have a continuing dialogue with them. We are not some sort of command and control organisation that receives the demands of the car industry one day and presents our conclusions the next.

Q176 Chairman: It is nice to know where people stand in the fast moving and very difficult environment.

Lord Mandelson: There are many sectors, many companies in parts of the economy who are worried and nervous and we have to think of them all, but I fully accept, as I said at the outset, this sector is very important for Britain's future manufacturing strength and our economic success.

Q177 Chairman: If you were to ask for my view, my view is the importance of the R&D issues we talked about earlier because keeping those kinds of jobs going and supporting those kinds of jobs is much better than losing them because you will never rebuild that expertise.

Lord Mandelson: If it were a choice between prioritising the finance arms or help with R&D, where would you put your money?

Q178 Chairman: These are difficult decisions.

Lord Mandelson: It is a rhetorical question.

Q179 Chairman: Secretary of State, that concludes our questions.

Lord Mandelson: It has been a great pleasure.

Chairman: Thank you very much, indeed. We will see you again shortly.