The creation of the Department for Business, Innovation and Skills and the Departmental Annual Report 2008-09 - Business, Innovation and Skills Committee Contents

2  The Department for Business, Innovation and Skills

The role and responsibilities of the new Department

5. The Department for Business, Innovation and Skills is responsible for a broad range of policy areas. The 'what we do' section[6] on the Department's new website illustrates the breadth of its remit, listing the main activities as:

  • Better Regulation:
  • BIS International;
  • Business Law;
  • Business Sectors;
  • Consumer Issues;
  • Employment Matters;
  • Enterprise and Business Support;
  • Europe;
  • Trade & Export Control;
  • Further Education;
  • Higher Education;
  • Innovation;
  • Regional Economic Development;
  • Science;
  • Shareholder Executive; and
  • Skills.

Responsibility for Further and Higher Education

6. The most significant change in the new departmental structure was the inclusion of the further and higher education sectors. They find themselves incorporated into a much larger department which also happens to be responsible for other urgent and compelling priorities, namely helping businesses survive the recession.

7. Mr Fraser noted that the Department needed to action short-term priorities: "It is of course essential that we maintain the focus on business" at the same time as "aligning a longer-term set of policies which are essential for the longer-term economic success of the country".[7] Some representatives of the higher education sector were concerned that the new Department's need to focus on businesses would lead to their own sector being sidelined. Responding to the announcement of the creation of the new Department, the General Secretary of the University and College Union (UCU)[8] stated:

    UCU is very concerned that this merger seems to signal that further and higher education are no longer considered important enough to have a department of their own. The fact they have been lumped in with business appears to be a clear signal of how the Government views colleges and universities and their main roles in this country.[9]

8. However, Universities UK[10] said that it had been reassured by Lord Mandelson that universities would be "central to the business" of the new Department, though UUK added that it would not be "complacent" about continuing to exert pressure on the Department to ensure that higher education was not neglected. [11] Furthermore, Baroness Warwick of Undercliffe, Chief Executive of Universities UK, thought that the higher education sector had the potential to benefit from being part of a "powerful" department rather than being side-lined, as UCU feared:

    It [DBIS] will have a strong place at the Cabinet table and will therefore be very influential. We hope that is something of which it will be possible for higher education to take advantage.[12]

This view was recognised by Mr Simon Fraser:

    there is a widespread view in university circles that there is advantage in being attached to or being associated with this economic department with the influence it carries in Whitehall.[13]

9. Lord Mandelson had already highlighted the vital contribution universities make to the UK and intimated that the Department has a role to play in ensuring that their work is integrated into the economy as a whole:

    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". [14]

10. This point was taken up by Mr Fraser. He emphasised the capacity of the new Department to foster more productive links between businesses and universities. In addition to the "financial advantages" to universities of coming under BIS, there were also "advantages in terms of the dialogue between universities and businesses and economic policymakers which will be beneficial to the country".[15] In particular, he specified that there would be "synergies" from "bringing business closer to the provision of skills".[16] This view was endorsed by Universities UK, which stated that "One of the strengths of this Department is that it brings the business relationship to the fore which is really important for us".[17] The TUC, when it came before the Committee on 7 July 2009, argued that there was "great potential for the new Department … to bring skills and learning more generally into that kind of business focus which is very important for the economy."[18]

11. Mr Fraser also argued that the structure of the Department could enable businesses to more successfully exploit scientific innovation. The new Department, he commented, would create "synergies" not only by aligning skills with business needs but also by "creating greater opportunities for the commercialisation of science through the Innovation Programme".[19] Mr Lambert, Director-General of the CBI, highlighted the benefits of linking science, innovation and business needs:

    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.[20]

These benefits are not without risks. Mr Lambert warned that if "the glue does not hold … maybe the priorities would be skewed by current economic pressures and people would regard it as a temporary arrangement".[21] That said, Mr Fraser was confident that the Department would be a "better delivery vehicle" than its predecessor departments. "By bringing the two together, there is more traction, if you like, behind the agenda." Looking ahead, he argued that the Department should remain in its new form not just for the sake of "stability" but more importantly because "it has logic in its structure".[22]

12. We agree with the Permanent Secretary that the Department has 'logic in its structure', with significant potential benefits to the further and higher education sector. Given the economic climate, the main challenge for the Department will be to strike the right balance between the short-term immediate priorities of helping businesses through the recession and the longer term priorities of ensuring that the higher and further education sectors are able both to flourish and to equip the future workforce with the skills that businesses need.

The Merger Process

13. There has been a significant level of concern that the Department's remit and structure had already been the subject of too much restructuring. The further education and university sectors had, in the space of two years, moved from being managed within the former Department for Education and Skills—where they were primarily linked into school education—to a new, much smaller, focused Department, DIUS, where they were associated with innovation.

14. The Innovation, Universities and Skills Committee heard that the creation of DIUS in June 2007 had already had a negative impact on policy momentum. Richard Lambert, Director-General of the CBI told the Committee that "not much happened" in DIUS's first year.[23] In December 2008, the Capability Review undertaken by the Cabinet Office on DIUS highlighted inadequacies in its management processes:

    [DIUS] needs to do more to prioritise its resources and to manage performance and risk across its new agenda. DIUS needs to assess whether its inherited delivery relationships are the right ones.[24]

15. The National Audit Office argued that one of the new Department's main challenges was to ensure that the changes initiated by DIUS in the further education and university sectors remained on track:

    [DIUS] has been managing continuing changes within itself, its bodies and the sectors in which it operates [...] Since BIS [Business, Innovation and Skills] has taken over the former responsibilities of DIUS, it is important the benefits of the change programme continue to be realised where this is appropriate and feasible.[25]

16. When asked to comment on the impact of departmental change on the smooth running of government, the Department assured us that the merger had not caused any major or lasting disruption to policy implementation. Ms Hilary Douglas, Director General for Operations and Change for BIS, commented:

    Issues that were raised for DIUS in their capability review were around the setting of strategy, strengthening the leadership of change, especially at the level just below the board, and making sure that the board was visible in driving policy and engaging with their delivery partners. Those were all issues that were very important to BERR and remain very important to BIS, so bringing together the change programme for BIS has not created huge dissonances and differences of opinion. We really have been able to bring together the experiences of both.[26]

17. Mr Fraser also noted that "DIUS was doing some extremely good work on confident policymaking, new ways of making policy, evidence based policy" and that the Department had "sought to take the best of both" its predecessor departments' experiences.[27]

18. Commenting on the merger process, Mr Fraser told the Committee that the Department had moved "as fast as it could" not only to ensure that disruption was kept to a minimum, but also because of the pressing need for the Department's agenda to be delivered:

    We established a new management system; we have established a new governance system. We are still in the process of working through some aspects of that; for example, our risk management procedures and so forth, which we are just refining now. We have appointed our non-executive board members as well. We have been able to move pretty rapidly over the summer to keep the show on the road.[28]

19. Ms Douglas gave us an insight into the costs incurred to create the merged department: the upfront-costs of the merger logged so far were £160,000. This amount, she continued, would be absorbed in the Department's current budget and would later be offset by recurrent savings from the merger arising from the removal of duplication.[29] Mr Fraser explained that while signage was an immediate cost, other costs were not so high, and that the Department would be able to realise some economies of scale. In terms of specific savings in staff costs he highlighted the fact that the new Department had made reductions of "one permanent secretary, one director general, with two further director general slots to come, plus some director level jobs, so at the top we have achieved quite a lot of integration and we have to work that through the system."[30]

20. Ms Douglas described how staff were being briefed about departmental changes:

    The Secretary of State had an all-staff meeting with video conferencing to all the different sites; we have had a conference of all the senior leadership; and we are now having events with all the middle managers across the sites.[31]

At the time the Department gave evidence to the Committee in October it was in the process of conducting its main staff survey. The Department had already conducted a mini staff survey of about 100 staff "just to get a feel on how they were reacting" and the responses had been "pretty positive".[32] Ms Douglas added that the "great majority of the staff were recognising what the objectives and the mission of the department were and were saying that they thought change was being managed well."[33] Despite the Department's confidence in its management of the change process, Mr Fraser was fully aware that "stability" remained one of the main risks facing the Department.

21. We note the Permanent Secretary's assurances that the new Department has been created with a minimum of disruption. However, any departmental restructuring has an impact, in the short term, on policy implementation, as resources are diverted to manage that change. The Permanent Secretary acknowledged that "stability" was one of the main risks facing the Department. Given the degree of departmental change experienced in the Department and its predecessor Departments in recent years, we believe that a sustained period of stability in the Department's structure would be in the interests of all policy areas in its remit.

22. Furthermore, we are encouraged by the fact that the initial costs of the merger will be met by existing budgets.

Delivery Agencies

23. The merger of BERR and DIUS resulted in the new Department being responsible for 74 delivery partners. BERR had 40 delivery partners—which included two Executive Agencies, eight Regional Development Agencies and nine Executive Non-departmental Public Bodies with bodies as diverse as Consumer Focus and Capital for Enterprise Ltd.[34] DIUS had 34 delivery partners including one Executive Agency (the National Measurement Office) and 22 Executive NDPBs which included the Higher Education Funding Council for England (HEFCE), the Learning and Skills Council (LSC) and the seven Research Councils.[35]

24. Mr Fraser described the nature of the delivery agencies to the Committee :

    They are not all delivery partners; some of them are policymakers as well. It is important to say that they are rather heterogeneous and different, so we have to look at them individually and make sure that we are establishing the right relationship with each organisation. They all have clear tasks and mandates and they have agreements with the Department which delineate their responsibilities. I do not think it is impossible to have this set of organisations operating effectively, but clearly there is a challenge, as you pointed out, in terms of coordination and financial control and management control which we have to address.[36]

25. Mr Fraser acknowledged that the number of delivery agencies was one of the risks which kept him awake at night.[37] That said, he argued that it was "too early" for him to make a judgement on whether rationalisation of delivery partners ought to be considered, and concluded that "I am focusing on making what we have work as effectively as we can".[38] Mr Fraser indicated that the delivery partners were kept informed of overall departmental strategy with regard to them. In addition to this, the Department planned to convene a second meeting of all the heads of the agencies, which would be attended by the Secretary of State. He also explained that the Department had undertaken a review which examined its relationships with all its delivery partners. The review had generated a number of recommendations which were about to be presented to the Management Board of the Department.[39]

26. Managing the Department's large number of delivery partners represents a significant risk. We welcome the Department's review of its relationships with its delivery partners. We look forward to receiving early sight of the recommendations arising out of that review and details of the Department's plans for their implementation.

PSAs and DSOs

27. BERR's Annual Report and Accounts 2008-09 showed the latest assessment against its three PSA targets[40]:

PSA 1 Raise the productivity of the UK economy (not yet assessed)

PSA 6 Deliver the conditions for business success in the UK (some progress)

PSA 7 Improve the economic performance of all English regions and reduce the gap in economic growth rates between regions (some progress)

The Department also had five Departmental Strategic Objectives covering the Department's key policy areas. They were to:

  • Promote the creation and growth of businesses and a strong enterprise economy across all regions (strong progress);
  • Ensure that all Government departments and agencies deliver better regulation for the private, public and third sectors (strong progress);
  • Deliver free and fair markets, with greater competition for businesses, consumers and employees (strong progress);
  • Ensure the reliable supply and efficient use of clean, safe and competitively priced energy (strong progress) and
  • Provide the professional support, capability and infrastructure to enable BERR's objectives and programmes to be successfully delivered (strong progress).[41]

28. DIUS's Departmental Report 2009 showed its progress against the two PSAs it led on:[42]

PSA 2 Improve the skills of the population on the way to ensuring a world-class skills base by 2020 (not yet assessed).

PSA 4 Promote world-class science and innovation in the UK (some progress).

That Department also had six DSOs (five of which were not assessed), which were:

  • To improve the skills of the population throughout their working lives to create a workforce capable of sustaining economic competitiveness, and enable individuals to thrive in the knowledge economy (not yet assessed);
  • To build social and community cohesion through improved social justice, participation and economic opportunity by raising aspirations and broadening participation, progression and achievement in learning and skills (not yet assessed);
  • To pursue global excellence, research and knowledge, promote the benefits of science and society, and deliver science, technology, engineering and mathematics skills in line with employer demand (not yet assessed);
  • To accelerate the commercial exploitation of creativity and knowledge, through innovation and research, to create wealth, grow the economy, guild successful businesses and improve quality of life (strong progress);
  • To strengthen the capacity, quality and reputation of the further and higher education systems and institutions to support national economic and social needs (not yet assessed);
  • To encourage better use of science in government, foster public service innovation, and support other government objectives which depend on DIUS expertise and remit (not yet assessed).[43]

29. Incorporating both Departments' PSAs and DSOs has resulted in the Department for Business, Innovation and Skills leading on five PSAs alongside having eleven DSOs. Mr Fraser told us the Department was not in a position to adjust the PSAs because they were cross-governmental, but he agreed that eleven DSOs were too many for a Department to manage. He explained that his Department was looking to streamline the process and intended to include new DSOs in its Autumn Performance Report.[44]

30. We look forward to considering the Department's new DSOs and indicators when they are published in the Department's Autumn Performance Report.

Future Departmental Reports and Resource Accounts

31. The DTI initially combined its Departmental Report with its Resource Accounts in its last year of existence in 2006-07 and BERR continued that practice in 2007-08 and 2008-09. BERR's Annual Report and Accounts for 2008-09 therefore has two sets of financial figures, the 'expenditure tables' and the resource accounts. The Treasury has historically requested Departments to present data on budgetary expenditure in their Departmental Reports. This data—the 'expenditure tables'—is presented in Annex 8 of the Departmental Report. It shows historic financial information from 2003-04 and also projections for the remaining years in the Spending Review. The resource accounts, which are similar to a set of company accounts and present financial information for 2008-09 are included in Chapter 5. The resource accounts have been audited by the NAO.

32. BERR's inclusion of Resource Accounts in the Departmental Report is in line with the Treasury's agenda for all Departments to publish their Departmental Reports and resource accounts together by June 2010. In its 2009 Departmental Report, DIUS presented its Resource Accounts separately from its Departmental Report. Mr Fraser told us that the Department intended next year's Departmental Report would also incorporate the Resource Accounts. That said, he acknowledged that consolidation of both BERR's and DIUS's financial accounts represented a significant challenge.[45]

33. We commend the (former BERR) Department for being one of the first to produce its resource accounts together with its Departmental Report in 2008-09 (BERR's Annual Report and Accounts 2008-09). We look forward to the new Department producing a combined Departmental Report with resource accounts for 2009-10.

6  Back

7   Q 14 Back

8   UCU is the largest trade union and professional association for academics, lecturers, trainers, researchers and academic-related staff working in further and higher education through-out the UK. Back

9   UCU website, UCU comment on new Department for Business, Innovation and Skills, 5 June 2009 Back

10   Universities UK is the representative body for the executive heads of UK universities. Back

11   HC (2008-09) 754-i, QQ 3, 29 Back

12   HC (2008-09) 754-i, Q 9 Back

13   Q 15 Back

14   HC (2008-09) 754-ii, Q 107 Back

15   Q 17 Back

16   Q 14 Back

17   HC (2008-09) 754-i, Q 13 Back

18   HC (2008-09) 754-i, Q 32 Back

19   Q 14 Back

20   HC (2008-09) 754, Q 86 Back

21   HC (2008-09) 754, Q 86 Back

22   Q 6 Back

23   HC (2008-09) 754-i, Q 54 Back

24   DIUS Capability Review: Supporting the Economy, Investing in Future Prosperity, December 2008, p 11 Back

25, para 2.21, p22 Back

26   Q 19 Back

27   Q 19 Back

28   Q 10 Back

29   Qq12-13 Back

30   Q11 Back

31   Q 22 Back

32   Q 22 Back

33   Q 22 Back

34, p 29-30 Back

35, p 37-38 Back

36   Q 35 Back

37   Q 4 Back

38   Q 37 Back

39   Q 35 Back

40   Department for Business Enterprise and Regulatory Reform, Annual Report and Accounts 2008-09, HC 447, p 20 Back

41   Department for Business Enterprise and Regulatory Reform, Annual Report and Accounts 2008-09, HC 447, p 20 Back

42   Department for Innovation Universities and Skills, Departmental Report 2009, Cm 7596, pp 28 and 38 Back

43   Department for Innovation Universities and Skills, Departmental Report 2009, Cm 7596, pp 36, 42, 44, 46 Back

44   Qq 136 and 137 Back

45   Alignment (Clear Line of Sight) Project, Cm 7567, p 5 Back

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Prepared 15 December 2009