UNCORRECTED TRANSCRIPT OF ORAL EVIDENCE To be published as HC 754-i

House of COMMONS

MINUTES OF EVIDENCE

TAKEN BEFORE

BUSINESS & ENTERPRISE COMMITTEE

 

THE WORK OF THE DEPARTMENT FOR BUSINESS, INNOVATION & SKILLS

IN THE CURRENT CRISIS

 

 

Tuesday 30 JUNE 2009

PROFESSOR RICK TRAINOR and BARONESS WARWICK OF UNDERCLIFFE

MR ADAM LENT and MR TOM WILSON

MR RICHARD LAMBERT

Evidence heard in Public Questions 1 - 89

 

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Oral Evidence

Taken before the Business & Enterprise Committee

on Tuesday 30 June 2009

Members present

Peter Luff, in the Chair

Mr Adrian Bailey

Roger Berry

Mr Brian Binley

Mr Michael Clapham

Mr Lindsay Hoyle

Miss Julie Kirkbride

Mr Mark Oaten

Lembit Öpik

Mr Anthony Wright

________________

Witnesses: Professor Rick Trainor, President, and Baroness Warwick of Undercliffe, a Member of the House of Lords, Chief Executive, Universities UK, gave evidence.

Q1 Chairman: Thank you very much for coming today to what I hope will be a relatively informal exploratory session mainly about the creation of the new department that has taken all of us a little by surprise. Perhaps you would introduce yourselves for the record.

Professor Trainor: I am Rick Trainor, principal of King's College London. I am here as president of Universities UK.

Baroness Warwick of Undercliffe: I am Diana Warwick, chief executive of Universities UK.

Q2 Chairman: We are still the Business & Enterprise Committee and remain so until 1 October when we shall become the Business, Innovation & Skills Committee. First, you have written us a letter suggesting we should reflect the importance of universities in our title. That is not within our gift; it is a government decision. We have a departmental select committee system in this country which must reflect the titles of departments, so your beef is with the government, not us, though I was told by one minister that the reason they could not insert a "U" was that wherever it was put it spelt "DUBIAS". It does look alarmingly like it, but that is not a good reason for failing to reflect the importance of universities which obviously we all share with you. Second, you have suggested that we form a sub-committee. We shall not do that for the simple reason that this arrangement will last for only six months and an election is coming up. We intend to reflect the importance of universities in those six months from 1 October until the general election as best we can because we understand the concerns you express; indeed, that is what we want to talk to you about. Do react to my comments if you wish.

Baroness Warwick of Undercliffe: In a way we are disappointed because we think that even within six months or whatever there will be a range of issues of importance to the higher education sector. On the other hand, I am very much reassured by what you have said: you intend to ensure that higher education is given the attention it deserves.

Chairman: Our experience of sub-committees is that they do not work very well. This Committee works as a team and we think it is of less rather than more importance to the rest of the Committee. That is the view that this Committee takes of sub-committees. Other committees have different views, but we are a happy family and do everything together, though like all families occasionally we bicker in public.

Q3 Miss Kirkbride: This is an interesting rearrangement of the department which will be led by ministers who may or may not fit easily alongside one another other. Given your university background, I do not know whether your answer to my question is obvious. If you were in charge of the new department as a whole what would you say was the top item on its agenda?

Professor Trainor: First, although we were not expecting this particular reorganisation we were very reassured by a meeting with Lord Mandelson last Friday. He visited the board of Universities UK and made it clear that universities were from his point of view central to the business of his department. He felt that they had a great deal to contribute to skills and other aspects of the economy but they were important in themselves in contributing to excellence. He expressed support for university autonomy. We were very reassured by that. That leads us to believe that the new department will give the kind of emphasis to major university issues that universities deserve. To turn to your direct question, funding in one way or another remains the key issue for universities. We had a report in the past six months which showed that on the teaching side, for example, we were something like 15% to 20% below the level that would sustain our aspirations to improve the experiences of our students and so on. We are also concerned about universities continuing to contribute to the economy not least through overseas students as a major export industry. In that respect we have considerable worries about the new points-based immigration system. We understand the security logic that lies behind it. We have had many discussions with the Home Office about it. It is something on which we want to keep an eye because it is completely changing the way in which this very large number of students enter the UK. We are concerned about what will happen over the next few months when the largest number of visa applications come through. Therefore, probably the two biggest issues are funding and the removal of potential obstacles that might lie in the way of our contribution to the economy.

Q4 Miss Kirkbride: How many foreign students came here last year and how much did they contribute?

Baroness Warwick of Undercliffe: I am trying to remember the exact figure. I know we produced exports worth £3.6 billion but I would have to check the exact figure contributed by international students. It is a very large number.

Chairman: A number of issues may be raised today which suddenly interest us. Please feel free to write to us after this session on anything which on reflection you feel should be dealt with at greater length.

Q5 Mr Oaten: The Home Office Select Committee has done some work on that issue.

Professor Trainor: There are about 300,000 overseas students at any one moment. Obviously not all of them would come in one year but quite a lot do come each year, especially those studying one-year taught masters' degrees.

Q6 Miss Kirkbride: My understanding of the points-based immigration system is that it is to do with people coming here to work and potentially settle. What is the impact on students?

Baroness Warwick of Undercliffe: Students and universities are the biggest users of the points-based system simply because of the sheer numbers. Our quarrel is not with the introduction of the new system, which we support, but with the implementation process we are currently undergoing that is not working as well as it should. We are very anxious that with a large influx of students who apply normally in August there may be a much higher refusal rate for visas than is the norm. That has happened in the past two months. We hope that the Home Office is addressing these issues; we are certainly pressing them to do so. We have several meetings with that department, but this Committee will certainly have a role in ensuring that the Home Office moves swiftly to improve the implementation processes.

Q7 Miss Kirkbride: What is it about the system that results in a higher level of refusal?

Baroness Warwick of Undercliffe: The new arrangements require training and access to guidelines that were produced rather late. There is a detailed list of things that potentially are not working as well as they could. I can happily send you a briefing on that point.

Q8 Miss Kirkbride: How do you believe the different areas of the department should fit together in this new arrangement?

Baroness Warwick of Undercliffe: I hope. In a sense there will be always be different parts that need to work together. It is the size of this department that is the unusual part of it. From our perspective we hope that higher education will be perceived as part of both the skills and innovation sides of the department's agenda and that we are able to contribute to those. We shall try to ensure that whatever briefing we do is directed to the appropriate quarters. The department has a wide range of responsibilities but all of them are about making Britain an economic success and we want to be sure that the role of higher education in contributing to that is recognised.

Professor Trainor: There is also an element of continuity on the ministerial side because Mr Lammy has remained higher education minister and Lord Drayson is the science and innovation minister. As there is now a separate science committee, as I understand it - I did not emphasise that in my introduction - clearly the funding and support for research and innovation is an important part of our agenda.

Q9 Miss Kirkbride: Given the new arrangement, what do you believe is potentially the biggest plus but also the greatest danger?

Baroness Warwick of Undercliffe: The biggest plus is that it is integrating many elements of government that impinge on the economy. It is a powerful department and as such it will have a strong place at the Cabinet table and will therefore be very influential. We hope that that is something of which it will be possible for higher education to take advantage.

Q10 Miss Kirkbride: What about the downside?

Professor Trainor: When the news first came out the perceived risk was that universities might be lost in the great mass of other concerns or that they would be seen purely in an instrumental way as contributing to the economy, important as that is, but, as I said in my first answer, Lord Mandelson assured us last Friday that neither of those concerns was valid and I believe he has also said that in the press.

Q11 Lembit Öpik: You said that in your judgment the teaching workforce was 15% to 20% under-resourced. Can you explain what that figure means?

Professor Trainor: This was a study carried out under the chairmanship of Professor Geoffrey Crossick, Warden of Goldsmiths College. That study was designed to show by way of benchmarking information, both domestic and international, what level of funding would satisfy the rising expectations of employers, parents, students themselves and, for that matter, those of us who try to run academic institutions. We believed there was a gap of about 20% between what was thought to be sufficient to build upon and the current level of resource. I do not want to give the impression that research is fully resourced, but in the past few years we have had rather more going into improving the resourcing of the research side than the teaching side including the infrastructure, the bricks and mortar, and also the human side of it.

Q12 Lembit Öpik: To me, that is a colossal shortfall. If that figure is correct how much damage is that doing to the quality of the education we provide both to domestic students and to those we obviously wish to attract for economic reasons to the UK's higher education sector?

Professor Trainor: Obviously, it is sub-optimal, but we believe there is still a very good experience. There is a lot of evidence, for example from the national student survey, of a very high level of student satisfaction. The fact that we continue to attract such a large number of overseas students suggests that is appreciated abroad, but expectations both domestically and internationally are growing, are they not? That means we have to work on that 15% to 20% and that is one thing that gives us particular concern as the prospect in the government generally of perhaps significant public expenditure cuts in the not too distant future comes onto the agenda.

Q13 Mr Binley: You said Lord Mandelson had given you reassurance. How reassured were you? Do you think it is something on which you have to keep going at him or are you perfectly happy that things will go along just as you wish them?

Baroness Warwick of Undercliffe: You can rest assured that we will continue going at him. It is important for us to continue to press this on all ministers particularly in relation to links with business. One of the strengths of this department is that it brings the business relationship to the fore which is really important for us. It is important for the government to continue to recognise the role of higher education in working with business and providing opportunities for business and also our role in innovation. We shall be constantly briefing; we will not be at all complacent. I do not know that the fact "Universities" is no longer in the title of the department would make very much difference to it. That is something to which we are always alert. We need to keep pressing the case for higher education.

Q14 Mr Oaten: How did you find out about all of this? Like everybody else, did you wake up and read it in the newspapers? How quickly did somebody make contact with you after the change took place to tell you what was going on? Did you have to seek information? Do you feel a little bruised about the whole process?

Baroness Warwick of Undercliffe: No. There are always straws in the wind about reorganisation, restructuring and so on, but the change did come as a surprise. We were alerted, as we often are, to major policy changes by the department, so it was a helpful notification. Therefore, it came as a surprise only on the day we were told; the idea itself was a surprise, but we very quickly wrote to the department to say we wanted to be sure that we met with ministers and senior civil servants quickly and that the department recognised that the role of higher education was a crucial one in the work it was doing.

Q15 Mr Oaten: And those meetings took place?

Baroness Warwick of Undercliffe: Yes. The secretary of state came to our board meeting on Friday. We have already had a meeting with Mr Lammy. We would expect to have the same regular meetings with ministers associated with different aspects of higher education including science as regularly as we did previously.

Professor Trainor: We are having a meeting with the secretary of state tomorrow.

Q16 Chairman: This department has a huge ministerial team. Are you content with its structure? I do not ask you to comment on personalities; that would be inappropriate, but do the right ministers have the right responsibilities?

Baroness Warwick of Undercliffe: As far as I can tell, yes. Perhaps I have not looked. I have not seen the full details of the ministerial remits but the high-level ones I know about seem to continue the responsibilities that they had in the previous department. Some have changed. For example, Lord Young's responsibilities have changed a little but he is still responsible for students; Lord Drayson is still responsible for science; Mr Lammy is still responsible for general issues of higher education.

Q17 Chairman: Kevin Brennan has further education which I understand is different.

Baroness Warwick of Undercliffe: We have a very keen interest in further education. We believe there is a strong ministerial team here that reflects the different elements of the sector.

Q18 Mr Clapham: I am a little surprised by Baroness Warwick's comment. Some people believe that the fact universities are being merged into a department with a focus on industry and business rather suggests they are no longer important enough to have their own department. Has that feeling been expressed to you?

Baroness Warwick of Undercliffe: Yes, and it is not surprising at all. Looking beyond that, one must recognise that in departmental terms DIUS existed for a very short period, two years, and prior to that we had not had a department that recognised universities, so we very warmly welcome that change. Like you, we did think it gave a signal of the centrality of higher education to government policy. But in a sense we have moved on from that to say it is quite clear that the responsibility for higher education is within the remit of the department. We have had an assurance that it will remain central to the interests not only of the department but of government and economic recovery. We believe that is an important recognition. We need to keep reminding the department of that so we are not complacent, but my view now is there are ways to recognise it other than simply in the title.

Q19 Mr Clapham: I understand that, but this is the old Department of Trade and Industry. The real focus here tends to be on industry and business. I for one believe that unless you are able to keep up the pressure universities may be lost in this department.

Baroness Warwick of Undercliffe: You are right; we will have to keep up the pressure, but we always had very good links with the DTI. That department previously had responsibility for research and science and a very large part of the interests of higher education was already in a different department. Those were brought together under DIUS which itself was a good thing. To move higher education and science back to provide close links with business and innovation is another way of looking at the issues in the round, so strengths have been added to those departmental interests that we will have to work on, but I am reasonably confident we can do that.

Professor Trainor: The assurance we have had from Lord Mandelson that he values the excellence of universities as a good thing in itself is something on which we shall be keeping a close eye. That is an important aspect of providing reassurance about the sorts of concerns you have raised. Our belief is that that reputation for excellence has economic benefits. One of the main reasons why people from other countries come to the UK in such numbers, as I did myself when I was a postgraduate, is that we have a reputation for excellence alongside a reputation for being important to the economy and innovation. It would be economically and in other ways a bad idea for the department to drop that emphasis.

Q20 Mr Clapham: That is all very fine, but is there not a possibility that you become too closely linked to industry and business and therefore lose the identity of universities in also providing education for education's sake?

Professor Trainor: There is a risk, but maybe the other risk that universities may become too detached from business is at least as great. In the past couple of years in particular Universities UK has put a lot of emphasis on strengthening its links to the CBI, for example. We have produced a couple of reports for them on how universities tailor courses to the needs of business in appropriate circumstances. We produced a joint report with them about employability with a particular eye on the recession. What reassures us about closer links to business is that in our experience a great many employers do not look simply for directly transferable skills of a vocational kind, though many of them do so for particular jobs, but they also value the general intellectual training of graduates which very much fits in with the excellence agenda.

Mr Bailey: I represent a traditional manufacturing constituency with historically low aspirations and academic achievement. There is no university presence within the constituency. The new University Challenge initiated last year was in part to transform this situation. I suppose that two points arise from it. First, what can a university presence do to raise aspirations within the area it represents or in which it is placed? Second, how can that presence cement relations between traditional local industry and university if you raise the level of technology needed for those industries to survive? I would welcome your comments on that and what role you believe you can play within the new departmental structure to promote that?

Chairman: I live in Worcester. I shall ask Mr Bailey to come and visit the University of Worcester because it will answer all these points and the underlying comment behind his question.

Q21 Mr Bailey: The Chairman can also come to Sandwell District. This is a wide-ranging matter and is absolutely crucial in so many areas.

Baroness Warwick of Undercliffe: I agree. I deal first with the element of raising aspiration. Perhaps my colleague can deal with the element of building links with business and how the presence of a university can make a difference to business in the region. Universities do an enormous amount of outreach work. We submitted to the National Council for Educational Excellence a report from every single university in the country about the amount of outreach work that they undertake. By "outreach" I mean work in local schools, not necessarily just schools in the constituency within which the university is located but a wide range of schools within its hinterland. They set up summer schools. There are coaching/mentoring programmes and a huge amount of effort goes into working with young people in order to raise their aspirations. We have now recognised that working with young people over the age of 16 when they take their final qualifications is just not good enough. We know that if they get the qualifications they have a very strong chance of getting to university, so it is a matter of working with very much younger students and pupils and raising their aspirations at a very early age that university would be a great benefit to them. A huge amount can be done that I hope would reach beyond the immediate location of the university.

Q22 Mr Bailey: Do you not accept the thesis that just having a university presence somewhere in an area like this breaks down some of the barriers that may exist before? In my constituency there are people for whom travelling five or six miles through another urban centre would be quite a cultural shock and barrier. Having a geographical presence can help to break down that barrier and get through to people. I accept that not every constituency in the country can have a university, but universities should be looking at having some kind of presence to do that.

Baroness Warwick of Undercliffe: There is no doubt that what you say is right and has been proved over and over again where a university has been established. You are quite right that we cannot put a university in every conurbation or area, but what we can do - that was why I made the point earlier about the importance of further education - is work with further education colleges to ensure that those links are strong and that through those FE colleges students are encouraged to think about progressing further into higher education. We have very strong links with further education colleges right across the country. That is key to ensuring the widest possible reach.

Professor Trainor: That is one reason why with regard to University Challenge we think it is good to use existing universities to be significantly involved in these extensions of the university network. Most universities have connections well beyond the very specific areas in which they are located and have considerable expertise in the areas, whether it is direct employment, links to industry, the cultural impact, which is also important, and the issue of wider participation mentioned by my colleague.

Baroness Warwick of Undercliffe: To move to the second part of your question, one of the links we have valued is engagement with the regional development authorities and the way in which it is possible through working with the RDAs to establish links with small and medium-size enterprises and businesses broadly across the region. Those links have been hugely increased in the past 10 but particularly in the past five or six years.

Mr Binley: You talked about working with the regional development authorities which horrifies me, quite frankly, particularly when you are talking about SMEs because they do not operate at that level. There is a real concern about where you get to. Having given you my opinion, let me now put a question. Are you fearful that the famous aspirational target of 50% of people coming out with degrees has impacted to the detriment of vocational training for a considerable time? From my experience, that view is held by business to a sizeable extent. How do you create a more effective balance for the country generally whilst retaining that absolutely vital requirement of excellence in our universities?

Q23 Chairman: The reason I welcome Mr Binley's question is that one of the issues we must look at in the six months ahead is the right balance between the scrutiny of HE and FE. In that spirit I would particularly like you to answer my colleague's question.

Professor Trainor: The 50% is the government's target. Our emphasis is on widening participation as something that makes sense in a situation where there are still many people who could profit from university and who are not in the system. There are significant bits of urban areas of the UK where the participation rate is still very low. It is the wasted potential that concerns us. We believe that the expansion that has occurred in higher education in the past 20 years or so has been greatly to the benefit not just of the individuals who have experienced it but also the country as a whole economically, socially and culturally. Clearly, we very much agree with you that vocational training is also important. We must keep in mind that many aspects of university education, including some of the oldest established ones, are themselves vocational. One thinks of medicine, law and so on. Thinking of other kinds of vocational activity, the foundation degrees which have had a modest but real success over the past few years are an attempt to synthesise two things: skills training on the one hand and higher education on the other. Perhaps too much attention has been given in the press, for example, to the 50% level and to fears that we are pushing too far in that direction. The UK has one of the most efficient systems in the world for converting students into degrees; even so, at present something like 33% of the population, not the older population, earn degrees. That is still a distinct minority of the population, so there is a lot of room for people to pursue more traditional vocational education.

Q24 Mr Binley: I want to follow the business of getting down both to the cultural level that Mr Bailey was talking about earlier and the SME level about which I have expressed concern. That must be done through FE, outreach and all of those things. Can you give me an idea of what sorts of programmes you are thinking about to achieve that objective? The days of courses in hairdressing and motor mechanics are simply not doing the job.

Baroness Warwick of Undercliffe: I can send you a note of something we produced about the way in which universities link in with local businesses. We are and remain very conscious of the huge difficulties in getting down to small and medium-size enterprises. Often they are not aware of what they can get out of their local university or even their local FE college but they are likely to be more aware of the latter. We realise that a lot of work is to be done. We are trying to produce material and find a contact point people know they can ring to make their way through this rather complicated set of institutions as they see them. I will happily send the Committee some work we have done on that because it will demonstrate the way in which we are trying to deal with it. We find it difficult; there are real problems associated with getting through to so many local businesses, but we are trying to find ways to make universities and the work they do - the consultancy they offer and the research they can provide - more accessible to more businesses.

Q25 Lembit Öpik: To return to the discussion with Mr Clapham, my father is a physicist. I recall one great phrases he used. When an engineer conclusively proved that something was possible he said that was all very well in practice but he asked whether it worked in theory. That is my concern about you folks being in this department. The theory goes out of the window unless it works in practice. How do you protect pure research which often has no apparent economic benefit in the short term but enormous economic benefit in the long term, a case in point being the Apollo space programme which was constructed to meet the somewhat esoteric challenge of sending a man to the moon but sustained the technological advancement of American industry for decades?

Professor Trainor: This is a really important subject. We believe strongly that pure research needs to be there in sufficient quantity and useful quality so that it can complement the applied research. The country needs both. What can we do to protect that? An important part of the funding mechanism is the so-called dual support system. Money comes to a research project through the research councils and other research charities and so on. Meanwhile, so‑called QR funding comes through the funding councils to support especially basic research and experimental innovative research. Keeping that dual support system going is absolutely crucial to sustaining high quality basic research of the kind to which you refer. I talked earlier about the funding gap for teaching. Our major competitors abroad like China, India as well as my native country the USA are increasing their funding of high-quality basic research, so despite the significant increases in the funding of research over the past 10 years there cannot be any complacency about that in the UK.

Lembit Öpik: I am reassured by our own aspiration on this, but the core question is: how does one stop the universities simply becoming an addendum to British industry? How do you ensure that money can go into pure research that may lead nowhere without anyone getting the blame for the fact that that is sometimes what happens with pure research when attitudinally there is a real risk, at least in my view, that bringing you into this department means there is an implicit assumption that you have to deliver on the economic bottom line rather than sometimes deliver interesting but unprofitable discoveries?

Q26 Chairman: Perhaps we might leave that question hanging in the air. I hope it gives you a flavour of some of the attitudes within the university sector which are encouraging. In a way, that is a discussion that will take us another hour. If you want to react to it briefly please do so, but I am conscious of the fact that we are already out of time.

Professor Trainor: I want to say something about impact. The increasing emphasis on the impact of research was around before the new department was created. It is as crucial now as it was in the latter days of DIUS that we take a broad view of what counts as a positive impact on a particular field of knowledge and related fields as well as direct positive economic effects. If we can keep the dual perspective going in the new department we will be all right, but I agree that we have to keep a close eye on it.

Q27 Chairman: Foolishly, we allowed only half an hour for each set of witnesses this morning. I have just been told that our last witness must be away by a certain time, so we do not have time to explore this. I make the following very brief observation. We have invited three groups of witnesses to come as surrogates for the sectors. I am very conscious that each of those sectors has many diverse interests. As to the business sector the CBI is but one spokesman among many we could have chosen as a panel. The TUC is perhaps a rather broader surrogate for employees. But you are yourselves quite a diverse sector; you have been likened to the sketch involving the People's Front of Judea in The Life of Brian. You will be familiar with the reference. There are a number of organisations that can be very intense. Are there any other organisations that will be upset that we have not asked them to give evidence today?

Baroness Warwick of Undercliffe: I hope not. We are indeed a broad church and there are various groupings within Universities UK with whom we work closely. We shall be very happy to report back on both the questions you have raised and the issues in which you are interested on which we will send you further information and on which we hope to work with you.

Q28 Chairman: I particularly welcome any suggestions you may have for earlier priorities for inquiries. We can really do only one substantive inquiry in that six-month period, so if there are any particular issues of concern to your sector we would like to have your input.

Baroness Warwick of Undercliffe: We would love to do that.

Q29 Chairman: You are more content with the arrangement than I expected you to be, which has interested me.

Baroness Warwick of Undercliffe: We will work with it in a very practical way. It was a real help that the secretary of state was so positive in what he said. He went out of his way to ensure we understood the importance he placed on the role of higher education in the work of this department. It has a fair wind but we must keep pushing it.

Professor Trainor: We are not at all complacent about it, but we have asked for assurances and he has given them. We will now test how far they are carried out.

Chairman: We will help you to test them. We are very grateful to you.


Witnesses: Mr Adam Lent, Head of Economic and Social Affairs, and Mr Tom Wilson, Director Designate of Unionlearn, TUC, gave evidence.

Q30 Chairman: Gentlemen, welcome to the second part of this short session to inform the Committee ahead of its evidence session next week with Lord Mandelson and Mr McFadden about how the new department will work and the issues and challenges it faces. We are very grateful to you for coming. This is a slightly more informal session than normal just to get a picture from your organisation on behalf of employees how you view the practical implications of this. Perhaps you would first introduce yourselves. Mr Wilson, I think you are about to have a new title, are you not?

Mr Wilson: Shortly I am to become director of Unionlearn which is the TUC's learning and skills arms, if you like. Currently, I am director of the organisation and services department of the TUC which includes a lot of learning and skills work anyway.

Q31 Chairman: Tell me a little more about Unionlearn. I should know it but I do not.

Mr Wilson: Unionlearn is a very big bit of the TUC. It employs about 150 staff and each year delivers to 50,000 students training in health and safety, employment relations, sex discrimination and so on, but it also introduces about 200,000 union members a year into the world of learning more generally. It works very closely with employers. We are strongly supported by the CBI, EEF and many employers on this kind of learning agenda for unions.

Mr Lent: I am head of the economic and social affairs department which covers a wide range of areas - everything from climate change to pensions - doing mostly research, policy and advocacy work for the TUC.

Q32 Chairman: What should be Lord Mandelson's number one concern? I am feeling generous today and will allow you a second and third concern.. What are the top issues?

Mr Lent: In many ways the top issue for us is also the issue that they have indicated will be the top issue for the department: the rolling out of the industrial and skills activism approach. For a very long time the TUC has argued that the government should be more proactive in areas such as skills, infrastructure and investment. We have long argued that whilst we very strongly support the notion of a market-based economy we do not think the market always delivers and fails in areas. We think that message has been taken up by government since the financial crash. The sense we get is that the new department will be very heavily focused on rolling that out and making it a meaningful policy, so we welcome it. I never thought I would say that we think at the moment the priorities of the business department are pretty well focused and correct.

Mr Wilson: From the skills perspective we broadly support that. The great potential for the new department is to bring skills and learning more generally into that kind of business focus which is very important for the economy and is something that the TUC has been advocating for a long time. If you are asking for our second and third priorities they would be to make sure that skills and learning and higher and further education are seen as absolutely key, central elements of the whole approach to regenerating the economy.

Q33 Chairman: If that is your prime concern perhaps I may bring in a hobby horse of mine. You have not yet mentioned the Postal Services Bill. One university has been alarmed by the extent to which businesses do not understand the training environment, qualification system and so on and they are locked in a model of their own university or education system that they went through. All of us are to an extent prisoners of our past. For example, I went to a grammar school from the sixth form. I am concerned that industrial skills activism might lead to constantly changing structures and systems and it takes some time particularly for less sophisticated and smaller employers to keep up to date with them. Does the department need to do more new things or existing things better?

Mr Wilson: On the skills front it certainly needs to carry forward the agenda of its predecessor DIUS which was very much about simplifying, clarifying and explaining the skills system. Everybody in the skills world, employers and unions, entirely agrees that it is far too complicated and a big part of the new department is to carry forward DIUS's strategy of explaining, simplifying and clarifying. To that extent I think it is important that it carries on doing that. We are not looking for any great new initiatives on that front because most employers and many unions would react with horror to yet another agency, set of initials or new quango.

Q34 Chairman: I believe the Learning and Skills Council is to be replaced by two quangos.

Mr Wilson: That was well in train and understood. There is a clear rationale for that. Most people accept where that is going. It has caused a lot of difficulty, but that has been coped with reasonably well.

Q35 Chairman: My local FE college gave me a list of 80 acronyms that its governors had to cope with routinely, never mind the minor ones. That is quite an amusing and horrifying list. Are you content with the departmental structure? Do you think it will work? Is it fitting together appropriately? Do you have any comments to make about the break-up of DIUS it having only just been created? One interesting change is that BERR was not a spending department; now it is a department with a huge budget, so it is quite a big change in the constitution of the department.

Mr Wilson: Indeed, and in part that answers the critics who say that in some sense the world of skills and higher and further education will play second fiddle to the old DTI-type agenda. The very fact that such a large amount of funding is coming into the new department will in a sense answer that because it will be such a big, important and clear part of the business strategy, quite rightly, that it is impossible in any reasonable scenario for the previous DTI-type issues to obscure and outweigh FE, HE and skills issues. Does the department have the right structure? Broadly, yes. If you look at the allocation of ministerial responsibilities it is a big department but they clearly make sense. You can see the logic and rationale. We will need to be pretty vigilant to make sure it works. We shall be pressing ministers to make sure that they carry on the agenda that the previous secretary of state of DIUS set out which we supported. More fundamentally, if we are heading for a knowledge economy clearly it makes sense to have an economy that is about knowledge and that must involve some way of welding together much more closely and purposefully the world of skills and learning that generate knowledge and the world of business. To quote Baroness Warwick of Undercliffe's words earlier, we are giving it a fair wind but we want to watch it pretty critically. It looks as if it could work.

Mr Lent: One enormous challenge for the department is the issue of co-ordination. We have the document New Industry, New Jobs.

Q36 Chairman: I think it is called "NINJO".

Mr Lent: I avoided that particular acronym. That document not just refocuses the Department for Business's work on the more activist strand but talks about doing it for the whole of government so that every department understands and appreciates how the policies it sets and implements contributes to ensuring that government is doing everything it can to restructure the British economy so it gets back to growth and the creation of jobs. That is a huge job. It requires not just changing mindsets but ensuring that once they are changed they all work together. Investigating exactly how that will be done and co-ordinated is a crucial matter.

Q37 Chairman: I was going to ask a question about ministerial responsibilities and you have answered that. You have answered that; you are content with the structure. One of my questions you have half-answered. As Julie Kirkbride put to our first witnesses, what are the big opportunities and threats that this new organisation implies?

Mr Wilson: The big opportunity is to weld together knowledge and the economy and more actively to ensure that skills and learning - higher and further education - are absolutely at the centre of the economy, particularly the future economy, that we need to rebuild it to emerge from the recession. To take one example, everyone acknowledges that green skills are important for the greening of the economy and to make it more carbon efficient and environmentally aware. A whole set of skills issues goes with that. This new structure provides a good opportunity to make sure that those new skills are at the heart of that kind of economic business thinking. All of that is the positive part of it. The danger is that the whole department is almost too big and unwieldy and people begin to lose sight of those opportunities for more joined-up thinking, but in a sense that is a danger you have with any big department. It depends very much on having efficient delivery and we shall be watching it to make sure it does deliver.

Q38 Chairman: This department used to have energy policy and it coped very well. There are compelling reasons for creating the new department, but it is used to having big responsibilities and big ticket items.

Mr Lent: There are two key dangers on which we shall be keeping an eye. DIUS is being merged with BERR and there is a very strong argument for doing that. There was also potentially an argument for talking about merging part of DIUS with DWP because we must not forget that we are in the midst of a very serious employment crisis. Clearly, there are some very significant active labour market strategies being put in place to deal with that. We would want to ensure that whilst skills are being integrated with a medium and longer-term vision for the economy there is also a lot of reskilling and potential retraining work to be done with those who are currently unemployed or who face redundancy. Therefore, to integrate those two aspects and ensure that business and work and pensions work together very closely is important and must not be lost sight of. The department also has responsibility for issues to do with certain rights at work and vulnerable and secure work. The TUC is aware that a lot of people in the UK economy get a very raw deal at work and their situation contributes to poverty, deprivation, social fragmentation etc. We would not want that side of the department's work to be lost sight of in the rush, quite rightly, to establish a new model to help the British economy grow and become competitive over the next two to three decades.

Q39 Chairman: What about the risk I foresee? Technically, the department has primacy over the Treasury in the hierarchy of the Cabinet. The Treasury can be a very jealous beast, to say the least. The last time we had a department doing something similar was the Department for Economic Affairs under George Brown. At that time the Treasury did not like that animal at all. Is there any capacity for back-stabbing given the departmental tensions that will exist? I do not refer to the Chancellor because I do not personalise it.

Mr Lent: In the current context we have certainly picked up that the degree of government policy shift towards a more active state is a difficult one to handle. There are lots of people working in government who have worked under a very different model and way of thinking about the economy. We would like to think that the Treasury as much as the business department recognise the need to rethink broad macro-economic approaches and take a much more active role. It was pleasing to see that one of the earlier documents to emerge about an industrial activist approach was a joint BERR/Treasury publication, so clearly there has been some work done together. To avoid that tension it is extremely important to make certain that officials in the Treasury are thinking along the same lines as the officials in the business and enterprise department.

Q40 Chairman: You smiled when I asked the question and gave a very optimistic answer.

Mr Lent: I smiled because I thought about exactly the same analogy with George Brown, but it is as much about personalities as departments. The current Chancellor is extremely diplomatic and works in close co-ordination with others.

Q41 Chairman: To what extent does the success of the department ride on having a very strong and powerful secretary of state which it certainly has at present?

Mr Lent: It is very important that it has a powerful secretary of state. There is a big job of co‑ordination to be done across the whole of government and that can be led only by a secretary of state with significant weight to do that.

Q42 Chairman: His skills are almost unique in that regard. We have to go back possibly to Michael Heseltine in the previous Conservative administration to find a similar figure. Apart from that, it is quite challenging to find someone of that kind of status, is it not?

Mr Lent: Yes. He seems to have the ability to move things on and change things rapidly which we certainly welcomed when he took over the business and enterprise department.

Q43 Lembit Öpik: I observe in parenthesis that it is always dangerous to build a department round a person because when that individual moves on it can be in trouble. In that context will combining higher and further education with business in a single department help the UK to recover from the economic downturn more quickly, which is what Lord Mandelson says?

Mr Wilson: I think it could. To take HE and FE first, there is clear logic in welding them together much more closely. If you look at Scotland and Wales they have already done that in terms of their administration and funding arrangements. In England there is now much closer working between what was the LSE and will become the Skills Funding Agency and HE, and there are all sorts of cross-over things like foundation degrees and access programmes that help to move people from FE to HE. Most other countries in the world have a much less sharp distinction between the equivalent bodies dealing with FE and HE. Therefore, to bring them together is good. To bring that combined body into business is also good provided it works out in practice and people can maximise the synergies and make it all work in practice. To take an example in the field of research, there is big concern about whether university pure research will be squashed, ignored or in some sense sidelined. We do not see it that way. It is a little like advertising: half of it may be wasted but we do not know which half. I am not saying that half of university research is wasted, but the whole point of blue sky research is that at least half of it will end up having a useful, practical application. The same applies to FE. A lot of FE's focus is on community engagement, bringing people into education and giving them a second chance by providing training for migrants, ESOL training and so on. An awful lot of that may look as if it has a non-business purpose because it has a community and social function but it has an equally strong business focus because it helps people to get back into the world of work. A lot of these debates about the supposed distinctions and differences between the world of FE and HE and the world of business are a little mythical. Increasingly, they are part of the same sort of debate and are working very closely together, as they should be.

Q44 Lembit Öpik: You have touched on my concerns about pure research. I remember the 1980s when I was in student politics. We used to march up and down Westminster calling for an end to the binary divide which has not ended. Do you think Lord Mandelson and the education sector are serious at finally ending the prejudicial disadvantage faced by further education as a result of the infamous binary divide?

Mr Wilson: There were two binary divides: one was between the old polytechnics and universities and the other was between FE and HE. Certainly, the binary divide with regard to the old polytechnics - what are now called the new universities and the old universities - has largely but not entirely gone, so that is to their credit. As to the divide between FE and HE, there is still an awful lot of work to be done. Student support in FE is negligible compared with what it should be and certainly compared with HE, but there are moves afoot to tackle that. The new department which brings them closer together in the context of what makes sense to business in the broadest sense is a good framework within which to do that.

Q45 Lembit Öpik: If you had just one recommendation to make to this Committee and to Lord Mandelson about how to remove the unhelpful prejudice that formerly existed against FE and for HE what would it be?

Mr Wilson: What the Committee could usefully do would be to call for a review to report back within 12 months to look at the allocation of funding, in particular student support, as between FE and HE and make recommendations.

Q46 Mr Clapham: Obviously, FE is terrifically important in regenerating the older industrial areas, but could the focus of the new department do more for regenerating older industrial areas, for example mine? We are into generational unemployment. Despite all the skills training that has been available there are no jobs. One has to shift the focus. For example, how do you see the department bringing jobs to some of the older industrial areas? Can it be done?

Mr Wilson: If you take apprenticeships as an example in that area, DIUS was pushing very hard and had challenging targets to double the number from 200,000 to 400,000. I suspect that one of the difficulties faced by DIUS lay in persuading colleagues in other departments to take it equally seriously. Once it is central to the new department and it has all the levers of procurement at its disposal in constituencies like yours there will be tremendous opportunities for apprenticeships to offer real hope to people who otherwise would be languishing on the dole for years. Provided you can encourage enough employers and support, explain and do the training that employers need with FE colleges those kinds of apprenticeships will provide a way forward. The fact that it is now centrally in a department that has much more clout, has all the procurement levers and is at the heart of government can only help.

Q47 Mr Clapham: It is fine to have the training but people go through various modes of training schemes and find there are no jobs. I am talking about an older industrial area that probably has a working and unemployed population of 18,000. That does not apply just in my area but in older industrial areas of the North generally. That is a real issue that the department must tackle. Do you feel that in tackling it it must work with the RDAs? The RDAs are a very important instrument in dealing with issues experienced by the older industrial areas.

Mr Wilson: We think the regional development agencies are crucial regional organs and, if anything, need more support and funding. So far all the signs are that the new department supports that kind of regional agenda and agrees very much that RDAs have a strong role to play. I take the point that RDAs need to do much more to reach out to small businesses, but many of the good ones are. I think that the awareness of SMEs of the kind of support they can get now from RDAs is better than it was. Welding together the regional and skills infrastructure and putting that at the heart of regeneration of the economy is the great potential for this department. One hopes that it can do something for areas like yours which need a lot of help.

Q48 Mr Binley: You touched on the importance of Lord Mandelson to the department and felt that his drive was a very significant part of the outcome in terms of its success or failure. He is a character of contrasts; there is good and bad and rough and smooth; most importantly, there is spin and reality and that has become a bit mixed up. This is a man who not only runs a department of this size but also seemingly runs the government's propaganda efforts and business is very suspicious. What would you advise Lord Mandelson to do to eradicate that suspicion?

Mr Lent: I can tell you only about our experience in the TUC. The relationship with DTI and BERR for a long time had been a difficult one. DTI and BERR were seen as the absolute bastion of the free market approach to the economy which to a certain extent we argued against. When Lord Mandelson took over our view was that he was the architect of New Labour and it would be more of the same. In speeches he began to make quite clear sounds to us that he was thinking of shifting policy. While we welcomed it there was at the back of our minds the question whether this was talk or there would be something really substantive behind it. We did remain sceptical. I have to say that we have been pleasantly surprised that he meant what he said and he has radically shifted the approach of the department and wider government and begun to put real policy change and resources behind that approach. If our experience is anything to go by, the way you impress business that this is not just spin is by showing that what you say is backed up by policy change, real implementation of that policy and resources. In the end that is what has kept us on board and impressed us.

Q49 Mr Wright: Everybody tends to agree that in the short time it has been in existence the new department seems to be a sound move. Do you believe there is concern that the employment and training issues will be squeezed between the business and higher education issues?

Mr Wilson: I do not. In a sense, it is a false dichotomy. A survey reported just recently that in this recession unlike previous ones businesses were keeping their training expenditure pretty high. What it shows is that increasingly people recognise that training is central to business and the two go hand in hand. It takes us back to the "knowledge economy" point. You cannot survive in today's economy, let alone tomorrow's, unless you train and retrain. In a sense that is an answer to that concern. I understand the concern that somehow training will be squeezed by what was previously seen as the traditional approach to business. The whole point of the new department is to show that the exact opposite is taking place and that training is central to today's and tomorrow's business.

Q50 Mr Wright: Looking at the budgets for instance, for the Learning and Skills Council it is in excess of £11 billion and on the employment side ACAS has £44 million. That will be a drop in a very big ocean in terms of employment issues. Is there not a concern within the TUC that that may well be a side issue within a huge department in terms of employment issues rather than the need to get out of this recession by reskilling and giving companies opportunities continually to train and increase apprenticeships?

Mr Wilson: We have argued strongly for more funding for ACAS. ACAS is an interesting example because it is itself increasing its training role, particularly training around employment rights, conflict resolution and that sort of thing. That helps to imbed it, if you like, within the new framework and if anything will preserve and extend the kind of positive role that ACAS can perform not just in resolving disputes but preventing them in the first place. To that extent it makes a lot of sense for ACAS and organisations like it which are concerned with employment rights to be part of the new department. You are right that we need to remain absolutely vigilant to ensure that the fact it has become a relatively small part of the new department does not in any way detract from its importance.

Q51 Mr Oaten: Is all of this discussion a bit of a waste of time? Are you not slightly frustrated that having had this restructuring there will be a general election not far off and it will all be up in the air again? At a time when there are so many important issues to grapple with does it not trouble you?

Mr Lent: In terms of institutional restructuring within government it is always a frustration for anyone engaging with government that departments are shifted round. It is also a frustration that ministers are moved around so quickly. That is the way it works and you take it in your stride. In terms of the broader policy direction I think there is an emerging consensus across the parties. I noted particularly in a recent speech by Mr George Osborne that appeared to take on many of the approaches of industrial activism and even started to talk about the sorts of funding mechanisms that might be used to try to allow a more active role in infrastructure, for example. It is not wasted in that regard. Many of these themes will continue. The economy has changed and reliance on rising asset wealth and financial services to drive the economy will not be an option probably for many years. The logic is clear: we must shift to a different type of approach to generate growth and in those periods of significant restructuring the state must take a bit more of an active role to shift the economy in the right direction.

Q52 Chairman: We are trying to use this session to shape our approach to next week's meeting with Lord Mandelson but more generally the Committee's new role for the six months until the general election. Is there any particular subject that you think this Committee should spend its time on as far as concerns the TUC? You do not have to answer it now; if you wish you can write to us later.

Mr Wilson: Perhaps we can do that.

Mr Lent: One issue on which I have touched is what we call vulnerable workers, that large group of people who really have not benefited at all from the growth and affluence generated in the UK over the past 11 to 12 years. The recession and crash and all the problems it has created give us an opportunity to step back a little and think about what sort of economy we want coming out of the recession. One thing we do not want is an economy where affluence for the majority is bought at the expense of the minority. If this Committee is to look at anything in terms of key issues for the election I suggest it considers what we do about that group that has not benefited from globalisation but has suffered severely and how we ensure that over the next 10 or 20 years we integrate them into the economy more generally.

Mr Binley: I welcome that comment. Perhaps you can send us some material on that topic as well fairly quickly. I know you have loads of it but if you could distil it for us that would be very helpful. We have to direct our questions next week in that way, quite frankly.

Chairman: This is often described as a Labour-dominated committee with a Conservative chairman. Perhaps I may pay tribute to the unions during this recession for the very pragmatic way they have handled the issues that confront the country. One of the reasons you find the department easier to deal with is that you yourselves have changed, which is very encouraging. Thank you very much.


Witness: Mr Richard Lambert, Director-General, CBI, gave evidence.

Q53 Chairman: Mr Lambert, normally I ask witnesses to describe who they are but that is perhaps unnecessary this morning, unless you want to do so.

Mr Lambert: I am Richard Lambert, Director-General of the CBI.

Q54 Chairman: I believe you were here for much of the previous session with the TUC. We overran slightly with Universities UK. For your benefit, I think it is fair to summarise the witnesses so far as being content with the new department. That comes as a pleasant surprise to me. Admittedly, we have heard only from surrogates for bigger sectors. As Mr Binley would point out very forcefully, the CBI cannot speak for the whole business sector, only its members. Therefore, you speak as a surrogate. There are many people we could have asked, but what is your judgment of the overall business sector's reaction to the new department?

Mr Lambert: I think it is broadly content, to use your words. There is a sense of a strengthened department and there is some logic in putting together most of these components: innovation, research budgets, regulation, we hope, and business. There is more uncertainty within the university community who are also our members as to exactly how it will play, but broadly speaking people are content with the structure and the proof is in the pudding. It has a lot of things to prove in the near future. I also believe that in the community that I represent there is some sense that governments are too keen to mess around with the machinery of government and this can be counter-productive and expensive and lead to delays. For example, I think everybody would recognise that in the first year DIUS was set up not much happened and then it cranked into action and closed down. This is not a sensible way to run it.

Q55 Chairman: As to some of the problems, you mentioned DIUS. The agreed funding for the Department for Children, Schools and Families is not a problem on this occasion because its funding stream just comes across to the new department.

Mr Lambert: Yes, but it must still manage a cross-cutting budget with the DCFS.

Q56 Chairman: Presumably, the same officials will do that, will they not?

Mr Lambert: They will, but the problem will still be there. They will have to manage their relationships well with other departments.

Q57 Chairman: There is an argument for the creation of one spending and one tax-raising department and leaving it at that because everything is related to everything else, which is the trouble. For example, the business community has said to me that consistently its biggest concern is not regulation, strangely enough. Although that has been a very high concern skills is always the number one issue for them; and transport is often a major issue. Do you feel that this is the right package of responsibilities given the fact that it is already a big department for anyone to manage? Are there things that you would like to see there instead?

Mr Lambert: You can overstate the importance of playing around with the machinery of government. DBERR in its previous iteration spelt out in its interesting paper on industrial activism the importance of bringing different departments of state to bear on particular problems, whether it is developing low carbon products and services or whatever. Those problems will be there however you structure it. I think it is a good idea to try to develop a strong economics department. There have been attempts made to do that over the past 50 years all of which have been crushed by the Treasury sooner or later, so we will see if that is the case here.

Q58 Chairman: That was a point I made to the previous witnesses in less graphic terms.

Mr Lambert: But there is a strong secretary of state in charge right now. In all departments a lot depends on the political weight of the secretary of state. Were there to be a less powerful figure around maybe we would not be so content.

Q59 Chairman: That means that in six months' time the department may change again. I do not make a judgment about the political outcome of the election, but it is quite possible that Lord Mandelson will move on to something else.

Mr Lambert: Yes. Moving the pieces around is fun but in the end it does not make much difference to the workings of the economy.

Q60 Chairman: But if you do not have a strong leader of the department it may be necessary to move the pieces again.

Mr Lambert: I think the better thing is to have a strong leader. In politics what happens very often is that institutions are designed to fit government ministers rather than the other way round. That would be all right if government ministers stayed around for a bit, but they rapidly move on. Therefore, the institution that was structured for the individual might not be appropriate any longer. You need a strong secretary of state in a department of business, just as you need a strong personality in the Treasury, for example. You would not break up the Treasury.

Q61 Lembit Öpik: From my business background it seems to me absolutely insane to design government around individuals because that is not strategic but tactical. I resist the temptation to go further with that just now. Maybe a political concern is that the expenditure will be directed towards what is politically expedient. For example, if education becomes scandalised through its under-funding money will be put in that direction; if the recession deepens then money will flow from education and into business. How do you stop that kind of expediency influencing the long-term strategic planning that you as a business person would prefer?

Mr Lambert: I think that problem arises whatever structure you have for the machinery of government. Under pressure tactical financial considerations take over. I do not think it makes a huge amount of difference whether they are all under one or different roofs. Certainly some of our constituents would welcome a greater degree of certainty than they have now about the financial pressures they will face in the next few years. I was not here for the evidence given by the universities, but I am aware that a lot of them have a strong sense that public funding of higher education will be squeezed in the years ahead. They are completely in the dark about what form that will take and therefore they are making decisions now to cut their budgets in a state of considerable uncertainty. That cannot be a sensible way to go about things.

Q62 Lembit Öpik: Would you recommend to Lord Mandelson a five or 10-year plan that would give each part of the department, or at least the institutions that are dependent on funding by that department, a greater degree of certainty about where they are likely to end up?

Mr Lambert: I do not know about five or 10-year plans, but a clearer approach to spending over the cycle of the comprehensive spending review would be a very welcome step.

Q63 Lembit Öpik: You would prefer to have that comprehensive spending review now rather than wait for the expediency of the general election?

Mr Lambert: Yes, I would. I think that over the next year quite a lot of important decisions must be made on our economy and social structures and it would be a good idea to know the framework in which those decisions were being taken.

Q64 Mr Binley: You heard my question to the TUC about a strong leader and the fact that he is doing two jobs. You touched on the fact that one of them is to direct overall government presentation of attitude, policy and so forth. I intimated that business felt that was a dangerous thing.

Mr Lambert: I was not here when you asked that question.

Q65 Mr Binley: In that case let me put the question to you. My concern about a strong leader who also is running government presentational policy is that it appears to have created suspicion in the business sector. Your remarks appear to suggest that there is some element of that from your perspective. Is that true, or am I looking for meaning that is not in your words?

Mr Lambert: If I may say so, I think that on this occasion you are. I did not mean to imply that. It is more a question of the uncertainty about the broad direction of public finances over the next few years than a particular reflection on the secretary of state, and it is not intended to be.

Q66 Miss Kirkbride: The inference to draw from what you have said is that it would have been better had there not been this rearrangement of the deckchairs. It is about having a big personality and wanting a big department rather than it being motivated by the need for change anyway. We all know that there must be a general election by next May. We have a department that has struggled to implement some of its policies already with regard to assistance programmes tied to the automotive and other sectors. We have the experience of DECC which is a newly-created department that has taken months to begin to get its act together. The question is: what can really be the justification for this change? What possible added value can be provided in doing it? Why not leave it as it is and get on with the more important task of doing what you have already said you will do?

Mr Lambert: Because I am an optimist I think we should be saying that here is a department that brings together important parts of the economy and social infrastructure. There is value in having innovation, business and science under one roof. Science was under the same roof only a couple of years ago. Let us make it work.

Q67 Miss Kirkbride: That illustrates the "deckchairs" point, does it not?

Mr Lambert: My sense is that if you are to move the furniture have a think about it before you do so.

Q68 Mr Bailey: One issue that arises time and time again when I talk to local businesses, particularly SMEs in my constituency, is the gulf between academia and industrial needs. I know that this is a big issue to which you are always referring. We have introduced all sorts of government policies designed to bridge that gap. My concern is that if we are to change that the anti-manufacturing industry mindset that still exists within the academic system needs to be changed by influencing young people quite early on. Now business and higher education are together. I instinctively feel that this will go some way to address the issue, but it will not necessarily deal with the fundamental problem of culture that by the time they get to higher education they will already have a mindset that is not necessarily constructive in terms of what manufacturing industry needs. Working within your departmental structure how do you think one can influence other departments to overcome that problem?

Mr Lambert: That is a very powerful challenge. There has been a great deal of change in the relationship between industry and universities over the past 10 or 15 years and for that I give credit to government policy. Various initiatives like the Higher Education Innovation Fund designed to build bridges have worked. In the past few weeks I have visited the University of Wales Institute and seen amazing stuff going on with SMEs. In Sheffield there is a manufacturing centre and one is being built in Nottingham. There is real traction going on and there has been a big change. The universities are much more outward-looking. Small and medium-size enterprises still need more help in finding the front door and some of that is going on. Advantage West Midlands has a voucher scheme which SMEs can pick up. They get £3,000 worth of free consultation. Clever things are going on in this area and there is more to be done. You are right to say that the challenge particularly in the manufacturing sector starts earlier than that, maybe even in the primary school. There are various schemes under way which intend to make businesses more engaged with the primary and secondary school system and we strongly support and endorse that. That must also be a two-way stream: teachers must be willing to allow that to happen. But the biggest challenge is the perception that somehow industry is oily rags and brown coveralls. That is still a problem.

Q69 Mr Bailey: From your business perspective do you think that the disproportionate size of the budget for industry and academia means that the traditional priorities of academia rather than the emerging priorities of business will prevail?

Mr Lambert: If you look at the total size of the budgets, the academic budgets are rightfully vastly greater than those for the relevant business stuff. HE/FE funding is well under £200 million a year whereas the research budgets run into many billions. Business is an important stakeholder of higher education but by no means the only one and it would do a great disservice to the country if, for example, it was decided that curiosity-driven research was for the birds and it should all be focused on the applied end. The balance must be got right. You can argue now whether you could tilt the balance a bit more towards the applied end, but we have to go on doing great research in every discipline, not least because nobody has a clue what ideas over a long period will turn into commercial products. For more reasons than that, it is worth doing it; it is a public good.

Q70 Mr Bailey: Within the budgets just how much flexibility do you think there should be? From a business perspective how comfortable would you be with a high degree of flexibility?

Mr Lambert: Within the business and enterprise department budget?

Q71 Mr Bailey: Yes.

Mr Lambert: It is important that research councils' budgets are pretty focused. It would be a bad thing if somebody said there was a problem somewhere else and a few hundred millions were taken out of the research councils' budgets. Consistency and certainty to build the long-term scientific strengths of the country are very important and should not be messed around with. Again, to the credit of this government it has not done that.

Q72 Mr Clapham: We know that the universities do not seem to have an easy fit with the new department and yet with innovation they are so important to industry.

Mr Lambert: Yes.

Q73 Mr Clapham: Some academics suggest that the attitudes of business date from the 1970s and to some degree that is a hindrance to the engagement between industry and higher education. Do you believe that the universities being in the new department will be able to bridge that difference in attitude to the benefit of the UK?

Mr Lambert: I hope so. If you look back, they were in DIUS where they were floating around; before that they were in the Department for Education and were very much a poor relation. The budgets and politics were all in primary and secondary education and universities were pretty much an after thought. It is not as though there was a kind of golden age. It is really important that they should keep their autonomy but be within the structure. As an organisation we shall publish at the beginning of September of this year the results of a project we have done with a number of vice-chancellors and business people over the past year. Rick Trainor who was here is on that group. We hope that that will be a constructive part of the debate. It must be a two-way stream; it is not enough for business to say that universities should be doing this or that.

Q74 Mr Clapham: Presumably, when it is published MPs or this Committee will be circulated.

Mr Lambert: We will make sure you are.

Q75 Roger Berry: I am very conscious of the fact that businesses are concerned not only about decisions of this department but those of the Bank of England in terms of interest rate policy and those of the Treasury on fiscal policy and so on. In terms of the importance attached to this department from a business point of view what is your experience? Over the years I have read CBI briefs on interest rate policy and what the Treasury and this Committee should do. From the point of view of business where are the most important decisions made? How important is the work of this department to furthering the aspirations of business in comparison with, say, the Treasury or Bank of England?

Mr Lambert: We think it is very important that there should be a voice at the Cabinet table speaking for the economy and for business. We are strong supporters of that structure. Around that it seems sensible to have some of the levers of government that make that work. For example, in the discussion about industrial activism it is clear that the department will have to co-operate more than it has before and so on. Business strongly feels that the independence of the Bank of England has brought a degree of stability to monetary policy that was not there before. If you think of previous recessions and what happened to interest rates and inflation, they were in double digits in the early 1990s. The Treasury makes decisions about tax and spending that are critical for business output. I would say that in terms of "crunchy" policy the Treasury and to a slightly lesser degree the Bank of England are the key decision-makers, but in terms of shaping the overall strategy and thinking about what sort of economy we want and what its components should be in 10 years' time a strong department of business is also an important part of it.

Q76 Roger Berry: What do you believe are the major difficulties for the department given that the macro-economic environment is determined essentially by the Treasury and Bank of England? What kinds of problems does that create for the department? Its strategies, action plans and so on cannot be drawn up in the abstract and never are. What are the major difficulties that you see for the department given that so much of the responsibility for the economic environment clearly rests with both the Bank of England and the Treasury?

Mr Lambert: The answer changes with the economic cycle in a sense. A problem right now is the continuing pressure on our manufacturing industry including large swathes of manufacturers who in normal times are productive and very competitive. The challenge for the department with very limited resources is to think what if anything it should be doing about it. It is also the case that, for what I believe to be sensible reasons, all the political parties are now thinking about a rather more strategic approach to industrial policy than we have had in past years. To get that right requires a depth of experience and knowledge and the ability to make economically rational priorities which are of a high order. That will be really challenging.

Q77 Chairman: Is it right that you are broadly happy about the structure of the new department and there are no technical issues about the way it is fitting together?

Mr Lambert: Yes. It seems to have rather a lot of ministers.

Q78 Chairman: That was to be my next question. Is the ministerial team, not the individuals, appropriately structured to deliver the outcomes you want from the department?

Mr Lambert: I do not feel qualified to answer that. There just seem to be an awful lot of them and I do not know what they do.

Q79 Chairman: We are to lose one quite soon: Stephen Carter is to go. In my view it is difficult to see which ministerial responsibility you can shed without imposing too heavy a burden on anyone.

Mr Lambert: To be honest, I have not considered that.

Q80 Chairman: There are lots of nuances in this. One interesting matter is that trade policy was shared with DFID and suddenly it is not. Do you have a comment on that?

Mr Lambert: Is it not shared with DFID?

Q81 Chairman: No. Gareth Thomas has retreated to DFID and trade policy is now in the hands of Mervyn Davies with no links with DFID, so it is a side issue in this reshuffle. I thought it was rather a good, innovative idea and it has just been dropped without any explanation.

Mr Lambert: I am ashamed to say that I was not aware of that.

Q82 Chairman: So, you have no view on it?

Mr Lambert: I do. DFID's role is important in trade discussions but when that department took a lead on it the business community was concerned that that might mean the economics of trade were not being given the weight we would want them to be given. I do not think it turned out like that, but that was a concern.

Q83 Chairman: It was a concern I shared but in reality it did not emerge.

Mr Lambert: But the trade brief now is very important. One sees changes going on in the world. I believe that the new Indian Minister for Commerce visited you last week. He is talking a different language from his predecessor. There is now strong reason to push hard in the next trade round and I hope that the new department will play its part.

Q84 Chairman: What should be the top two or three priorities of the new department? If you were the secretary of state what would you put at the top of your agenda?

Mr Lambert: In terms of policy issues?

Q85 Chairman: Of all the policies of this huge department where would you devote your time if you were running it?

Mr Lambert: Trade would be one and under that I would scoop up the G20 follow-ups insofar as they affect economic matters. I think that is terrifically important. I was interested in Mr Binley's question to the TUC about vulnerable workers. There is a real set of challenges there. Whether or not they are for this department I am not sure. The agenda for industrial activism needs legs. We are at an interesting phase of the debate but it is important to develop some action points and people will be thinking about that. I would ask myself what was happening on regulation. That seems to have moved backwards over the past few months. I do not believe William Charlton is being replaced yet. The regulatory budgets were dropped. We know that in recessions when government ministers do not have any cash they regulate instead. I would want to know what is going on there.

Q86 Chairman: What do you think is the big gain or opportunity from this big restructuring - it is almost implicit in your previous answer - and what is the big risk?

Mr Lambert: The big potential gain is having a powerful economics ministry with a big science budget, a responsibility for innovation and the capacity to manage the university system in a way that represents both its public good responsibilities and engagement with the economy. Linking all of that together with a business focus is potentially a big gain and we must all hope that that happens. The risk is that the glue does not hold. It was suggested that maybe the priorities would be skewed by current economic pressures and people would regard it as a temporary arrangement. I think I am right in saying that Mr Willetts is still shadowing DIUS.

Chairman: I think my party has not decided how to respond to the restructuring and it is keeping the current structures in place.

Q87 Lembit Öpik: Without trying to lead you into a party-political observation, how disruptive is it to you and your members when departments are changed? What would you like to see happen over the next 10 years? I do not want to draw you into manifesto commitments at the next election. Is it difficult when everything keeps changing? Would you like to see consistency?

Mr Lambert: What you lose when things change is momentum. It is up to us as a business advocacy group to find the right people, talk to them and try to be coherent and sensible, but my relatively brief experience has been that when departments change it takes time to get the momentum going again. You have to get computer systems to work and reappraise the political priorities. There are a number of things where we do not have time, for example the climate change agenda and the public finances. The risk is losing momentum.

Q88 Mr Binley: Do you feel that business input into the department is effective? Is it fair and balanced? How could it be improved bearing in mind the importance of the wealth-producing sector especially over the next five or six years putting out green shoots, carrying them forward and so forth?

Mr Lambert: In my time in this job, which is three years, both ministers and civil servants have been very interested to hear what we have to say. They have not always taken notice of it but they do not take decisions without knowing what the business community feels. You really cannot ask for much more than that. They are all very busy but where possible they like to get out and about and see businesses around the country. I very much welcome that and I believe it works pretty well.

Q89 Chairman: You have very kindly come here today and to my pleasant surprise confirmed the evidence given by the two previous sets of witnesses that the major interest groups to be affected by the new department are broadly content with its creation and structure. That in itself is a very important finding. Is there anything else you would like to say to the Committee about the priorities that we should attach to scrutinising the new department or otherwise in conclusion?

Mr Lambert: Not really. If you forgive the cliché, in a sense the proof will be in the pudding. There is a framework that can bring benefit. If I may say so, your responsibility will be to kick the tyres and make sure that things are moving in that direction.

Chairman: Thank you very much. We shall do that with Lord Mandelson next week.