House of COMMONS






The Work of the Department FOR BUSINESS, INNOVATION & SKILLS IN THE Current Crisis



Tuesday 7 July 2009


Evidence heard in Public Questions 90 - 221





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Oral Evidence

Taken before the Business and Enterprise Committee

on Tuesday 7 July 2009

Members present

Peter Luff, in the Chair

Mr Adrian Bailey

Mr Brian Binley

Mr Michael Clapham

Mr Lindsay Hoyle

Miss Julie Kirkbride

Lembit Öpik

Mr Anthony Wright


Witnesses: Rt Hon Lord Mandelson, a Member of the House of Lords, Secretary of State, and Rt Hon Pat McFadden MP, Minister of State, Department for Business, Innovation and Skills, gave evidence.

Q90 Chairman: We are off! I do not know how we should address you, by the way. As you are the First Secretary of State, presumably we are now the First Committee; so we are very flattered by that. Thank you very much! When we met last, we discussed at some length the accountability of Lords ministers to the Commons. We see that it is catching. A second secretary of state is now in the Lords, Lord Adonis, for transport. Have you had any more thoughts? You were quite encouraging last time about making yourself more accountable directly to the Commons; so we are very grateful to you for coming again today before this Committee. Is it a contagion that is spreading and that we need to take action to address?

Lord Mandelson: The contagion of having secretaries of state in the Lords? I do not think that it could be described as a contagion so much as horses for courses. I think that in the case of Lord Adonis you have in him not only somebody who is clearly very enthusiastic about all forms of transport and has taken his enthusiasm to the country, but is mobilising all his intellect and other resources to produce some first-rate policies.

Q91 Chairman: I do not doubt that for the second, but it is the accountability question we are testing.

Lord Mandelson: He is accountable to Parliament, just as I am. The question in my view is not so much where you come from as who you are answering to. We are answering to Parliament through the second Chamber, through the Lords Chamber. My deputy here and other ministers report to the Commons Chamber; so you have multiple doses of accountability.

Chairman: We will not get too obsessed with the theme, but we are delighted that Pat McFadden now sits in the Cabinet. It is very good news; we congratulate you on that and we are very pleased indeed about that. We have a series of specific issues we want to raise with you today, and I repeat our gratitude to you for coming.

Q92 Mr Hoyle: We are the Commons and, in fairness, when you were in the Commons, Peter, quite rightly, I do not ever remember you jumping up and down and saying, "We ought to have the secretary of state in the Lords". In fact, we had no secretaries of state in the Lords. The danger is that one was bad enough; two is becoming unacceptable. I just hope that there will be no more announcements that will allow for more secretaries of state in the Lords. As much as you say they are accountable, they are not accountable in the Chamber of the House of Commons on a day of questions.

Lord Mandelson: I will pass your views on to the Prime Minister.

Mr Hoyle: Marvellous! I thought that I would speak to the main one.

Chairman: We have got quite a series of things that we want to get through today, and I will ask Julie Kirkbride to ask you a topical question right at the top of the session.

Q93 Miss Kirkbride: You referred the Rover report to the Serious Fraud Office yesterday, so we understand that you are limited in what you can say; but I wonder what your feelings are on the length of time it took. It has been four years. Certainly in my part of the world, where I represent a great number of Rover workers, they have been very frustrated by the hugely long period of time it has taken to look into this investigation, and of course the consequent cost of £16 million, which they also think is a bit on the high side, let us say, for that kind of investigation. Do you intend to look at this and see whether in future reports of this nature you can exercise more control over the length of time that they are taking and focus them a little better?

Lord Mandelson: It is difficult to limit either the time that inspectors believe they need or to cap the resources available to them. Were I to do that - or any other secretary of state - I am sure you would be amongst the first to jump in and say we are trying to muzzle these inspectors or we are trying to blunt their inquiry. It seems to me that, once you embark on an inquiry of this sort, you have no alternative but to let it take its course. However, as I have said in public already, I am disappointed it has taken so long and cost so much, and I hope that those who are responsible for future such inquiries will be mindful of the impatience people have and the value for taxpayers' money that is involved. Having said that, the inspectors, who are independent and therefore they must conduct the inquiry in the way that they see fit, had a complex task on their hands. The story of Rover from the time that the so-called "Phoenix Four" purchased it from BMW in 2000 has not been easy to unravel. It involved around 30 different companies in quite a complicated group structure and there were various professional advisers to the different companies, all of whom had to be interviewed. So I have some sympathy for them, but limited because, as I have already said, it is ideal in these circumstances to have a thorough inquiry but one that perhaps takes a little less time and costs a little less.

Q94 Miss Kirkbride: No doubt we would very strongly agree with you there, but do you think that, as secretary of state in your department, you could exercise, for future inquiries, a bit more management? To give them an expected timescale and, if that is not achievable, then at least to answer for themselves as to why it is taking so long? Otherwise, it is a blank cheque that the public is writing for the fees of the individuals involved. They are exercising their own management on this.

Lord Mandelson: That is true, but these inspectors are masters of their own procedure. I cannot, having appointed them, then tell them how to do their job. We can encourage them certainly, but not at the expense of their accuracy, their thoroughness or their fairness.

Q95 Miss Kirkbride: I am told that there are statutory powers in the Liquidators Act that you might be able to look at. I am sorry, in the Inquiries Act.

Lord Mandelson: I am not becoming a liquidator! Where we can give some guidance in future cases, we will.

Q96 Chairman: Under statute, you cannot publish the report in part, we are told, which is a shame - because there are bound to be large sections of the report which do not impact on the Serious Fraud Office investigation. Is there no mechanism by which you could share with the House and the public and indeed, most important, the workers who have lost their jobs at MG Rover, some of the wider conclusions from the Companies Act report you have received?

Lord Mandelson: I do not think that we will have to wait that long to publish the report in its entirety ---

Q97 Chairman: What is "not that long"?

Lord Mandelson: ...judging by the indication given by the Director of the SFO, who has already set up a team of four people to examine the report. I understand it normally takes about 20 days to carry out this examination; it can take longer in complex cases. Of course, the advantage for the SFO is that a lot of the ground-clearing, the establishing of facts, the analysis, is there. Judging by the Director of the SFO's remarks, therefore, I do not think we will have to wait that long; but, as he has emphasised, it has to be impartially reviewed by his team; it has to be done fairly and scrupulously - and that is right. We will therefore let him and his team do their job and then it will be possible to publish it. I do not really feel there is much controversy about this, to be perfectly honest.

Q98 Miss Kirkbride: So within 20 days, even if they decide then to launch a prosecution, if a prosecution is launched will it still be published?

Lord Mandelson: I said actually that they would reach a conclusion in 20 days. I suppose that they will then, depending on the outcome of their examination, advise me what they want done with the report. I would hope that it would be possible to publish it before too long, but of course you have to be guided by legal advisers. My instinct straightaway was to publish the report, and indeed that was my initial decision. Subsequently, I was given legal advice within the Department that it should be referred to and examined by the SFO, and I agreed for that to happen.

Q99 Chairman: We understand that, but Julie's question is a very important one. If the SFO decides to proceed with a prosecution, will the report be able to be published?

Lord Mandelson: I will be guided by the SFO on that. Obviously we cannot prejudice any prosecution and therefore I will be guided by the SFO. I would hope - and I emphasise "hope" - that it would be possible to publish the report as quickly as humanly, legally possible to do that.

Q100 Miss Kirkbride: If the advice is that it cannot be while a prosecution is pending, will your Department look into decoupling the trust fund issue, so that at least former Rover workers can access that trust fund, rather than have to wait for what could then be a very expensive trial, given the nature of these complicated things?

Mr McFadden: It is not our Department that have, if you like, coupled the trust issue. It is not us who have ---

Q101 Miss Kirkbride: But can you help to sort it out?

Mr McFadden: ...issued rules and guidance on that. That is a decision for the trustees; it is not a decision for the Department; so it is not our decision as to what happens to those funds. To go back to what we were talking about a minute ago, there is a wider important point here. Precisely because this inquiry has taken so long and precisely because it has cost so much, that is why we should take care not to do something late in the day, because everybody understandably wants to see it published if that is possible, if we had legal advice or advice to the contrary. It is precisely because of the issues that you are raising, which I agree are shared in the region, that we have to make sure that we get this right.

Chairman: I think that is probably enough on Rover.

Q102 Mr Hoyle: Two quick points. Obviously if it is possible - and I understand that it is subject to legal advice - will you try to make sure that it is done before the recess? The danger is that 20 days will take us beyond the recess and I think that, in fairness, after £16 million being spent, it is only right that Parliament should receive that report before we go into recess. The second point is this. Has anything been learned by the amount of time - and quite rightly it has taken time and cost a lot of money? Would it have been possible - and I do not know, I just ask this for the future - for the Serious Fraud Office to have been brought in sooner rather than right at the end? They could have been working hand in hand with the investigation. It is just a question I leave open to you.

Lord Mandelson: I think that is very difficult because, in doing so, you would be at risk of pre-empting or anticipating the final report and the conclusions that the inspectors reach. We do not want to do that. Nor do we want it to take an indefinite time without being satisfied that in this case either the facts have been properly established, and/or justice is being seen to be done, and/or the proceeds from the trust fund that was originally set up can be distributed as soon as possible. But I can absolutely assure you there is no question at all of this report being put into the long grass; it has been put onto a pretty closely mown lawn. I would therefore hope to see the final stages of this expedited as soon as possible.

Q103 Chairman: That is helpful and thank you for that. Can we move to the new Department itself, which I think took us all a bit by surprise a few weeks ago? I have to say that we took evidence last week from Universities UK, TUC and CBI, and they were quite supportive of the new structure - in fact, very supportive. Just persuade me that it is not a Department built around one man's leadership - your leadership - but actually the Department is built around a strategy that makes sense intrinsically and is likely to survive any change of Government. I do not mean a party change of Government; I mean a change of Government after the election of any party.

Lord Mandelson: I think that any future Government will see the sense of bringing these responsibilities and areas of policy together under one roof and putting the different levers of policy together in the hands of one set of ministers, because they all interrelate. The aim of the Department is very simple: to help the UK, our business, and working people to excel and thrive in the future world economy. In creating this Department, we have brought together, we have aligned the Government's approach to policies that will sharpen our competitiveness. It is about investing in knowledge - its creation, its application, its commercialisation - and I think that is a very good summary for the Department's role.

Q104 Chairman: What specific comfort can you give the universities that their particular needs will be met, aside from where they relate to business?

Lord Mandelson: Judging by the meetings I have had - and I have had more meetings with more vice-chancellors and principals than I would ever have imagined my doing in such a short space of time - and very interesting and rewarding they have been too because they are a first-class set of people, organising a set of world-class universities in our country, which, together with an excellent further education system, is delivering the skills that people need in order to generate and give access to the widest possible knowledge in our society, as well as opportunities for lifelong learning; and that is essential to our economic performance and our future competitiveness. Whenever I meet businesspeople and business leaders, as I do every single week, almost always, when I ask them their priorities and what they are looking to Government for, it is to organise skills, skills and skills.

Q105 Chairman: And a second priority is transport, for example. Putting everything together in one big department ---

Lord Mandelson: I have never met businesspeople who have said that their second priority is transport.

Q106 Chairman: I have.

Lord Mandelson: Although they do want infrastructure; they want modern infrastructure and they want shorter planning periods to which this infrastructure is subjected in getting it right - which is why it is so important to keep on the statute book the Government's legislation concerning planning.

Q107 Chairman: The point is you can look me in the eye and say that this Department makes intrinsic structural sense and a new Prime Minister, of whatever political party, will be well advised to keep the new structure in place, irrespective of personalities? It is not a Department build around your own personal ambition?

Lord Mandelson: No, it is a Department which is built around knowledge: knowledge for its own sake; knowledge as the foundation for our competitiveness, our character, our confidence as a nation. I have found not one single vice-chancellor or principal who has said to me, "We want in our university work to have nothing to do with the economy" or "nothing to do with business". Not one has said that.

Q108 Chairman: No, quite the opposite.

Lord Mandelson: Quite the opposite.

Q109 Chairman: I agree.

Lord Mandelson: Which is why I think that they are rather warmer, frankly, to this change in the machinery of government than some newspapers initially suggested - but that will not be a first.

Q110 Lembit Öpik: I hope I am not intruding on other people's questions, but it is just on the question of pure research versus applied research. I would have imagined that universities might be concerned that, in a period of economic pressure as we are in now, there would be a temptation to go away from pure research or to incentivise universities to become a research addendum to industry. How do you protect the pure research elements of great universities like Bristol, who can obviously do the applied stuff as well but would probably not want to be put under pressure to compromise their pure research in the process?

Lord Mandelson: By respecting both and making sure that you do, and that the one is not undertaken at the expense of the other; by ring-fencing the science budget and maintaining the dual system of support which we operate in this country for financing and administering research. I made clear in the first speech that I made at Aston University that this would be the case.

Q111 Mr Binley: I have always admired your great ability to get your message over in the press. From the opposite side of the table, but I have always admired it. Therefore I am a little concerned about your role, and I think a lot of people out there do not really understand what your role is. You have the biggest department in Government and yet you seem to be taking a sizable, major, directional role in the Cabinet itself. I refer to the comments with regard to Mr Woodward. For instance, are they purely paper talk or is your message getting through in the way that you would normally want it to?

Lord Mandelson: I am not quite sure what you are talking about, but ---

Q112 Mr Binley: I can enlighten you.

Lord Mandelson: ...every member of the Cabinet has a collective responsibility for the Government's policies and performance as a whole. That is the definition of cabinet government as we operate it in this country. As Secretary of State for Business, Innovation and Skills, I have said before that 80% of my time is taken up with departmental duties and responsibilities, and that is how I like it. You could say that 20% - but this is not 20% every day or necessarily every week - involves a wider and collective responsibility that I have in the Government as First Secretary of State. That role is about supporting the Prime Minister and the Government as a whole in the execution of their duties. I am not the first Cabinet member to be playing that role. I think the first such was Rab Butler for Harold Macmillan, and there have been a number since - mainly, but not exclusively, Conservatives.

Q113 Mr Binley: I understand that and I am grateful for your answer. I am still not sure about the message that is given out when we read reports of sizable rows, asking Mr Woodward to leave the meeting and all of that. Is it purely frivolous?

Lord Mandelson: It is not only frivolous; it is also trivial and gossip masquerading as journalism. I do not recognise any of these accounts.

Q114 Mr Binley: That clears it up for a lot of people.

Lord Mandelson: They are a complete fiction.

Q115 Mr Binley: My final question is about your comment that "The worst is over, so we can keep on spending".

Lord Mandelson: I do not think that is quite what ---

Q116 Mr Binley: Is that a frivolous comment too? It is just a headline that I am quoting.

Lord Mandelson: It is probably in the Daily Mail.

Q117 Mr Binley: You saw that it was in the Daily Mail.

Lord Mandelson: It is not, is it?

Q118 Chairman: Absolutely right!

Lord Mandelson: I could not see the newspaper in question through the stenographer, but I guessed right!

Q119 Mr Binley: Let me press this, because only in June 40,000 staff at BA were asked to work for a month free. I do not understand how those two statements line up, and it is an important matter for people out there.

Lord Mandelson: People do say that the worst is behind us, in the sense that the deterioration in the economy, of demand, of orders, has reached its furthest point and that in the course of the coming months - and it will be months, let me tell you - we will see things picking up; but we will only see things picking up if we maintain the Government's current policies. If we were to abandon our policies, if we were to abandon our spending and investment in the economy, then we would quickly see our recovery being reversed; the depth of the recession would be greater; it would be prolonged; very many more people would become unemployed and many more homeowners would come under extreme pressure. If you take the construction industry for example, I would offer it as my view that it is public spending in investment that is keeping the construction industry alive and in work at the moment. If you were to pull the plug on the Government's current spending and investment, the unemployment would soar, businesses would fail, and the economy would be seriously set back; which is why, of course, the last thing Britain needs is the adoption of Conservative party policies.

Chairman: I am sorry that partisan note has entered the proceedings. That was a shame. We were being so splendidly bipartisan, but never mind!

Q120 Miss Kirkbride: You are right to say, Lord Mandelson, that the rate of decline has reduced; so can you tell us in what month we will get positive growth?

Lord Mandelson: No, I am not going to give you an economic weather forecast. All I would say is that if we continue the Government's current policies, we will have a much greater chance of getting out of this recession quicker, easier and sooner than we would otherwise do.

Q121 Miss Kirkbride: You are not working up what the Chancellor told us in the Budget then?

Lord Mandelson: I am not going to give you a weather forecast or a prediction on growth. I have already said publicly, as I did last week in the Mansion House, that the Chancellor's forecasts made at the time of the Budget remain. To me, they look like the best indication that we have of when growth is going to pick up and the economy to improve and, should the Chancellor have a different view, I am sure he will ---

Q122 Miss Kirkbride: Tell us?

Lord Mandelson: ... be telling you.

Q123 Chairman: I was intrigued by your exchange with Brian Binley earlier. You used the parallel of Rab Butler. Of course, the other one might be Margaret Thatcher and Willie Whitelaw. She famously remarked that "every Prime Minister needs a Willie". So you are this Prime Minister's "Willie" - is that your role?

Lord Mandelson: I am tempted to extend the metaphor, but decorum....!

Chairman: I think we had better move on to Mick Clapham.

Q124 Mr Clapham: It is obviously a very large Department. How do you plan to co-ordinate work across that Department to ensure that no area of policy is neglected?

Lord Mandelson: I am fortunate to have an absolutely first-rate ministerial team. Pat, who deputises for me both in the Commons and in the Department, is a considerable support in apportioning different responsibilities across the ministerial team. We have on the departmental website a list of ministers, who is responsible for what and who does what, and I am finding it working pretty well so far, and I trust it will continue. The ministers are very conscientious. They do have a considerable burden, I am not pretending otherwise, but they are also very hardworking people, and I believe that we will be able to carry this load. However, Parliament and then the public will be our judge, which is why accountability to this Committee, amongst others, is so important.

Q125 Mr Clapham: Given that there are a good number of ministers who are in the other House and given that there are so many ministers in the Department - eleven ---

Lord Mandelson: We do share one or two, you will have noticed. I do not have them all full time.

Q126 Mr Clapham: Is it possible to develop a kind of innovative mechanism that will ensure that it is more effective in the way that it works?

Lord Mandelson: Pat can comment on this himself, but I think that as long as everyone is shouldering their fair share of the workload, that they are communicating with each other well - and we have ministerial meetings, all of us, every week - as long as they are doing their boxes at night and taking their decisions properly and rapidly, the business can be dispatched well. I have always attached a premium to ministers doing their homework at night and delivering their boxes done by the morning; but we also are fortunate to have first-rate civil servants in our Department. They are wonderful advisers; they are wonderful submitters of policies; and they are brilliant in executing ministerial decisions. I know that is the case across Government; I just wanted to emphasise that I feel in our Department we are especially fortunate with the service that we receive from our officials. Pat, do you want to add anything?

Mr McFadden: I do not think that we have been able to identify specific areas where there has been a problem with co-ordination, in the way that you might ask about. In fact, I think you can argue the opposite. For example, when we published the Building Britain's Future document last week, one of the proposals in there was for an innovation fund. Putting that together was probably easier in the current structure that we have than it might otherwise have been; because we were able to draw on the expertise of, for example, Lord Drayson, the science minister, pulling together other departments, to put together a fund that identified a market gap in investing in young start-up companies, who are doing a brilliant job creatively but where sometimes Britain has had a problem with those brilliant creative ideas actually coming to market. I am not sure that we have areas where there has been a problem with things falling between stools; but actually, by bringing the two things together, we might be able to make sure that the whole is greater than the sum of the two parts in the previous departments. That is one example where that is the case; there might be others in the future.

Q127 Mr Clapham: Turning to trade, there used to be a minister who was shared between BIS and DfID. Why do you feel it is no longer necessary to have that minister doing that kind of work? It also relates of course to the Cabinet committee that was chaired by the Secretary of State for DfID.

Lord Mandelson: You are right, but the co-ordination between DfID and BIS is very strong, and between Douglas Alexander and myself. Gareth Thomas, who was the shared minister, is now needed full time in DfID, due to the changes that were made, but we have in Lord Davies, Mervyn Davies, a Minister for Trade, Investment and Business who has huge experience of international trade, given his international banking background. There seem to be very few people at levels of influence and decision-making in most countries with which we do trade whom he does not know - and thank goodness for it. It is a real boost for the country to have him there working as he does in the Department, and I think that this Committee will see him shortly. He has taken on trade policy as well as trade promotion and investment and, in doing that, he will be working closely with DfID as well as his other partner department, which is the Foreign Office.

Q128 Mr Clapham: Therefore, even though we see that the DfID-BERR Trade Policy Unit is no longer going to be active as such, do you feel that that work will still be undertaken?

Lord Mandelson: No, it is only the ministerial level that has been adjusted. The Joint Policy Unit continues.

Q129 Mr Clapham: That is what I was going to come to.

Lord Mandelson: Yes. I am sorry, I should have made that clear.

Mr McFadden: The other thing to say about these machinery of government changes is that this is not the first time it has happened. We have had many precedents over the years, where the Government has adjusted its departmental structure for various reasons. We used to have a separate Department of Energy. For a time that came into what was the DTI, then BERR. Now it sits with climate change, and I think that we would agree that is probably the right place to have energy at this time. If you go back ten or 20 years, however, it would not have looked like that. We used to have a separate Department of Employment, and so on. Over the years, there have been machinery of government changes. It is quite right that we examine them and say, "Is this the right idea?", but they will go on happening in the future.

Lord Mandelson: The illustrations that Pat was offering up, of course, were related to the years of Conservative government. In a sense, therefore, it is nothing new or that has started afresh since 1997.

Q130 Mr Clapham: I heard what you said in reply to the Chairman at the beginning. Thinking about a department the size of BIS, you obviously need somebody with drive, with understanding, with outlook. What would happen to the Department if, for example, you were to leave for other pastures?

Lord Mandelson: I am not anticipating an early departure from Government.

Q131 Chairman: You have not in the past either.

Lord Mandelson: I have been there and done that. I think we will stay where we are this time!

Q132 Mr Clapham: So you feel that the Department is substantial enough and co-ordinated enough to be able to ensure its dual ability, despite a change, should there be a change?

Lord Mandelson: I really do think so. It does take energy and drive but there are plenty of other members of the Cabinet, and no doubt some outside it too, who have energy and drive and could offer the same leadership to the Department. I am not pretending that it is a walk in the park; it is not. It involves a lot of hard work. However, I feel very ably supported both by the ministers in the Department and by the civil servants. It is something I feel passionately about. As Secretary of State, I really want the Department as a whole to make a difference: both a difference to our ability to get through this recession but, equally importantly, if not more so, to put in place the conditions for our future industrial and economic success. It is why we produced the framework policy document in April, New Industry, New Jobs, which has been welcomed right across the economy. There is not a single industrial sector that has not said that our approach makes sense. Implementing it and making a success of it is very important to me.

Q133 Mr Clapham: Could I ask one final question with regard to the structure? Half of your ministers are in the other place. Given that that is the situation, do you feel that there will be a need to devise a system for greater accountability to the Commons?

Lord Mandelson: We touched on that, did we not, right at the beginning? I floated the idea that perhaps Cabinet ministers in the Lords could answer questions in the Commons, but that idea was not readily embraced by anyone and ---

Q134 Chairman: You made some suggestions which your Government subsequently rejected. It was rejected by the Leader of the House.

Lord Mandelson: I think they would feel that it might encourage the trend of having Lords Cabinet members, and she did not think that that would be welcome to the Commons. It was also suggested by some that if a Lords Secretary of State was answering questions in the Commons, it might be seen as a discourtesy to the Lords. It is not easy. However, I find that not only do we have excellent Commons ministers, and a number of them answering for the Department in the Commons but, of course, I have an opportunity such as the one I am enjoying today, of answering your questions on behalf of the rest of your colleagues in the Commons.

Q135 Lembit Öpik: I have a short process point. It seems to me that you need a big team, because oftentimes the economic or business problems that present themselves are very pressing. Often people come to Members of Parliament at the last stage, when they are really on the ropes. Is there a methodology that you can think of where your Department can turn things round much faster than the Government normally can, because you need to operate at the speed of business rather than the speed of the sometimes rather slow-moving political systems, which may be fine for generating legislation but they are not good for problem-busting?

Lord Mandelson: I think that we are pretty fleet of foot in BIS. We have, as you know, a telephone hotline for Members of Parliament to use - and they do use it, phoning up and alerting us to problems or dangers for businesses in their constituencies, or relations with banks for example, where we have been particularly active. I think that we have put good arrangements in place, therefore. I think that we are fairly responsive. I certainly have not had a complaint yet that we have simply overlooked or been asleep on the case. I cannot think of a single instance where that has arisen.

Mr McFadden: We were conscious at the beginning of the recession that the job description of the Department was changing. That is why we set up this particular telephone line, with the unit there to help MPs right across the House. We wrote to every MP about that when it was set up. You are right to say that sometimes, by the time a business goes to their MP with a problem with their bank or with their creditors, or whatever kind of problem it is, it is often late in the day. We cannot, in setting up this unit, say that we can suddenly step in as a kind of economic fire brigade and put out every fire. That is not possible. What we have been able to do in a number of instances, however, is perhaps to broker a discussion between that business and its banks; perhaps get the banks to take a second look at a particular decision. We cannot step in and make banking decisions for them; that has to be done on a proper commercial basis. However, this unit has been very active in helping MPs who have approached us on behalf of businesses that have run into trouble because of the recession. It is not something that always existed in the Department; it is something we specifically set up because of the tough economic times we have been going through. It was done pretty quickly. It is not a huge resource for the Department. It is a few, very good people who are active on the phone, responding to MPs. That is one instance where I think we have moved quite quickly to respond to concerns coming from MPs.

Q136 Chairman: Before we turn to the next group of questions on the Royal Mail, one last question on structure. There have been a lot of innovations from Government on alternative structure, which have not lasted very long. Mick talked about the trade minister share with DTI, then BERR, which went. There was the establishment of DIUS two years ago with a great fanfare of trumpets. It has now gone. We now have DBIS. One of the innovations that I thought was a really good idea - and I am generally against shared ministers - was Stephen Carter doing the Digital Britain work. Stephen showed great expertise in that work. He has announced his intention of retiring from the Government shortly - I do not know exactly when. The implementation of Digital Britain will be as important as getting to the report itself; so who will take forward the implementation of Digital Britain?

Lord Mandelson: I could not agree with you more in your judgment of Stephen Carter, Lord Carter. He has been an absolutely first-rate minister. He has been a pioneer. His diligence, his attention to detail, is a model for us all. He did say when he took up the task, however, that he would do it for a year. It has been a year, but a year well spent. He has left a tremendous legacy, as well as a hefty manual of what needs to be done and followed up from his report, and that will be undertaken by ministers when he leaves - in my Department and in DCMS.

Q137 Chairman: Will a minister of a certain seniority drive it forward? There is speculation that it will be delegated quite a long way down the tree in both departments, and that would be unhelpful. Digital Britain is a really important issue. At what level will it be taken forward within the departments?

Lord Mandelson: It will be taken forward with aplomb and ability.

Q138 Chairman: So you are taking personal responsibility then? Seriously, there is speculation that it could be delegated down to quite junior parliamentary secretaries. That would not be appropriate. They are all very busy and it is an important issue.

Lord Mandelson: Let me give you a straight answer. The continuation and implementation of this work will be in very safe hands, but I cannot pre-empt what the Prime Minister decides. It is a matter for him ---

Q139 Chairman: You are quite close to him these days.

Lord Mandelson: ...but I can assure you that my strong advice will be to put this responsibility into very capable hands in BIS.

Q140 Chairman: We will hold you to that, and the next time we have you we will test it out. Let us move to the Royal Mail Group. First of all, briefly, our report on post offices which came out this morning. It is the report that you effectively asked for as a Department. We were happy to do that. Sadly, because it contains so little criticism of the Government, it has had little notice from the media this morning.

Lord Mandelson: I am sorry about that.

Q141 Chairman: Unlike our previous report, which rather upset you, Secretary of State, for which I apologise - or, no, I do not at all actually!

Lord Mandelson: It takes more than that to upset me. You call that "upset"? You should see what I am like when I am upset!

Q142 Chairman: I am very glad that I have not seen it! One technical question, because I think that some of my colleagues want to ask some more political questions. The Postal Services Bill, which apparently now lies in limbo - I am not entirely sure of its exact status or what the intentions are - contains some very important regulatory changes, bringing Postcomm within the remit of Ofcom, which this Committee supported. It is a very important change. It sounds a bit technical to the outside world, but we now have a regulatory vacuum created where neither organisation knows where it is going. It is really important that the regulatory changes are brought forward. They are not part of the financial package in the same sense as I can see that the pension deficit, capital, and part-privatisation were. I can understand your wanting to link those. Regulatory change stands apart and separate and is crucial for the health of the system now; so what is going to happen to the regulatory environment?

Lord Mandelson: Could I first of all say that I welcome the Committee's report that you have issued today. Thank you for undertaking this work. We asked you to do it and you have done it very thoroughly, and we will consider your recommendations in detail. I certainly agree with the Committee that identifying new opportunities and ways of doing business are key to ensuring a long-term positive future for the Post Office. I lead a cross-Whitehall group to ensure that the Government is fully joined up in securing these changes and making sure that as much business as possible is put through the post offices. You are absolutely right to keep up the pressure. We have chalked up some early successes with the Department for Transport and the issuing of photographic driving licences. The Home Office want to ensure that people can apply for new biometric passports and ID cards at local Post Office branches. All this is very encouraging and we will continue to pursue ---

Q143 Chairman: I should make a public apology to HMRC. They sent rather a late letter to us with some quite constructive ideas. They did not respond in time for our report but they also came up with some ideas.

Lord Mandelson: Do you want to add anything before I turn to regulation, Pat?

Mr McFadden: Not really, other than to stress the point that it is not as though nothing has happened in the period since the Committee began work on the report, which I think was about January or February. The announcement from the Department for Transport is important, not just in terms of its own size, if you like, but as a potential platform for other things. We have spoken about this before, and one of the enormous potential areas for the Post Office network in the future is this notion of identity management. That goes through driving licences, passports and ID cards. The Post Office could secure a large part of this work potentially and it could be very important to them. I think it is important to stress that, because it is very easy for everybody to say, "The Government should give more work to the Post Office" and, through the Post Office card account contract for pensions and benefits and the Department for Transport contract, we have shown that we will do that. However, it would be wrong to think that, if we just gave the Post Office the type of work it has always done in the past, that would be enough; because, with the best will in the world, even having secured the POCA contract, probably the numbers picking up their pension at the Post Office will go down over the years.

Q144 Chairman: I do not really want to spend too long on the Post Office.

Mr McFadden: It is just to stress ---

Q145 Chairman: We agree with you.

Mr McFadden: It is your own report that I am talking about and that you were raising. The important thing is yes to the idea of having more government work, but that will have to go with the grain of how people live their lives and want to do things as well. While government work is important, it is probably one of three main areas which are critical to the Post Office's future, the other two being mail work and banking and financial services.

Q146 Chairman: We agree. The only real criticism in our report was the pressure, in Digital Britain actually, to force people online. Not to go with the grain of people's wishes but to force them into a model the Government imposes on them. It is a debate we will have on another occasion. Let us get back now to the regulatory issues on Postcomm ---

Mr McFadden: Just a moment on that. I think that we have to be careful there. When we allow people the potential to do things in either way - either do it at the post office or online - we do see interesting trends. These may be uncomfortable sometimes; but, for example, car tax online started off with half a million people a month, now over a million, half of them doing it outside normal office hours.

Q147 Chairman: We know this. Can we move on to a larger group ---

Mr McFadden: It is important. You have to give choice to people as to how they access public services.

Q148 Chairman: We have to give them choice. Let us back that as an agreement and move back to the regulatory issues on Postcomm and Ofcom. What is going to happen to Postcomm?

Lord Mandelson: Let me say first of all that I am disappointed that market conditions in the postal sector have made it impossible to conclude the process of identifying a would-be partner, a strategic minority partner, for the Royal Mail that we could be confident would give value for money to the taxpayer. There has been a general worsening of conditions, as you know, in the postal sector worldwide but certainly in Europe, where profit expectations have fallen for major European operators. However, this does not mean to say either that the need for change and modernisation of Royal Mail has gone away; it most certainly has not - indeed, with every week that passes we see the need for transformation of its business growing - nor does it mean that the Government has had second thoughts about the relevance and importance of the Hooper review's proposals to bring about that much-needed transformation. We remain entirely committed to those proposals and we would like to see them implemented when market conditions allow. Of course, the three parts of the legislation mean that, with the Bill not being proceeded with at this stage, the third part concerning regulation is stalled, as are the first two parts of the Bill. I will be discussing the Government's future regulatory approach with the board of Postcomm. I will be asking them for their views, as well as sharing the Government's views with them, given the need, as we see it, to introduce a wider communications perspective to regulation of the Royal Mail. Postcomm will continue to regulate the postal market for the time being; they will not do so in a vacuum. They have powers to carry out their function and they also have a framework of policy, of guidance, offered by the Government, and that will be ---

Q149 Chairman: I am not going to labour the point but I think that it is a very unsatisfactory situation for the individuals involved in Postcomm and for the whole mail market, both Royal Mail Group itself and its competitors; because Postcomm is deemed to have failed. That is one of the reasons that the merger is going to take place, and this Committee supports it. So now you have a failing organisation that is continuing to function in a very important market, facing huge commercial and technological challenges, and it is not linked to the other, broader political questions. I think that this is therefore a very serious matter for the Department to address.

Lord Mandelson: Postcomm itself, of course, has acknowledged that it would like to draw on Ofcom's knowledge and experience of wider communications markets, to help it develop its own regulatory strategy. I welcome that open-mindedness on Postcomm's part and I will be writing to Postcomm to give clear guidance on how I believe they should tackle regulation of the market going forward; so they will not be operating in a vacuum.

Chairman: We will agree to differ on that.

Q150 Mr Hoyle: Do we need Postcomm? If you are going to instruct them on what they need to do, why not just do it yourself then? That might be a quick way, Secretary of State, and save some money.

Lord Mandelson: They are an independent regulator, set up by statute.

Q151 Mr Hoyle: Of course, but the question is do we need them?

Lord Mandelson: That is a matter for Parliament to judge.

Chairman: It has not been given the opportunity, because you have withdrawn the legislation.

Q152 Mr Hoyle: Absolutely, and I am glad that Parliament is important again.

Lord Mandelson: Would you like us to go full steam ahead with the legislation, Mr Hoyle?

Q153 Mr Hoyle: We do know that the cost of paying the Chair of Ofcom is £200,000. I think that even you would find that excessive.

Lord Mandelson: I am not quite sure what the relevance of that point is to the Government's policy ---

Q154 Mr Hoyle: It is relevant to the cost of operating quangos.

Lord Mandelson: ...on regulation of Royal Mail, but if you are inviting me or urging me to proceed with the legislation, then obviously I will take into account what you are saying.

Q155 Mr Hoyle: The less quangos the better.

Lord Mandelson: You do not want it regulated at all?

Q156 Mr Hoyle: I did not say that.

Lord Mandelson: You just want competition to operate freely?

Q157 Mr Hoyle: Let us be honest. If you want competition, let us have competition that is equal competition that also has a universal delivery service involved for everybody who competes. You will not give us that, so the point is that you are not going to have competition. Now then, shall we move on to the next question?

Lord Mandelson: I am absolutely open to any question you wish to ask me.

Q158 Mr Hoyle: You have a view of 30% as a figure for a sell-off. We have seen the part-privatisation. Using your own analogy here, is that long grass or is it on a well-manicured bowling green at the moment?

Lord Mandelson: I do not think it is on either, actually - either the manicured or the long.

Q159 Mr Hoyle: A bit of rough, is it?

Lord Mandelson: We are in the hands of the markets here and, as markets cheer up, profits improve, and the bidding process becomes possible then, as the Government has said, we will be prepared to take this forward.

Q160 Mr Hoyle: Let us be clear. Part-privatisation is not off the agenda; it is on the agenda if somebody can turn up with a cheque.

Lord Mandelson: The Hooper review's proposals included the introduction of a strategic minority partner - I do not characterise that as part-privatisation - and the Government remains committed to that proposal.

Q161 Mr Hoyle: So whether we agree on whether it is part-privatisation or whether it is investment ---

Lord Mandelson: Not least because, of course, without that transformation of the Royal Mail, its business and its finances, which implementation of Hooper will bring about, it will not be possible for us to implement his proposals on the pension fund either.

Q162 Mr Hoyle: The pension fund is important but, just so that we are clear ---

Lord Mandelson: Very important to those who depend on it, yes.

Q163 Mr Hoyle: Very much so, and it is something that has got to be resolved. We know that, and nobody is shying away from that. Our report has been quite clear on that. Before we get sidelined or filibustered somewhere else, let us just clear up and make sure we know where we are at. What you are saying to me is part-privatisation, or a partner, whichever way you want to decide, is available if they have the cheque - that is full steam ahead again?

Lord Mandelson: They have to be the right partners, making the right offer, who in our judgment would bring about the transformation of Royal Mail's business in a way that I think everyone is agreed is desirable, offering the right degree of value for money to the taxpayer. At the moment, the conditions for achieving that do not exist.

Q164 Mr Hoyle: Have you any timescale when you think it might exist? I know you do not like weather forecasts, but I was just wondering if you could ---

Lord Mandelson: I could not predict, I am afraid. Probably if I were able to predict more precisely how the markets will change, I would be in a different job.

Q165 Mr Hoyle: Except you said - and you are pretty good at predictions - that you were not on the bowling green but you were not in the long grass ---

Lord Mandelson: That is a description of where we are now, not the future.

Q166 Mr Hoyle: So when do you get the mower out and trim the grass?

Lord Mandelson: I hope that we will be able to get out of the rough towards the velvet lawns of the bowling green as soon as possible.

Q167 Mr Hoyle: When do you think you are going to get the mower out then?

Lord Mandelson: I could not predict, I am afraid.

Q168 Mr Hoyle: Do you get the feeling that there is no will or support for it in the Commons?

Lord Mandelson: I think there is support and will in the Commons for sustaining the universal service obligation, the very important letters delivery service that people in this country and businesses rely on. Do not rely on to the same extent that they used to and in declining numbers and volumes, I am afraid, which goes to the heart of the problem. If we are going to sustain the letters delivery service, however, there is a crying need for modernisation of this business. Both management and unions have said they are up for this. Everyone says they want change; they are up for change; the status quo is not acceptable. I just wish that they would get on and do it. I wish they would find the agreement to implement this change rather than dragging the Royal Mail and the changes needed into a frustrating and never-ending, tedious process of endless negotiation, from which insufficient change follows at too slow a pace.

Q169 Mr Hoyle: If there is the will and you talk about competition - but what we are saying is that there is no competition in final delivery; that is just left with Royal Mail, because nobody wants to do that part of it and so there is no real competition - but let us go back. If there is full modernisation - as you say, everybody wishes to see modernisation, wants to see the Royal Mail progress - if there are alternatives, would you support them rather than bringing in another partner?

Mr McFadden: It is quite a big "if", is it not? This is an important point. Because the Bill is not proceeding at the moment, that does not make the need for modernisation any less urgent. Many of the issues are still there. Mail volumes are still declining. I think what we are saying is that we want to see in the months ahead is some more action behind the commitments to modernisation that we have heard from both management and union, and that will be really important for Royal Mail, regardless of what happens with the Bill.

Q170 Mr Wright: I think the modernisation is a key to all this. We talk about profitability, and we know that in recent months and years the profitability has turned around. Quite clearly the hunger is not there within Parliament for us to go down this road of semi-privatisation or a partnership approach.

Lord Mandelson: There is not a consensus in Parliament, I think it is true to say.

Q171 Mr Wright: I just do not think that the hunger is there for that. That is certainly indicated quite strongly in terms of EDMs and people that we talk to on the back benches, and even some ministers. I think that the most important thing is the modernisation. The Government made available £1.2 billion for modernisation, of which earlier this year I think there was £600 million spent. How much more have they drawn down? Have they stalled on this amount of money? That, to me, is key to the future, which may well be the future in terms of ---

Lord Mandelson: You just have to look at the pay and modernisation agreement that was made in 2007. That is just two years ago. On automation, which was a key part of that agreement, Royal Mail believes that agreement has already been given to the use of new technology, as part of that 2007 deal; but the CWU wish to renegotiate specific agreements on each new piece of agreement. Again, a negotiators' agreement has been reached twice on the arrangements for the deployment of new machines in Royal Mail, but on both occasions the wording of those negotiators' agreements has been rejected by the union's postal executive committee. Some local branches indeed are now claiming that the 2007 agreement was only for one year, and wish to go back to the old practices that predated the agreement itself in 2007 - one which, I remind you, the TUC stood guarantor over. For several months now, the CWU has instructed its representatives to refuse to agree anything through the industrial relations framework. This is why we have seen this spate of strikes, most notably called in London. Essentially this means that they are boycotting the agreed process for making change in the Royal Mail. I realise that is a very serious charge to make, but I just look at the facts and look at the behaviour, and I am afraid that any other conclusion is impossible to arrive at.

Q172 Mr Wright: Surely, in terms of the industrial relations side of things between Royal Mail and the CWU, the Government has a role to play in this in terms of trying to bring the sides together? We have made £1.2 billion available. Surely it is not beyond the realm of possibility that people can come to an agreement on this basis, to secure ---

Lord Mandelson: We have been a very generous banker to the Royal Mail. When I say "we", I mean the taxpayer has been a very generous banker.

Q173 Mr Wright: I think it is fair to say that in the 1980s to the 1990s we drew £2 billion from the Royal Mail, which was the start. In other words, this is payback as far as I am concerned, because I believe that Royal Mail was robbed of £2 billion, which has put us in this particular difficulty.

Lord Mandelson: The taxpayer needs payback for all the money that has been invested in the Royal Mail - all the loans, the loan guarantees, all the sums of money that have been put aside to shore up the pension fund. The taxpayer needs paying back now. Paying back in the form of a properly modernised, transformed business that will provide them with a service on which they can rely. I am afraid that I do not accept that it is for the Government to intervene. It is for the Royal Mail's management, its workforce and their union representatives to sort out their own future, in the way that any other business has to do in the real world. Royal Mail's response throughout has been to instruct its managers to continue to consult, absolutely in line with their agreements; to encourage input from the CWU reps and its people, and to respond to it, in order to make the changes in a measured way. I believe that has to be matched by the workforce and their union if we are going to see any progress being made.

Q174 Mr Clapham: Are you there saying that if the workforce can sort out the industrial relations problem, then you do not need a partner?

Lord Mandelson: It is not industrial relations that is the core; it is an attitude to change. Until the CWU's attitude to change changes, there will not be change in the Royal Mail. That is the bottom line of it, I am afraid.

Q175 Mr Clapham: So an attitude change would mean that you would not bring in a partner?

Lord Mandelson: Attitude to seeing that this is a business operating against competition, in a market, with technological changes which are creating a serious trend against maintaining the volumes of their business. They cannot stand still. That is a recipe simply for falling backwards further and further. Until they accept the need for change, they are not going to be able to address the problems that Royal Mail has or the need for modernisation, introduction of new technologies, machinery, different working and operating procedures, in order to turn round this business as they need to do. Until they face up to that need, we are not going to be able to get out of the problems that the business has.

Mr McFadden: Mr Chairman, can I add a word on this question about money invested that Mr Wright raised? You asked about the £1.2 billion that the Government had loaned the company a couple of years ago. In the Royal Mail accounts, the Chief Executive said, "We have already invested £800 million since 2006-07 and we will fully utilise government financing as we invest a further £2 billion in modernising the business". Those same accounts, as we know because we have been written to as MPs about this, said - and again I am quoting the Chief Executive - "Our people have delivered strong financial results. All four Group businesses are in full-year profit for the first time in two decades". So the management are saying that the company is in a healthier financial position than for some time. If that is the case, it is also down to strong backing from the Government to Royal Mail during the years that we have been in office. If that is the case, it is also all the more reason why both management and workforce must urgently proceed now with the modernisation that is required; because those lifestyle changes, about the volume of letters, are not changing. The bottom line here, above all else, is the maintenance of the universal service obligation. The overriding conclusion of the Hooper report that gave rise to the Bill was that, without modernisation, the USO itself should be under threat. If the company is saying it is in a healthy financial position and if the workforce are saying that they are up for change, then let us see some modernisation take place.

Q176 Mr Wright: It still begs the question that if the management have turned round the fortunes of the Post Office in difficult times ---

Lord Mandelson: No.

Q177 Mr Wright: ...why then do we go down this route of continuing with trying to bring in a partner, presumably other companies that have made losses - whether we are talking about Germany or other countries that have made significant losses ---

Lord Mandelson: Mr Wright, I am sorry, I have to respond.

Q178 Chairman: I know what Lembit wants to ask you. It is the same sort of question.

Lord Mandelson: I must just directly answer that. Only £58 million came from the letters business in the Royal Mail on a turnover of £6.7 billion. That is less than a 1% profit margin. The idea that the finances and fortunes of this company have been transformed I am afraid is completely illusory. What Pat has been talking about is a cushion that has been put in place by the Government, and we are not proposing to remove the cushion; but it is none the less change that we need in this company, not simply further cushioning.

Q179 Lembit Öpik: There is a lot more to be said about it, but I have one simple question. Are you saying that in principle you and the Government feel that there needs to be a private partner, or is it a judgment call? For example, one could say that it is not in principle necessary; on judgment, you could bring private business practice into a 100% publicly owned Royal Mail. So is it in principle that you feel it is necessary or is it a conclusion you have drawn on empirical evidence?

Lord Mandelson: I have looked at the analysis, evidence and argument presented by Richard Hooper. The Government has found this entirely persuasive. We introduced the legislation on that basis. We remain of that view. We will take up the Bill where it was stalled because of the unfavourable market conditions. Throughout this entire parliamentary process we have not received a single alternative idea or model that makes better sense than what Mr Hooper originally proposed.

Chairman: We could spend the rest of our time on this. I would want to disagree with you quite strongly on the last statement you made, but we do have some other areas of questioning.

Mr Hoyle: Mr Chairman, in fairness, I think it would be quite wrong if there was not a little bit of come-back, because I think that both the Secretary of State and the Minister ought to be a little more honest. We all know that Hooper had very tight guidelines in which he was allowed to look. He could not go broader, and that was the biggest problem. The fact is that 50,000 people have lost their jobs; the fact is it is making £1 million a day profit; the fact is we subsidise the competitors by £2 million per week. The other thing is that one of the companies that you talk about - you are quite right about losing volumes - has gone into the red. Where are these great people coming from? There are a lot of things that we could say.

Q180 Chairman: I am sorry, the Chair's place has authority, and we have a lot of other stuff to get through. This could take the whole of the rest of the session, and Adrian Bailey is sat there, saying nothing. I think we understand that there is a difference of view.

Mr McFadden: Can I just deal with the point about the guidelines, without going over it all again? The guidelines given to Hooper were not narrow; they were broad. The principal guideline was how to maintain the universal service. He was not directed to make his recommendations about ownership structure at all. Those were his recommendations, based on an analysis of how to maintain the universal service and the challenges facing Royal Mail. It is not as though Hooper was directed to his conclusions.

Q181 Mr Hoyle: I did not say that. I said he worked under very tight... Do not misquote me. I will not be misquoted. I said they were very tight guidelines. That is what I said. Do not misquote me, please, Pat. You are a better politician than that.

Lord Mandelson: We do not accept that view, Mr Hoyle. I think Pat has explained ---

Q182 Mr Hoyle: It is a different view from Lord Mandelson.

Lord Mandelson: I think Pat has explained why that is the case. What I would only add as a postscript is that the casualty of this is the permanent and fundamental address of the pension fund deficit in the Royal Mail. It is inconceivable, in the Government's view, that the public would simply go along with a bailout of this fund, except in the context of a transformation of the company.

Q183 Chairman: We are repeating well-worn passages here.

Lord Mandelson: It is an important point for the public and for people who depend on it. The taxpayer cannot be expected to take responsibility for a deficit if other changes in the Post Office and Royal Mail have not been addressed.

Chairman: This is a story that will run and run, quite clearly. We will move on. Adrian Bailey.

Q184 Mr Bailey: Lord Mandelson, your policy of industrial activism - not, I understand, to be confused with industrial action - as outlined first of all in your speech to the RSA in December, then in the New Opportunities White Paper in January, then in others, including New Industry, New Jobs in April of this year, is very much a New Labour approach. I quote from your original speech, "No protection of industry from international competition - because we believe that competition is in our long-term interests". All very challenging, both to business, labour and government departments and, surprisingly perhaps, TUC has expressed support for it. Are you in support of TUC concerns over discrimination against trade unionists in different sectors of business?

Lord Mandelson: Yes, we are. Are you talking about the issue of blacklisting?

Q185 Mr Bailey: Yes.

Lord Mandelson: Today we are publishing new regulations that will make it unlawful for trade union members to be denied employment through secret blacklists. We will of course consult on these, but our strong view is that blacklisting someone because they are a member of a trade union is totally unacceptable and we are determined to act quickly to stamp out this practice. Today's proposals will demonstrate how we intend to deliver this.

Q186 Mr Bailey: That is very reassuring, given the fact that this approach is fairly challenging to trade unionists, and obviously responsible and constructive trade unionism is very important in delivering it. Can I move on to government departments? I often have the feeling that, whereas your Department knows what is necessary to promote business, other departments have other priorities and do not necessarily deliver on them. What is your assessment of progress so far in, if you like, changing both the culture of different departments to be more business-sensitive and perhaps implementing specific measures that will promote flexibility in business to respond to the new global challenges that we are facing?

Lord Mandelson: There are two ways in which I would like to see government departments more responsive to business. One is in the decisions they take, the policies they introduce or the regulation that they launch, which can have unwitting impact on business. If they were to consult thoroughly and then listen to what business says to them, they might be able to take early action to avoid that impact. Secondly, government departments are responsible for huge procurement programmes. I would like to see those procurement programmes benefiting the UK supply chain even more than they are, not by excluding competition, not by saying "Only British firms need apply", but by ensuring that British firms are equipped, and properly alerted and supported in submitting tenders for public procurement; but particularly in the case of small businesses, where I believe that we can encourage innovation by those small and medium-sized enterprises if we work with them sufficiently in advance of the procurement being tendered, so that they are in a better position to compete for that business. I attach a lot of importance to this, and I am reactivating the Government's programme to promote, through our procurement policies, innovation and successful tendering by small and medium-sized businesses.

Q187 Mr Bailey: That will be music to the ears of certainly me, and perhaps may be the first thing you have said that has pleased my colleague Mr Hoyle today! This is good news. What progress is being made? I see this essentially as a medium and long-term strategy. What elements of it can actually facilitate, if you like, our emergence from the recession?

Lord Mandelson: I was just trying to refresh my memory which are the pilot departments that I have descended upon to invite them to be the frontrunners in advancing this approach. I have encountered no resistance from government departments; I think it just does not occur to them sufficiently, or sufficiently in advance when they are thinking about their procurement programmes, how this can benefit the UK supply chain. Let me give you another example of this, which arose from the dispute at the Lindsey oil refinery. In the wake of that, I set up an inquiry into how British subcontractors could compete more successfully for the work in these major infrastructure and, for example, civil nuclear bill projects - because what we were finding was that, where productivity compared unfavourably to European competitors, fewer British subcontractors and their workforces were getting this work than we would have liked. Proposals will be made and published by us shortly to address this issue. I just repeat, I do not want to eliminate competition. It is certainly no part of the Government's policy to say that European subcontractors need not apply. Of course not. All we are saying is that British companies, British subcontractors, could and should compete more successfully for this business and that is what I want to see happen.

Q188 Mr Bailey: Will there be any need for legislation?

Lord Mandelson: I do not think so, no. It is a matter more of investing in skills, encouraging innovation and making sure that British companies are in the right place at the right time, with the right skills and the right offer to get the business.

Q189 Chairman: We have four specific questions on industrial activism. My slight prejudice here is that "industrial activism" is a wonderful phrase. I think that Michael Heseltine could easily put his name to this document just as well as Lord Mandelson - but that is another matter. Let us look at what this means in practice.

Lord Mandelson: Farseeing in his approach.

Chairman: Yes.

Q190 Mr Binley: First Secretary, cash is the name of the game as you will know, particularly for SMEs. I wonder what proportion of your Department's invoices are paid within ten days.

Lord Mandelson: We are amongst the top performers.

Q191 Mr Binley: Tell me what proportion.

Mr McFadden: Well over 90%.

Lord Mandelson: Well over 90%, which is what I mean by "amongst the top performers". We are matched by many others in Government, but not all.

Mr Hoyle: That is excellent.

Q192 Mr Binley: I am delighted with your answer, because a couple of months ago it certainly was not at that level; so you have probably had an effect in that respect. Is there still more you can do?

Lord Mandelson: There is more we can do, making sure that all government departments are amongst the top performers, but also across the public sector as a whole. As you know, I wanted to see National Health Service trusts and local authorities as well as police services operating in a similar way. I have also launched, as you know, and have recruited a lot of businesses to support a prompt payment standard. Again, not as many as I would have liked but we are encouraging more to sign up and to implement that standard.

Q193 Chairman: Two specifics from me. Just over a year ago this Committee produced a report on the construction sector which contained a major recommendation which we are delighted your Department accepted - the creation of the post of a Chief Construction Officer to look into the problems this industry faces in dealing with the complexity of Government. You are still consulting on that. "Industrial activism"? Can we not have a decision on that quite soon, please?

Lord Mandelson: We released a discussion document with the Office of Government Commerce in February and an announcement will be made shortly.

Q194 Chairman: How shortly is "shortly"? Before the summer recess?

Lord Mandelson: Let us hope that "shortly" is as quickly as possible.

Q195 Chairman: "Activism" means getting things done in time as well as doing them.

Lord Mandelson: Indeed. Before breakfast, lunch and dinner.

Q196 Chairman: Absolutely right. Let us have a Chief Construction Officer before the summer recess. Another specific is on trains. If you go to Germany, there are trains made in every individual Land. We have just lost a major contract to Japan for the 125 replacements.

Lord Mandelson: No, I cannot accept that. If you do not mind, that is a very important point to pick you up on. We have not lost it to Japan. Japan is coming to Britain to construct ---

Q197 Chairman: It is a screwdriver job.

Lord Mandelson: No, I am sorry, you have no basis or foundation for making that claim. Therefore, what we are getting is not just Bombardier but Hitachi as well. You might say, "We should have gone to the people who are already here". There is an equally valid case for saying that we are going to create new productive capability in Britain through the Japanese coming here.

Q198 Chairman: I think that you are fooling yourself, Secretary of State. There is one big contract come on the track - to use the appropriate metaphor - Thameslink. If that does not come to a British manufacturer, it is the end of British rail manufacturing in this country. We will have a repair job there but not a manufacturing job.

Mr McFadden: How do you define "British manufacturing"?

Q199 Chairman: Located in the UK.

Mr McFadden: If that is the yardstick, to talk about the contract we have just been talking to, my understanding is that there are some 1,400 trains involved in this; around 70 will be produced in Japan outside the UK and then there is a factory established in the UK to produce the others. So if the definition of a British manufacturer is "located here", then surely the fact that the vast majority of the trains under this contract will be made ---

Q200 Chairman: It is an assembly plant. The bodies, all the carriages, are built in Japan, as are the key parts of the engines and bogies.

Mr McFadden: I asked you what your definition was.

Q201 Chairman: Putting stuff together over here is not a serious factory. It really is not.

Mr McFadden: If someone was located here and owned by someone else, does that disqualify them as a British manufacturer?

Q202 Mr Hoyle: Bombardier is Canadian.

Mr McFadden: Bombardier is owned by Canada. Are they disqualified? Is Bombardier no longer British?

Q203 Chairman: It is keeping key manufacturing skills in the UK that this document is about. When I asked a PQ about what discussions your Department had with Transport on these issues, the answer came back "None". That is hardly activism.

Lord Mandelson: There are proper tendering procedures ---

Q204 Chairman: Other governments seem to ---

Lord Mandelson: ...as you know, and it would not be proper for us to distort or manipulate ---

Mr McFadden: It would be hard to know which side you wanted to win on that basis.

Q205 Chairman: British manufacturing.

Lord Mandelson: With the greatest respect, I think Pat's answer leaves you in a rather uncomfortable place.

Q206 Chairman: No, I think that it leaves you and the manufacturing sector so, and it makes this document look as if it does not have teeth. That is the trouble.

Lord Mandelson: You have a valid point of view but please do not deny that there is an alternative view which is equally valid.

Chairman: I do, frankly, on this one - but that is another matter. Let us go to another sector.

Q207 Mr Hoyle: Just to touch on the trains, I think you were slightly disingenuous to the Chair. Of course, it is good that the Japanese consortium is going to establish work in the UK. The difference is that the work is not as great as if it had been won by Bombardier. That is the difference. We would have had more R&D; we would have had the ability to export from the UK; and we would have been in the fast train building. That is the only difference, I would say. Rather than fall out over it, the fact is that there were more jobs the other way than what there is in this. Can I take you on to something that is very important? We are a world leader; it is something we have backed all the way; you have done a lot already. It is the A350 and it is about launch investment. Is that going to happen? What is the Government up to, and can we make sure that that technology remains in the UK - and all the jobs that go with it?

Lord Mandelson: We have made an offer. We are negotiating with EADS/Airbus. I think that the offer we have made is proportionate to the work we can expect being undertaken in this country.

Q208 Mr Hoyle: It is very important that we do not lose that. Also, is the Welsh Assembly playing its part in putting support and finance with it? On the previous - I am trying to think which one it was - the super liner, the A380, the Welsh Assembly contributed to that. Are we in negotiations and working together to deliver, as the Welsh Assembly and this Government?

Lord Mandelson: The Welsh Assembly government is playing its part.

Q209 Mr Hoyle: With finance and not just fine words?

Lord Mandelson: Indeed.

Lembit Öpik: This is a specific point about industrial activism. I am very interested to hear what you have said about this. There is a case in point in my constituency, and I do not intend to talk about the details. It is called Regal Fare, which you will not have heard of. It loves the strategy that you have put forward about having SMEs helping to drive the recovery. The problem is exactly the one that you both cited earlier on. They cannot get, in their case RBS, to provide a very small amount of finance for them. They keep hitting brick walls where the bank says what it is pretty much obliged to say, on the basis of what the Government expects it to say, but the bank does not follow it up, for various concerns about risk aversion. The example is probably typical of thousands of situations around Britain. How can those kinds of small companies, desperate to set up, desperate to create jobs in their areas, find a breakthrough by using support from your Department? One possibility, of course, would be to merge your Department with the Treasury - and I would fully support that, because it seems to me that there has to be a relationship between you and the Treasury.

Chairman: Lembit, just a short question.

Q210 Lembit Öpik: The question would be ---

Lord Mandelson: Essentially, we need a bank being harnessed to the Department and then we would start motoring.

Q211 Lembit Öpik: I would love to see that.

Lord Mandelson: An industrial bank.

Q212 Lembit Öpik: I would fully support that. I am perhaps more Left-wing than many on the Committee! How do we do that? In principle you are right - an industrial bank. How do you get the banks to carry through exactly the strategy that I support, Regal Fare wants to see, this Committee wants to see and the country wants to see, when the banks are still not delivering their part of the deal?

Lord Mandelson: We do it in a number of ways. First of all, by saving the banks and preventing them from collapsing, as this Government did last autumn. Recapitalising them but linking our recapitalisation of the banks to lending agreements and, as you know, in the case of RBS and Lloyds we are talking about a £60 billion, £70 billion, scale of lending agreement. Lending is taking place, but what the banks will argue is that, during the sort of recession that we are now moving through, there is greater risk in lending - that has to have a commercial basis for any decision that the banks take - but there is also less demand for lending. In your case there is demand, as you describe it. The Government has introduced the Enterprise Finance Guarantee that reduces the risk, introduces a government guarantee that results in banks being more willing to back SMEs. The take-up is strong. It is proving a success. In the case of already-established, innovative companies that are capable of converting what are innovative products into world-beating successes, we have, as you know - it was announced last Monday in Building Britain's Future - established an Innovation Investment Fund. We are putting £150 million into it over a number of years. It will grow through private sector investment into a billion-pound fund that will deliver much-needed finance to fast-growing, innovative companies. For the longer term we have launched the Growth Capital Review under Christopher Rowlands, and this will determine through its investigation if government intervention is needed to ensure that adequate long-term growth capital will be available to firms as the economy improves. So we have spotted here a market gap - I would not describe it as a failure as such, but it is definitely a gap - in delivering finance for innovative, fast-growing companies; those that need longer-term growth capital than is currently available in the market; and we are addressing those needs. You have therefore put your finger on a very important issue and it is amongst the two or three most important that we are addressing.

Chairman: We are not yet the Business, Innovation and Skills Committee. That will happen in October, but Tony has some questions on higher and further education.

Q213 Mr Wright: Everything that we have talked about really leads to the beginning of innovation, which is the universities and the skills process. There is a particular problem we have heard from Universities UK. There is quite a significant shortfall in funding in terms of teaching, probably between 15 to 20%, which they believe will have an adverse effect, especially in a time of recession when probably more young people will stay on for further education and obviously into universities. How is the Department going to address that particular problem?

Lord Mandelson: I am sorry, there is a shortage of teaching skills in the HE...?

Q214 Mr Wright: No, a shortage of funding of between 15 and 20% for the teachers.

Lord Mandelson: I am sorry, FE or HE are you talking about?

Q215 Mr Wright: HE.

Lord Mandelson: I thought that our record had demonstrated that we deliver quite a good deal for teaching salaries in higher education. I was not aware of the shortfall that you describe.

Q216 Mr Wright: Some of the shortfall was actually taken from the further education budget.

Lord Mandelson: I am sorry, you are saying that a shortfall has been created as a result of a government decision?

Q217 Mr Wright: No, what I am saying is that there is a projected shortfall for a number of years. There has been an overspend within the university section and part of that overspend has been covered by taking money from the further education budget to bridge that particular gap; and it is going to create a problem in the future.

Lord Mandelson: We have, and by common consent, hugely increased the funding of higher education. That is why student numbers have grown. That is why the whole sector has expanded. It is why I find that the Government's record is pretty popular in the university sector. However, if as a result of - "mismanagement" would be too strong a word to use - misjudgements about expansion as against the available resources, some shortfall has been created, all I would say about that is that there is a need for managing resources very carefully and, secondly, there are a number of demands in the HE sector for new or additional resources, including increased student applications that we are likely to see this summer, which is something I am currently addressing.

Q218 Mr Wright: This is the underlying problem. We have all heard of the difficulties from the Learning and Skills Councils over the further education budget, the capital spend and the difficulties it has created across the country. I have colleges in my constituency that are saying quite clearly that they will not now be able to take the number of students that they want to. This is going to damage our skills base. The further education will feed students into the university system; they will skill up the UK economy. If we do not give them that opportunity, it will be a problem. I do not doubt for one minute the huge investment this Government has put into all sectors of education, but there is a particular problem at this moment in time which is having dire effects. When we talk about the skills sector, as a previous apprentice I know that, through the further education system, this is where the skills sector will be fed - in terms of the engineers of tomorrow and, through the universities, through the scientists and ---

Lord Mandelson: For years in this country further education was the Cinderella service of the education system. We have changed and reversed that, and I am very proud indeed of that. I know that there have been problems in the capital programme. We have addressed those recently in the decisions we have taken. Let us be under no illusion, however. We have hugely expanded places both in further and higher education. We rescued and expanded apprenticeships; starts plan to be over a quarter of a million this year. Of course there is more that we could do, but I just make this point to you. What marks this recession out from previous ones is that, whereas before - in the 1990s, 1980s and before - an immediate cut was made in training, a spending axe was taken to our education service, with the result that our human resources, our skill capabilities, were damaged for years after, and indeed our economic growth was set back for much longer than needed to have been the case, we have not repeated those mistakes in this recession. I am proud of that, but we are not out of the woods yet - which is why we have to maintain our policies and maintain our spending and investment, precisely to make sure that the situation that you have described is not made worse.

Mr McFadden: Perhaps I could add this in response to that. It is absolutely right to stress this, but just to say a few things that illustrate the difference between how things used to be and how they are now when it comes to skills and higher education. Years ago, the apprenticeship system was on its knees; it more or less disappeared. We have revived it. You are looking at 250,000 apprentices now. You are also looking at much greater rates of success in terms of the proportion of those who stay the course. Some two-thirds of them stay the course; it used to be far fewer than that. Then there is the in-work training for people. The training scheme budget will top a billion pounds next year, and that is a very important resource for employers who want to train people within the workplace. Then if you go to higher education, we have an extra 300,000 places in the system since 1997. All of those are important and they are all right too, because of the point you are making, which is that we cannot make the most of an industrial activism agenda unless you are also getting it right on skills and the opportunity for the workforce to take part in that. It brings us back, Mr Chairman, to where we began this discussion an hour or an hour and a half ago. It is precisely that kind of logic that led to the creation of the Department in the first place. It was both the need for an industrial activism agenda, but also this issue of, if you want the supply side, the opportunity side of this, to make sure that on skills we are doing a better job than, frankly, we used to do as a country.

Q219 Mr Wright: I do not doubt everything that is being said in terms of the numbers, the 300,000 increase, and the sterling work the Government has done in the last ten or 12 years in terms of transforming education in the country and investment. What I am suggesting is that, at this particular time, it is probably at a turning point in terms of investment within that sector and we could fall back. Obviously, in terms of the capital projects within the further education system it has been a huge blow. Not one project in my region in East Anglia has received the money from that particular budget, causing awful consternation within the further education sector. That is going to cause a problem for students who want to come through. We know where we are now; we know the investment that has gone on, and you should be applauded for that. What I am saying is that you have to understand and accept that there is a particular problem now that this sector faces, both through higher education and through further education, which is going to impact in two, three or four years' time, when students who want to go through to further education and ultimately on to higher education are being told, "Sorry, we can't do that. We haven't got the funding in place. Unfortunately you cannot do what the Government want you to do because of that". It is a problem and it is an issue that we have to face up to.

Mr McFadden: It is undoubtedly true that the capital programme ran into trouble and that has left people disappointed when they have not got funding; but you have to put this in some context. We had a further education group of colleges that were in dire need of investment. Billions have gone in. We were able to announce a week or so ago a further 13 colleges being approved for funding under certain conditions. The other point to make about this, for those who were disappointed not to be among the 13, is that this is not the end of the road. This is a programme that continues in future years; so if you were not included in the 13, it does not mean that that funding can never be made available. This does take us to something of a future choice. You are absolutely right: we do need to keep up investment in capital and in other areas in the future and, hopefully, when the election comes, we will have a choice about who is going to do that best - but perhaps that take me into a more partisan area again.

Q220 Chairman: That leads to one last question from the Chair. I would seek your assurance on one point. I accept that money is always the contentious issue in politics but organisational structures are also. You are setting up a new Skills Funding Agency. I see at least one Regional Development Agency has said it wants to take responsibility for skills at the regional level. The Skills Funding Agency is just about there now, ready to go. Will there be further serious structural change for the Skills Funding Agency at this late stage?

Lord Mandelson: No, there will not be a serious structural change to the Government's current proposals, but I think that there is an interface and an overlap between the proposed Skills Funding Agency and RDAs, and we are looking at it.

Q221 Chairman: Because the skills structure needs to be simplified, not made more complex.

Lord Mandelson: True, but we need to draw on the expertise and local knowledge of Regional Development Agencies rather than abolish them.

Chairman: As no one is advocating the abolition of Regional Development Agencies, that is a matter to which we may wish to return in October. Secretary of State, thank you very much. It has been a particularly useful and constructive exchange.